United States

Annual Investment Industry Summit Convenes on Eve of JOBS Act Title II

SEC Examinations, Custody Rule Violations Accent Regulatory Discussion


Only days before the Securities and Exchange Commission (SEC) lifted its Depression-era ban on the general solicitation of private placements, a number of investment industry speakers participating in RSM’s 5th Annual Investment Industry Summit held in New York City shared some vivid insights into just what the historic change could mean for capital-seeking entrepreneurs.

The lifting of the ban was just one of a number of hot-button topics that summit attendees explored as part of an annual industry update session where different speakers delved into a breadth of regulatory subject areas such as first time SEC examinations, custody rule violations, and new rules for verifying the accreditation status of investors under the JOBS Act.

The Title II phase of the nation’s historic JOBS Act went into effect on Sept. 23, 2013, lifting the historic ban on advertising funding rounds. Or at least it does for those firms that file the regular Form D, specifying a 506(c) capital raise.

“Let’s jump right in,” remarked RSM Partner Jeffrey H. Yager as he convened the crowded session by introducing its first speaker, Ron Geffner, a partner at Sadis & Goldberg LLP, whose presentation on the JOBS Act routinely flagged the new law’s ambiguities.

Along the way, Geffner urged conference attendees to examine carefully Rule 506(c)’s new disclosure requirements, specifically those related to the verification requirements of accredited investors. In the past, most entrepreneurs would rely on investors to simply self-verify.

“With regard to determining verification steps, the SEC did not make this simple and create a nonexclusive list of methods. In other words, it’s not an A-B-C step approach,” explained Geffner, who reminded summit attendees that those funds that continue to deal with non-accredited investors would remain barred from publicly advertising.

Next, Evan Rapoport, CEO of HedgeCo Networks, served up some practical advice for investment firms when it comes to expanding their marketing and advertising plans. As just one choice from a list of proposed promotional approaches, Rapoport suggested that firms could benefit from equipping their sites with online video. The suggestion quickly led one attendee to ask whether videos would be deemed JOBS Act–compliant.

“It depends,” Rapoport explained. “If you talk about your firm or firm’s philosophy, it should not be a concern. But if you talk about your fund’s strategy or fund’s performance, then it would be important to be JOBS Act–compliant.”

The summit session soon moved on to the topic of SEC examinations, when Boris Onefater, of Constellation Investment Consulting Group, presented on the topic of first time SEC examinations.

“Anything you sort of know you shouldn’t do during an examination, we had one client go ahead and do,” recalled Onefater, who outlined an exam prep for summit attendees and ended his talk with a list of exam dos and don’ts.

Finally, RSM Partner John Hague presented on some of the so-called Custody Rule Violations that have come out of recent SEC examinations.

Hague listed the following four primary violations: failure to recognize that advisers have custody, surprise exam requirements, qualified custodian requirements and audit approach issues.

For more information, please contact a RSM professional or Jeffrey Yager, Partner, 212.372.1269