8. Can Fund Managers publicly advertise their Funds or Syndicates?

In order to sell a Fund (or a Syndicate) a Fund Manager has to register the offer and sale of its securities. However, there are two main exemptions to this rule that are available for Fund Managers.

Under the first exemption (known as ‘Rule 506 B’) it is possible to offer shares of a Fund (or a Syndicate) without registration in the case if following conditions are met:

1. Purchasers of the shares are ‘accredited investors’ (companies with total assets of $5 mln. and individuals with a net worth of $1 mln. or annual income of $200,000); and
2. Offer of the shares is conducted without the use of general solicitation or general advertisement (articles in newspapers, media, and other public means).

This exemption also allows the sale of Fund’s (or Syndicate’s) shares to up to 35 sophisticated investors. Sophisticated investors are those who have sufficient knowledge and experience in financial and business matters to evaluate the investment, but do not have the status of ‘accredited investors’.

The second exemption (‘Rule 506 C’) allows the use of general solicitation or general advertisement. However, Fund Managers should take reasonable steps to verify that all purchasers are ‘accredited investors’ (the first exception allows investors to self-verify their status as ‘accredited’). Such steps may include reviewing bank statements, tax reports, and other documentation.

Both of these exemptions may be used by a Fund Manager only if it (or its associates) were not convicted for violation of securities law (not ‘bad actors’).

Furthermore, Fund Managers should file a special form with the SEC within 15 days after the first sale of Fund’s (or Syndicate’s) share. This form contains brief information about a Fund (or a Syndicate) and its related persons.

*It should be noted that this analysis relates to advertisement of a Fund (or a Syndicate) only to the USA investors. The rules may be different if you intend to advertise a Fund (or a Syndicate) in other jurisdictions than the USA.