USA Law and Practice Contributed by: Scott Naidech, Basil Godellas, Olga Loy and Beth Kramer, Winston & Strawn
Offerings by US domiciled funds to non-US investors will generally be made in accordance with Regulation D. Offerings by non-US domiciled funds to non-US investors will generally be made in accordance with Regulation S under the Securities Act, which pro - vides that registration under the Securities Act is not required when the offer and sale of a security occurs outside the United States in an offshore transaction and there are no directed selling efforts in the United States with respect to such sale. U.S. Investment Company Act of 1940 (the “Investment Company Act”) The Investment Company Act regulates “investment companies”, which are broadly defined as companies that engage primarily in “investing, reinvesting, own - ing, holding or trading in securities”. To avoid being subject to the onerous requirements of operating as a registered investment company under the Investment Company Act, many alternative funds are structured to rely on certain exclusions from the definition of an investment company. Most common are Section 3 (c) (7) and Section 3 (c)(1) of the Investment Company Act. • Section 3 (c) (7) provides an exclusion for a pri - vately offered fund whose interests are beneficially owned by “qualified purchasers”. “Qualified pur - chasers” generally include (i) individuals, family- owned businesses, and trusts for family members that own USD5 million or more in “investments”; (ii) a trust (not addressed in (i)) that is not formed for the specific purpose of acquiring securities, and where the trustee or other person authorised to make decisions with respect to the trust, and each settlor or other person who has contributed assets to the trust, qualifies as a qualified pur - chaser; (iii) entities that own and invest at least USD25,000,000 in investments and that were not formed for the purpose of making the investment; and (iv) entities exclusively owned by qualified purchasers. • Section 3 (c) (1) provides an exclusion for a pri - vately offered fund whose interests are beneficially owned by not more than 100 beneficial owners (this limit is increased to 200 for certain qualify - ing venture capital funds). A fund structured under Section 3 (c) (1) must adhere to various “anti-pyra -
miding” rules that are designed to prevent circum - venting the 100-investor limit. Where a fund forms two parallel funds, one a 3 (c) (1) private investment fund with 100 or fewer non-qualified purchasers and the other a 3 (c) (7) qualified purchaser fund with an unlimited number of qualified purchasers, the two funds are not integrated for purposes of determining whether the first qualifies under the applicable exemption. U.S. Investment Advisers Act of 1940 (“Advisers Act”) See 2.3 Disclosure/Reporting Requirements and 3.3 Regulatory Regime for Managers . U.S. Commodity Exchange Act (CEA) The CEA generally governs the futures and deriva - tives markets. In the United States, securities and futures are subject to separate regulatory regimes. The U.S. Commodity Futures Trading Commission (CFTC) and U.S. National Futures Association (NFA) serve as the derivative industry’s regulatory and self- regulatory authorities. If a fund will trade any amount of exchange-traded futures contracts, options on futures contracts or swaps (collectively, “Commodity Interests”) as part of its investment strategy, for all practical purposes, the fund will fall within the defini - tion of a “commodity pool”. The operator (ie, sponsor or general partner) of a commodity pool must register with the CFTC as a commodity pool operator (CPO) and must become a member of the NFA unless it can avail itself of an exemption. The investment manag - er to a commodity pool generally must register with the CFTC as a commodity trading adviser (CTA) and become an NFA member unless it can avail itself of an exemption. These registration requirements are gen - erally subject to narrowly drawn exceptions or exclu - sions. See 2.3 Disclosure/Reporting Requirements and 3.3 Regulatory Regime for Managers for further information regarding CFTC registration. U.S. Securities Exchange Act of 1934 (“Exchange Act”) The Exchange Act generally governs the issuers of registered securities and regulates broker-dealers. In general, under the Exchange Act, all sales of interests in a fund must either be made by the “issuer” (ie, the fund) or a registered broker-dealer. If there will be no
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