USA Law and Practice Contributed by: Bill Sturman, Matthew Holt, Steven Starr and Cliff Cone, Clifford Chance
place of business is outside the United States and that solely advises one or more qualify - ing private funds, if the adviser’s assets under management from a place of business in the United States are, in the aggregate, less than USD150 million. Reporting Obligations of Exempt Advisers An adviser that qualifies for and elects to rely on the private fund adviser exemption must make filings with the SEC as an exempt reporting adviser (ERA) within 60 days of first relying on such exemption. While not subject to registra - tion or the full scope of the substantive provi - sions of the Advisers Act, an ERA is required to comply with several provisions of the Advis - ers Act, as well as certain rules and regulations thereunder. An adviser relying on the foreign private adviser exemption is not required to make any filing with the SEC. 2.3.4 Regulatory Approval Process Filings in the alternative funds space generally do not require regulatory approval. As noted in 2.1.4 Disclosure Requirements , notice filings may need to be made with federal regulators after the fund has been sold in the United States and with individual states thereof. 2.3.5 Rules Concerning Pre-Marketing of Alternative Funds The United States does not distinguish between pre-marketing and marketing in the same man - ner as some other jurisdictions. 2.3.6 Rules Concerning Marketing of Alternative Funds As noted in 2.3.1 Regulatory Regime , Rule 10b- 5 under the Exchange Act prohibits funds from engaging in fraud, making any untrue statement
of a material fact, or omitting to state a material fact necessary in order to make the statements made not misleading. Additionally, an investment adviser to an alter- native fund may be subject to Rule 206(4)-1 under the Advisers Act (the “Marketing Rule”). The Marketing Rule imposes a set of principles- based disclosure rules applicable to advertise - ments of a registered investment adviser and requires, among other things, the publication of “net” performance metrics any time gross per - formance is shown and limitations on the use of hypothetical and predecessor performance. When a placement agent is used, FINRA rules may also impact the way an alternative fund is marketed. 2.3.7 Marketing of Alternative Funds Regulation D As noted in 2.3.6 Rules Concerning Marketing of Alternative Funds , alternative funds com - monly rely on the exemption from registration provided by Regulation D of the Securities Act. Regulation D includes two main exemptions from registration for offers and sales of securi - ties by issuers: Rule 506(b) and Rule 506(c). The key difference between these two exemptions is that Rule 506(b) prohibits the use of “general solicitation” and “general advertising” in con - nection with offerings, while Rule 506(c) allows the use of general solicitation and general adver - tising, provided that the issuer takes reasonable steps to verify that all purchasers of securities are “accredited investors”. Restriction on General Solicitation and General Advertising In practice, many alternative funds rely on the exemption provided by Rule 506(b), and there - fore are prohibited from engaging in general solicitation or general advertising while the offer -
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