In an exemptive letter issued September 9, the CFTC harmonized its regulations on general solicitation and advertising for commodity pool operators (“CPOs”) with the JOBS Act amendments made by the SEC.
Rule 506 of Regulation D (“Reg D”) is a safe harbor exemption for securities offerings by an issuer to an unlimited number of accredited investors. Pursuant to the JOBS Act, in July 2013 the SEC amended Reg D to allow marketing an exempted offering to the public under Rule 506(c). The SEC also amended Rule 144A to allow general marketing to the public.
However, CFTC regulation exemptions were not amended and therefore no longer ran parallel to the SEC regulation exemptions. Current CFTC Regulation 4.13(a)(3) provides an exemption from registration as a CPO, provided that, among other requirements, securities in the pool (or private fund) are “offered and sold without marketing to the public.” Regulation 4.7 provides registered CPOs with regulatory relief for pools engaged in offerings exempt pursuant to Section 4(a)(2) of the Securities Act of 1933, but does not clearly indicate that regulatory relief would be provided for pools engaged in offerings exempt pursuant to Reg D Rule 506(c).
As such, prior to the CFTC’s exemptive relief letter, a dually-regulated CPO relying on Reg D Rule 506(c) exemptive relief could not definitively expect the same under CFTC regulations.
In its recent letter, the CFTC has rectified the issue and granted exemptive relief to eliminate incongruences between its regulations and the SEC regulations. Dually-regulated CPOs may now rely on the same exemptive rules for certain of their offerings pursuant to both CFTC and SEC regulations.
CPOs should note that the exemptive relief is not applicable in all instances and is not self-executing. First, the exemptive relief is only available to CPOs who are Rule 506(c) issuers or CPOs using 144A Resellers. In addition, the exemptive relief is not automatic: CPOs must file a notice to claim the relief with the CFTC’s Division of Swap Dealer and Intermediary Oversight. Winston & Strawn will continue to monitor any further changes to the regulations that may develop.