NORTH AMERICA - The US Securities Exchange Commission (SEC) has missed a binding deadline for lifting restrictions on private funds marketing to institutional investors.

The Jumpstart Our Business Start-ups (JOBS) Act in April required the SEC to remove Rule 506 of the US Securities Act - which also limited European real estate fund managers' ability to raise capital among US institutional investors - within 90 days.

Following a longstanding ban on 'general solicitation', JOBS will benefit smaller real estate and other fund managers by allowing them to target institutional (and 35 non-accredited) investors without a public offering.

The 90-day deadline has now come and gone, with no apparent movement from the SEC.

In fact, SEC chair Mary Schapiro recently described the deadline as "not achievable" because it failed to allow time for drafting the new rule, economic analysis, review and public consultation.

In a speech before the US House of Representatives on the JOBS Act and the SEC, Schapiro said SEC staff had made progress on a recommendation and economic analysis, "and it is my belief the Commission will be in a position to act on a staff proposal in the very near future".

While fund managers are likely to welcome the rule change, state regulators have been somewhat cautious.

As part of the SEC consultation, Ohio Division of Securities Commissioner Andrea Seidt last week wrote to the SEC claiming "fraudulent statements and material omissions are often prevalent in advertising to investors" and urged the federal regulator to adopt new content standards "as the market for exempt public offerings evolves and new abuses emerge".

The letter warned: "Accredited investors present prime, well-funded targets to scam artists who will not hesitate to take advantage of the new general solicitation and general advertising freedoms to troll for victims. The damage will not be limited to accredited investors."

According to the National Law Review, the scope of additional SEC requirements will determine whether the modified rule "will truly revolutionise private funds".

It said the strongest beneficiaries would likely be funds relying on Section 3(c)(7) of the US Securities Act because it lifts the cap on the number of investors from 499 to 1,999, and will enable them to trade on secondary-market transaction platforms.

In contrast, funds relying on Section 3(c)(1) will continue to be limited to 100 investors.

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