The SEC recently announced an action where the promoter allegedly told investors that the 2012 JOBS Act would allow his fund to raise billions of dollars by advertising to the general public and produce large profits for early investors. (SEC v. USA Real Estate Fund I, Inc. and Daniel F. Peterson.) In the press release announcing the offering, and SEC official is quoted as saying "The JOBS Act is intended to help small businesses raise capital, not to legalize fraud or give unscrupulous entrepreneurs a right to make false claims to fleece investors." It does not appear that this action involves allegations that the promoters conduct ran afoul of the JOBS Act's effective or yet-to-be implemented provisions, rather that statements about the JOBS Act were used in the alleged illegal marketing efforts.
In separate enforcement matters, FINRA has recently been entering into enforcement agreements in matters which relate to insufficient information communicated by broker-dealers in the course of private placements. In a recent Letter of Acceptance, Waiver and Consent with MD Sass Securities, LLC (No. 2009018187701), FINRA settled alleged rule violations relating to the broker-dealer's use of sales literature and institutional sales material to institutional customers, prospective customers and retail customers. The literature was distributed on behalf of hedge funds and private equity funds that the firm marketed. Among the allegations are that these private placement materials included misstatements regarding objectives, misleading, exaggerated, promissory or unwarranted claims, statements and presentations, and unwarranted performance projections. Moreover, the marketing materials did not adequately disclose risks and failed to provide a sound basis for evaluating the information presented. In one case, contradictory information was provided. In another recent Letter of Acceptance, Waiver and Consent with James S. Turo (No. 2010022672001), FINRA alleged that a company conducted live webinars for a private offering that did not limit access and thereby served as a general solicitation. In both of these FINRA settlements, we may be seeing that organization's approach to a post-JOBS Act world, particularly when Title II gets implemented and the ability to more broadly solicit investors in private placements becomes a reality.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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