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What Israelis Should
Know When Raising
Private Funds in the U.S.
Introduction
The distribution of private fund interests in the U.S. by an Israeli asset manager or other
non-U.S. asset manager (“Manager”) raises a number of legal and regulatory issues. This
article very briefly identifies and examines a number of the most important issues a
Manager should consider when seeking to raise capital in the U.S. for a private fund.
U.S. Securities Laws
The two most significant U.S. federal securities laws governing the sale of interests
in investment funds are the U.S. Securities Act of 1933, as amended (the “Securities
Act”), and the U.S. Investment Company Act of 1940, as amended (the “Investment
Company Act”).
The Securities Act
Section 5 of the Securities Act generally requires the registration of any security
offered or sold through the use of any means of U.S. interstate or international
commerce. Section 4(a)(2) of the Securities Act and Regulation D thereunder provide
a private placement exemption fromSecurities Act registration,provided that the offer
or sale does not involve a public offering. The facts and circumstances surrounding an
offering will be relevant in determining whether it is public or private, including, without
limitation, the manner of the offering, the number of offerees and their relationship to
the issuer and the sophistication of the offerees. Rule 506 of Regulation D provides
a “safe harbor” under Section 4(a)(2) of the Securities Act, provided that (i) sales
are made only to “accredited investors” (e.g., individuals with a net worth exceeding
US$1 million (excluding the value of his or her primary residence) and entities that
are beneficially owned by accredited investors); (ii) there is no general solicitation
or advertising involved with the offering; and (iii) investors buy the securities for
investment and not for resale.
With respect to the general solicitation / advertising prong of Regulation D, in 2013, the
SEC adopted Rule 506(c), which permits general solicitation and general advertising
while still staying within the confines of the Regulation D private placement exemption.
As a result, issuers seeking to rely on Regulation D need to diligence persons
associated with the securities offering to ensure the issuer is not disqualified
from issuing its securities under Regulation D.