Attorneys and chief compliance officers have mixed views on whether dropping a ban on general solicitation under the Jumpstart Our Business Startups (JOBS) Act will create more or less compliance work for brokerages and hedge fund firms.

The Act is designed to stimulate the economy by loosening some restrictions on capital formation (, 3/14). Among other things, it eliminates the prohibition against general solicitation and general advertising in private placement offerings, provided the securities are bought only by accredited investors. But the law, which on this issue is worded similarly to a recent Managed Funds Association petition to amend Rule 502(c) of Regulation D (, 2/24), still requires that information does not mislead prospective investors.

Some attorneys say the provision may well create compliance hassles. For example, it may change how brokerages and hedge fund firms interact with reporters, as employees will be able to speak more freely without worrying about whether they are saying something that sounds like an offering. But once they put more information into the public arena, compliance officers will have a greater volume of information to vet because they will have to ensure that it is not misleading to prospective investors. They will need to put specific policies and procedures in place to monitor the accuracy of that information and give additional training to employees.

Brian Lane, a former director of the SEC’s Division of Corporate Finance and now partner with Gibson, Dunn & Crutcher, told CI the new law presents a mixed bag for compliance teams. On one hand, C/Os have until now focused on trying to keep people at their firms from sneaking out announcements through backdoor channels. They need to distinguish what can be made public from what is solicitation and isn’t allowed. “They walk a fine line because their people argue with them, ‘This is not advertising, this is not solicitation, this is newsworthy.’ And they’re not going to have to worry about that anymore. So the good news is, a lot of the hand wringing is over,” Lane said.

But on the other hand, C/Os will have to be very careful that their firms aren’t potentially selling to anyone who is not an accredited investor. “You can tell anyone about [an offering], but you’ve got to make sure that a retail customer doesn’t slip in,” Lane said. “If I had advice for a [C/O], it would be to put in place extra rigorous procedures to verify [whether buyers are accredited]...I think your procedures for verification have to be beyond reproach.”