Although many European funds have U.S. investors or at least want to target them in their fundraising, many European private equity (PE) firms are unaware of the basic U.S. legal rules of the game. In particular, violations of the fundraising announcement requirements (including first closing announcements), which remain very critical for U.S. placements, can be observed almost daily in the European market. Since April 2012, there has been extensive debate in the market about whether new laws in the U.S. will allow more generous marketing in the private equity sector.

The previous set of rules

The U.S., compared to other jurisdictions, is comparatively, and to many surprisingly, restrictive in the marketing of private equity funds. Most importantly - the regulations apply extra-territorially and must also be followed by non-US GPs if they wish to raise US funds.

Fund advisors are therefore mindful to remind teams that, prior to Final Closing, any form of disclosure or marketing that qualifies as a "general solicitation" or "general advertising" under U.S. law may trigger significant legal impediments to fundraising in the U.S. and may itself trigger criminal penalties for the respective GPs. Furthermore, a violation of this may result in withdrawal rights on the part of U.S. investors.

General solicitation" and "general advertising" include not only the classic measures of public distribution, but also certain first closing announcements, interviews, and even blogger statements - again, regardless of whether this is done in the U.S. or elsewhere. The interposition of third parties would be considered circumvention. This U.S. regulatory framework is still the law and must be followed.

Easing in sight?

This existing legal framework is in flux with the introduction of the U.S. Jumpstart Our Business Startups Act ("JOBS Act") on April 5, 2012.