Chronique-Locale.Com - The Regulation of Private Placements in France

In France, the securities regulator is the Autorite des marches financiers (AMF). Recently-passed changes to French private placement law, namely the Reform Act and the amendments to the General Regulations, affect the ways in which private placements are done there. As in the U.S., France requires public offerings to be registered. However, a prospectus is not required for a public offering addressed to fewer than 100 offerees. Until 1998, there was no provision for private placements. At that time, France adopted the original EU Prospectus Directive, which created a private placement exemption for the issuance or sale of securities to "qualified investors" or a "restricted group of investors" acting in each case for their own account.

A French investor is qualified if he, she, or it are competent and risk-aware with regard to financial transactions. Large companies automatically qualify. Small investors with sufficient experience or portfolio size can elect to declare themselves (to the AMF) qualified. The meaning of the legal provision requiring an investor to be "acting for its own account" is muddled - it is generally considered to be an anti-avoidance mechanism to prevent qualified investors from purchasing privately-placed securities on behalf of non-qualified investors.

Interestingly, if a U.S. issuer wants to privately place securities in France, it must go through a qualified financial intermediary - that is, entities such as investment banks and prime brokers who are authorized to provide investment service in France or in another EU member state that operates within the EU Single Passport system. So, if a French person or company wanted to know how to start a hedge fund that invested in American privately-placed securities, it would have to make itself aware of the requirement to use a qualified financial intermediary. As in the U.S., French law limits the marketing activities associated with private placements. One cannot make a public announcement and then attempt to follow on with a private offering of the same securities.

French law suggests that private placements should be regarded as long-term investments, i.e. that resale is restricted for a prescribed time period. However, the AMF has failed to specify the minimum holding period, only that a subsequent purchaser either be qualified or be designated as risk-aware by the seller's broker. Non-qualified investors can also purchase resold private placements via the "professional segment" of the Euro next Paris Exchange, as long as the investor has not been solicited and is aware of the risks. Finally, there are two other sources of exemption in France:

• asset management for third parties; and
• small transactions.