07 January 2021
by Alexander McClean , Margaret K. Rhoda and Ryan A. Whelpley
Harter Secrest & Emery
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LEGALcurrents®
On December 1, 2020, the New York Attorney General("NYAG") adopted regulatory amendments to, among otherthings, modernize the blue sky filing requirements for securitiessold or offered in New York using the exemptions available underRegulation D of the Securities Act of 1933, as amended (the"Securities Act"). The new amendments update the noticefiling process for issuers conducting private placements, notablyby eliminating the need to file a Form 99, and instead requiringissuers to electronically file a notice with the InvestorProtection Bureau of the New York State Department of Law("IPB") through the Electronic Filing Depository("EFD") of the North American Securities AdministratorsAssociation.
Background
By following the requirements of Regulation D, issuers arepermitted to offer and sell their securities in private placementswithout having to register the offering under the Securities Act.An issuer claiming an exemption under Regulation D mustelectronically file a notice on Form D with the U.S. Securities andExchange Commission within 15 days of the first sale of thesecurities in the offering. After the enactment of the NationalSecurities Markets Improvement Act of 1996 ("NSMIA"),states were explicitly preempted from requiring state-levelregistration or qualification of "covered securities."NSMIA recognizes securities sold using an exemption available underRegulation D as "covered securities." However, NSMIApermits states to require notice filings, or "blue skyfilings," and filing fees in connection with any transactionin a "covered security."
Prior to the amendments, New York required issuers sellingsecurities in reliance on an exemption under Regulation D to file aForm 99 Notification Filing. Compliance with the Form 99 filingrequirement was cumbersome as issuers had to collect sensitivepersonal information from directors, officers, and largeshareholders and submit the original, wet-ink signed form, togetherwith a notarized Form U-2, State Notice and Further State(s), andcopies of all offering documents, before any securitiescould be sold or offered in New York. These requirements had theeffect of reducing the likelihood of compliance for lesssophisticated issuers and the tendency to delay closings for smallbusinesses.
New Blue Sky Filing Requirements
Effective December 2, 2020, issuers selling securities in NewYork pursuant to Regulation D are required to file a Form D andsubmit payment of the related filing fee through EFD within 15 daysof the first sale to a resident in the state. The amendments alsoeliminate the requirements for electronic filers to separately filea notarized Form U-2 and State Notice and Further State Notice(s)with the New York State Department of State. New York will notaccept any new Form 99 or Form 99 renewal submissions afterFebruary 1, 2021.
New York will consider the blue sky filing complete once theForm D is filed and the full filing fee, ranging from $300 to$1,200 depending on the size of the offering, is paid through EFD.The issuer does not have to wait for confirmation from the state tosell the securities; they may engage in sales activity in New Yorkunless New York instructs otherwise. Form D filings are effectivefor four years. Any amendment to reflect a material change in theForm D will constitute a supplemental filing and require payment ofa $30 filing fee with New York through EFD.
If an offering will continue for longer than one year, an issuershould file an annual amendment to the Form D with the SEC toupdate the information in the filing. After the expiration of thefour-year period, if the offering is still ongoing, the issuer mustfile a new Form D with the SEC and with New York through EFD andpay a new filing fee.
Issuers that have an active Form 99 filed in New York maycontinue to file amendments and rely on the existing Form 99 untilDecember 2, 2024. In lieu of filing an amended Form 99, issuerswith an active Form 99 may choose to initially file a Form D withthe SEC and then New York through EFD and again pay the full filingfee. The issuers will receive a new registration date and will berequired to submit all further related filings (i.e., amendmentsand renewals) through EFD.
Issuers of real estate securities must continue to file the Form99 as prescribed by the Real Estate Finance Bureau. Issuers oftheatrical securities that are relying on exemptions underRegulation D may choose between filing through EFD or filing theForm 99.
Conclusion
The NYAG's amendments streamline and standardize NewYork's blue sky filing requirements to conform to the federalsecurities registration requirements and most states' blue skyrequirements. The IPB's new rules for blue sky filingrequirements are available at this link and its guidance on theserequirements is available at this link.
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.
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Now, let's discuss the concepts mentioned in this article.
Blue Sky Filing Requirements
The article mentions the adoption of regulatory amendments by the New York Attorney General to modernize the blue sky filing requirements for securities sold or offered in New York using the exemptions available under Regulation D of the Securities Act of 1933 Blue sky laws are state regulations that aim to protect investors from fraudulent securities offerings. Regulation D provides exemptions from registration requirements for certain private placements of securities.
Notice Filing Process
The new amendments update the notice filing process for issuers conducting private placements in New York. Previously, issuers were required to file a Form 99 Notification Filing, which involved collecting sensitive personal information and submitting physical documents before selling or offering securities in New York. The amendments eliminate the need for Form 99 and instead require issuers to electronically file a notice with the Investor Protection Bureau of the New York State Department of Law through the Electronic Filing Depository (EFD) of the North American Securities Administrators Association.
Form D Filing
Under Regulation D, issuers claiming an exemption must electronically file a notice on Form D with the U.S. Securities and Exchange Commission (SEC) within 15 days of the first sale of the securities in the offering. The amendments now require issuers selling securities in New York pursuant to Regulation D to file a Form D and submit payment of the related filing fee through EFD within 15 days of the first sale to a resident in the state. The requirements for separately filing a notarized Form U-2 and State Notice and Further State Notice(s) with the New York State Department of State have been eliminated.
Filing Fee and Effective Period
The filing fee for the Form D varies based on the size of the offering, ranging from $300 to $1,200. Once the Form D is filed and the full filing fee is paid through EFD, New York considers the blue sky filing complete. The issuer does not have to wait for confirmation from the state to sell the securities in New York, unless instructed otherwise. Form D filings are effective for four years, and any material changes to the Form D require a supplemental filing with a $30 filing fee.
Amendments and Renewals
If an offering will continue for longer than one year, the issuer should file an annual amendment to the Form D with the SEC to update the information in the filing. After the expiration of the four-year period, if the offering is still ongoing, the issuer must file a new Form D with the SEC and with New York through EFD and pay a new filing fee. Issuers with an active Form 99 filed in New York may continue to file amendments and rely on the existing Form 99 until December 2, 2024. Alternatively, they may choose to file a Form D with the SEC and then New York through EFD and pay the full filing fee.
These are the key concepts discussed in the article regarding the regulatory amendments to the blue sky filing requirements for securities sold or offered in New York using the exemptions available under Regulation D. If you have any further questions or need more information, feel free to ask!
