On December 1, 2020, the New York Attorney General ("NYAG") adopted regulatory amendments to, among other things, 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, as amended (the "Securities Act"). The new amendments update the notice filing process for issuers conducting private placements, notably by eliminating the need to file a Form 99, and instead requiring issuers to electronically file a notice with the Investor Protection Bureau of the New York State Department of Law ("IPB") through the Electronic Filing Depository ("EFD") of the North American Securities Administrators Association.
By following the requirements of Regulation D, issuers are permitted to offer and sell their securities in private placements without having to register the offering under the Securities Act. An issuer claiming an exemption under Regulation D must electronically file a notice on Form D with the U.S. Securities and Exchange Commission within 15 days of the first sale of the securities in the offering. After the enactment of the National Securities Markets Improvement Act of 1996 ("NSMIA"), states were explicitly preempted from requiring state-level registration or qualification of "covered securities." NSMIA recognizes securities sold using an exemption available under Regulation D as "covered securities." However, NSMIA permits states to require notice filings, or "blue sky filings," and filing fees in connection with any transaction in a "covered security."
Prior to the amendments, New York required issuers selling securities in reliance on an exemption under Regulation D to file a Form 99 Notification Filing. Compliance with the Form 99 filing requirement was cumbersome as issuers had to collect sensitive personal information from directors, officers, and large shareholders and submit the original, wet-ink signed form, together with a notarized Form U-2, State Notice and Further State(s), and copies of all offering documents, before any securities could be sold or offered in New York. These requirements had the effect of reducing the likelihood of compliance for less sophisticated issuers and the tendency to delay closings for small businesses.
New Blue Sky Filing Requirements
Effective December 2, 2020, issuers selling securities in New York pursuant to Regulation D are required 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 amendments also eliminate the requirements for electronic filers to separately file a notarized Form U-2 and State Notice and Further State Notice(s) with the New York State Department of State. New York will not accept any new Form 99 or Form 99 renewal submissions after February 1, 2021.
New York will consider the blue sky filing complete once the Form 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 to sell the securities; they may engage in sales activity in New York unless New York instructs otherwise. Form D filings are effective for four years. Any amendment to reflect a material change in the Form D will constitute a supplemental filing and require payment of a $30 filing fee with New York through EFD.
If an offering will continue for longer than one year, an 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 that have an active Form 99 filed in New York may continue to file amendments and rely on the existing Form 99 until December 2, 2024. In lieu of filing an amended Form 99, issuers with an active Form 99 may choose to initially file a Form D with the SEC and then New York through EFD and again pay the full filing fee. The issuers will receive a new registration date and will be required to submit all further related filings (i.e., amendments and renewals) through EFD.
Issuers of real estate securities must continue to file the Form 99 as prescribed by the Real Estate Finance Bureau. Issuers of theatrical securities that are relying on exemptions under Regulation D may choose between filing through EFD or filing the Form 99.
The NYAG's amendments streamline and standardize New York's blue sky filing requirements to conform to the federal securities registration requirements and most states' blue sky requirements. The IPB's new rules for blue sky filing requirements are available at this link and its guidance on these requirements is available at this link.
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