How to Comply with New York Blue Sky Laws?

As I previously explained here, Rule 506 private placements involve the filing of a Form D with the SEC as well as complying with blue sky notice filings requirements in each state where the investors participating in the offering reside.  Rule 506(b) or (c) offerings are exempt from regulation on the state level. According to the National Securities Markets Improvement Act, securities offered under Rule 506 of Regulation D qualify as "covered securities" under Section 18(b)(4) of the Securities Act. Consequently, securities sold under Rule 506 enjoy an exemption from the registration requirements of state-level securities laws (blue sky laws).

But states can (and do) ask the issuers to make notice filings and pay filing fees with respect to Rule 506 private placements if any of the investors are their residents.  In this blog post, I am going to discuss how to do a blue sky filing in New York.

The filing requirement for general securities offerings is set out in Section 359-e of the New York General Business Law. The filing requirement for offerings of real estate securities is set out at Section 352-e of the New York General Business Law. The NY regulator is the Investor Protection Bureau (or Real Estate Finance Bureau) of the State of New York Office of the Attorney General.  

The first thing you need to know about the blue sky filing in New York is that it must be done before any offer or sale is made in the State of New York.  So, what should you send them?

• Two copies of completed Form 99 (one is manually signed).
• A copy of the private placement memorandum. 
• Notice of appearance.
• Form D.  If it hasn't been filed yet with the SEC, then follow up with the printout of the Form D as filed later.  
• A copy of the consent to service of process (the original should be sent to the NY Department of State).
• A check for the blue sky filing fee.

But the notice filing obligation does not end here.  The Department of State, Division of Corporations should receive from the company the original consent to service of process (with a special "backer") and a $35 check.

And that's not all.  The Miscellaneous Records Bureau of the Department of State should receive the original State Notice and Further State Notice and two checks for $75 each (this applies if the issuer is not a NY entity).

A word about fees.

For general securities offerings:

• $300 for an offering of up to $500,000.
• $1,200 for an offering of over $500,000.

For offerings of real estate securities:

• $1,050 for an offering up to $500,000.
• $1,950 for an offering of over $500,000.

Considering that these filings can be viewed as onerous and expensive, it is not a surprise that some NY attorneys have adopted a position that no blue sky filing or fee is required.  It is certainly supported by the 2002 position paper prepared by the Committee on Securities Regulation of the New York State Bar Association. However, this position paper has not been accepted by the Office of the Attorney General of New York. 

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.