One of the great benefits to issuers under the SEC’s rules for offerings under Tier 2 of Regulation A, effectively created by the JOBS Act, is the preemption of state requirements for registration of the offer and sale of securities. Known as “Blue Sky Laws”, these state specific rules added considerable cost to qualifying an offering under Regulation A.
The SEC determined it was appropriate to preempt state qualification rules by deeming securities offered and sold under Tier 2 of Regulation A to be sold to “qualified purchasers” under Section 18 of the Securities Act. Under Section 18, states are still given the authority to require filing fees and notice filings of any securities offering being filed with the SEC.
While a few states had self-executing laws that meant notice filings were required immediately after the effectiveness of the SEC’s amendments to Regulation A, most other states have had to undertake legislative or regulatory action to implement notice filing procedures.
As of the date of this blog post, 30 states and the District of Columbia have some sort of filing requirement in place. The filing requirements vary by state based on what needs to be filed, how much for the filing fee, and the timing of the filing (e.g., prior to qualification, only after qualification, at least 21 days before any sales, etc.).
Most states requiring a filing have adopted the Uniform Regulation A – Tier 2 Notice Filing Form developed by NASAA. Some states still require portions of the Form U1 and Form U2, which is superfluous when also requiring the Uniform Regulation A – Tier 2 Notice Filing Form. Then there is New York, which has its own requirements under the Martin Act that are distinct from every other state (requiring its Form 99 and State Notice/Further State Notice). In our experience, states are still interpreting their regulations inconsistently and we often have states querying the format of filings that are exactly the same as filings we’ve made previously.
Issuers not using broker-dealers for their offerings should note that Tier 2 of Regulation A preempts state regulation of the offer of securities, but it does not preempt state rules regarding who can offer securities. A minority of states, including Florida, Texas, Arizona, and North Dakota, require any issuer not using a registered securities intermediary to register with the state as an issuer-dealer. Depending on the state, this may entail registration as a dealer in the state, and examinations. See our memo from last summer on the topic.
For more information on assistance with your state notice filings, please contact us.