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Regulation D under the U.S. Securities Act of 1933, as amended (the “1933 Act”), permits the sale of securities by issuers of those securities without registration under the 1933 Act.[1] An issuer claiming an exemption under Regulation D must electronically file Form D with the U.S. Securities and Exchange Commission (the SEC), thereby notifying the SEC of the Regulation D offering, no later than 15 calendar days after the first sale of securities in the offering.[2]
Under Section 18 of the 1933 Act[3], any private placement made in accordance with Rule 506 of Regulation D will preempt most state securities laws. However, states are permitted to require notice filings and corresponding filing fees in connection with any transaction in a “covered” security. Accordingly, virtually all U.S. jurisdictions require a notice filing and corresponding fee to be paid in connection with a transaction made pursuant to Regulation D.
In New York State, securities offerings are regulated under New York General Business Law Article 23-A, Section 352, better known as the Martin Act (the “Martin Act”). Under the Martin Act, offerings of most securities are not themselves regulated in the same manner as under the 1933 Act. In general, the Martin Act regulates dealers of securities, a term that is defined to include the issuers of such securities, and does not generally regulate offerings individually. As a result, the preemption set forth in Section 18 of the 1933 Act does not technically apply to regulation under the Martin Act, as the preemption found in Section 18 does not preempt dealer licensing regulations. However, historically, in respect of offerings subject to such preemption, the New York Attorney General has recognized the preemption by permitting the filing of Form D and Form 99 with New York in lieu of full dealer registration for issuers.[4] As discussed further below, in December 2020, the New York Attorney General adopted changes that will, among other things, harmonize New York’s filing procedures with respect to offerings pursuant to Regulation D with other states’ filing procedures, and will eliminate the Form 99 requirement for many Regulation D offerings.
In March 2020, New York proposed revisions to 13 NYCRR 10 to modernize its filing procedures for Regulation D offerings.[5] In December 2020, New York adopted these revisions and amended its regulations to, among other items, allow for electronic notice filings.[6] Among the key takeaways are:
Requirements set forth by the Investor Protection Bureau |
Required prior to December 2, 2020 |
Required after December 2, 2020 |
Submission of Form D with the SEC |
Yes |
Yes |
Originally signed Form 99 |
Yes |
No |
Payment of filing fee ranging from $300–$1,200 depending on the size of the offering |
Yes, to be submitted alongside the Form 99 |
Yes, to be submitted through the EFD website |
Originally signed and notarized Form U-2 and its corresponding $35 filing fee[14] |
Yes |
No |
State Notice and Further State Notice and its corresponding filing fees of $75 per notice[15] |
Yes |
No |
While the amendments described herein are procedural changes, this is an unusually active change by New York with respect to Martin Act compliance. As the existing filing procedures have been in place for quite some time, there is likely to be some disruption as practitioners become accustomed to the new filing procedures.
[1] See, e.g., 15 U.S.C. §77d.
[2] For more information regarding Form D filings, please see Shearman & Sterling, SEC Mandates Electronic Filing of Form D.
[3] 15 U.S.C. §77r.
[4] We recognize the conclusion set forth by the New York State Bar Association that all securities offerings made pursuant to Section 4(a)(2) of the 1933 Act or Rule 506 of Regulation D are outside the scope of the Martin Act. As discussed further below, the historical position of the New York Office of Attorney General is to disagree with this conclusion.
[5] See New York Office of Attorney General, Summary of Revised Regulations.
[6] See New York Office of Attorney General, Summary of Revised Regulations.
[7] A copy of the Form D as filed with the SEC must be submitted with the Form 99.
[8] See New York Office of Attorney General, Text of Revised Regulations.
[9] See New York Office of Attorney General, Assessment of Public Comment on Proposed Changes to 13 NYCRR 10.
[10] See New York Office of Attorney General, Assessment of Public Comment on Proposed Changes to 13 NYCRR 10.
[11] See Committee on Securities Regulation of the New York State Bar Association, Private Offering Exemptions and Exclusions Under the New York State Martin Act and Section 18 of the Securities Act of 1933 (Fall 2002).
[12] See New York Office of Attorney General, Assessment of Public Comment on Proposed Changes to 13 NYCRR 10.
[13] See New York Office of Attorney General, Assessment of Public Comment on Proposed Changes to 13 NYCRR 10.
[14] See New York Office of Attorney General, Assessment of Public Comment on Proposed Changes to 13 NYCRR 10.
[15] Prior to December 2, 2020, each security broker or dealer, including issuers, were required to submit a State Notice and Further State Notice with the New York State Division of Corporations, State Records and Uniform Commercial Code prior to engaging in the business of selling or offering to sell securities in New York. See also 13 NYCRR § 10.11(b).
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