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Financial Institutions Advisory & Financial Regulatory, Time and Money

Dec 15, 2020

New York Updates Form D Filing Procedures

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NEW YORK UPDATES FORM D FILING PROCEDURES

Eliminates Certain Form 99 Filings with the Investor Protection Bureau of the Department of Law

Background

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.

New York Amends Filing Procedures for 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:

  • Mandatory electronic submission of Form D. While most jurisdictions require notice filings to be made through the North American Securities Administrators Association (NASAA) Electronic Filing Depository (EFD), New York previously required issuers to manually file an originally-signed Form 99 together with a signed and notarized Form U-2 and State Notice and Further State Notice.[7] Beginning on December 2, 2020, issuers selling covered securities pursuant to Regulation D in New York should file Form D through EFD. The Investor Protection Bureau will not accept any new Form 99 or Form 99 renewal submissions after February 1, 2021. Once the Form D notice is filed through the EFD system, along with payment of the corresponding fee through EFD, New York considers such filing complete. The issuer may then engage in continued sales activity in New York, unless New York instructs the issuer otherwise.
  • Amendments filed with the SEC require amendments with New York. 13 NYCRR 10.3(d)[8] requires the filing of an amended Form D with New York when an amendment is filed with the SEC. While annual updates that do not include any amended information will not incur any filing fee, any offering that continues beyond the initial four-year filing period will incur a renewal fee. An annual update that includes updated information will incur a $30 filing fee. Further, any amendment other than an annual amendment will constitute a “supplemental filing” and require payment of a $30 filing fee.[9]
  • Amendments to existing Form 99 submissions. Issuers that have filed Form 99 in New York and received a registration number from the Investor Protection Bureau in connection with that submission may continue to file amendments and rely on Form 99 until December 2, 2024. Filing an amended Form 99 allows the issuer to continue the offer and sale of securities in New York for another four-year period. In lieu of filing an amended Form 99, issuers may choose to initially file Form D through EFD. The issuer will be required to pay the full filing fee, ranging from $300 to $1,200 depending on the size of the offering. The four-year dealer registration period will begin on the date of such filing.
  • Issuers of Real Estate Securities and Theatrical Securities. Issuers of Real Estate Securities must continue to file the Form 99 as prescribed by the Real Estate Finance Bureau. Issuers of Theatrical Securities may choose between filing through EFD or filing the Form 99.[10]
  • In its Assessment of Public Comment on Proposed Changes to 13 NYCRR 10, New York rejects the conclusion set forth in the 2002 paper by the Business Law Section of the New York State Bar Association (the “NYSBA Paper”)[11] that states that securities offerings made pursuant to section 4(a)(2) of the 1933 Act and Rule 506 are not offering or selling “to the public.”[12] Certain issuers have relied on the conclusions set forth in the NYSBA Paper and, accordingly, have not filed Form D notice in New York. Consistent with its past unpublished guidance, New York expressly rejects this interpretation[13] and notes that private placements and other limited offerings may qualify as offerings “to the public” and, accordingly, require a notice filing. Issuers who have not previously filed Form 99 in New York may wish to file Form D notice through EFD to ensure compliance with New York law.

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

 

Conclusion

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. 

Footnotes

[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 State Notice/Further State Notice. See also 13 NYCRR § 10.11(b).

Authors and Contributors

Russell Sacks

Partner

Financial Institutions Advisory & Financial Regulatory

+1 212 848 7585

+1 212 848 7585

New York

Jennifer D. Morton

Partner

Financial Institutions Advisory & Financial Regulatory

+1 212 848 5187

+1 212 848 5187

New York

Steven Blau

Associate

Financial Institutions Advisory & Financial Regulatory

+1 212 848 8534

+1 212 848 8534

+1 416 360 2154

+1 416 360 2154

New York

P. Sean Kelly

Associate

Financial Institutions Advisory & Financial Regulatory

+1 212 848 7312

+1 212 848 7312

New York

Taylor Pugliese

Associate

Financial Institutions Advisory & Financial Regulatory

+1 212 848 7294

+1 212 848 7294

New York