District of Columbia Blue Sky Laws for Syndication

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Syndicators looking to raise capital from investors in the District of Columbia should be aware of the District of Columbia’s Blue Sky Laws. These laws regulate the securities industry within the district and understanding the basics of the District of Columbia’s blue sky laws will help you make smart business decisions about how you put together an offer and protect yourself from potential legal trouble.

 

What are Blue Sky Laws in General? 

The purpose of securities laws is to protect investors. There are two levels of regulatory agencies that provide that protection: the Securities and Exchange Commission (the SEC) and each state’s security regulation agency.

Federal law has severely restricted the states’ abilities to review or restrict sales of most securities when offered through a Federal regulation (such as syndication of a Reg D offering). The states do, however, often require a notice be filed with them along with the appropriate fee, conduct investigations, and bring fraud actions if necessary in order to protect those domiciled in their states.

When everything takes place within the district, the District of Columbia’s Blue Sky Rules apply. 

 

What if I Need to Notify the District of Columbia about my Regulation D Syndication?

Here are the basic facts you need to know about giving notice to the District of Columbia about your Reg D Rule 506b or 506c offer:

Filing fee – Fixed 

New notice – $250

Late fee for late filings – Up to $10,000 per violation (not calculated in EFD)

 

What are the District of Columbia’s Blue Sky Laws?

DC CODE § 31-5603.01 Registration requirement

DC CODE § 31-5604.01 Exempt securities

DC CODE § 31-5604.03 Additional exemptions

DC CODE § 31-5604.04 Revocation of exemptions

DC CODE § 31-5604.06 Coordination of exemptions

DC CODE § 31-5605.05 Unlawful representations concerning licensing, registration, notice filing, or exemption

 

What are the District of Columbia’s securities laws exemptions?

Governmental entities; certain foreign governments including Canada; Financial institutions: depository institutions and credit unions; Non-profit membership cooperative; Other entities: railroads, common carriers, public utilities, holding companies and insurance companies; Equipment trust certificates; Listed stock exchange securities etc.; Clearing agency option; Non-profit persons; Commercial paper obligations; Employee benefit plan

 

What are the District of Columbia’s procedures for securities law exemptions? 

Applicable to: non-profit person; Procedure includes: notice of terms, copies of sales materials, 5 day waiting period

 

Frequently Asked Questions

Do I need an attorney from the District of Columbia then to put together an offering?

That depends. If the offering you are putting together is under Regulation D and not one of the District of Columbia specific Blue Sky Laws (as discussed above), then probably not. 

For example, if you needed a real estate syndication attorney to put together a private placement memorandum for a multifamily deal in DC that was going to be offered in different states, and you didn’t need counsel on questions related to District of Columbia laws, then chances are a licensed syndication lawyer would be able to help. They could even put together the entity for you and write the operating agreement, they just couldn’t provide you counsel on the specific laws of District of Columbia and how they may or may not pertain to your offer.

However, if you were putting together a private placement memorandum for a development project in Shaw, District of Columbia, all of the investors were from the District of Columbia, and you wanted to use one of District of Columbia’s Blue Sky Laws above as an exception to registration, then you would need to work with someone licensed in District of Columbia.

 

Is it ok if the real estate syndication attorney, licensed outside of District of Columbia, looks over my purchase contract?

They can look, but they can’t give you advice as it pertains to the District of Columbia. For example, Tilden Moschetti, Esq, syndication attorney for the Moschetti Syndication Law Group, if asked, about the contract underlying your purchase contract in the District of Columbia, will look and give advice as to both legal advice and business consulting advice because he is licensed in DC. But, if a non-DC licensed attorney were asked, they would make it clear that they can give business consulting advice (discussion on price and broad deal points like the length of time until closing), but cannot speak to any specific term as they are not licensed there.

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