Florida Blue Sky Laws for Syndication

Navigating the complex landscape of securities laws can be a challenging endeavor, especially for those involved in real estate syndication and other capital-raising activities. One critical aspect of this regulatory framework is understanding the interplay between state-level Blue Sky Laws and federal regulations, particularly Regulation D. For those operating in Florida, it is essential to comprehend the specific nuances of Florida’s Blue Sky Laws and how they relate to federal exemptions under Rule 506(b) and Rule 506(c).

This comprehensive guide delves into Florida’s Blue Sky Laws, offering insights into the state’s regulatory environment and highlighting key exemptions that can simplify the compliance process. We will explore why Regulation D is often the preferred route for syndicators, the notification rules for state filings, and the specific procedures for securing securities law exemptions in Florida. Additionally, we’ll address practical considerations such as whether you need a Florida-licensed attorney for your offerings and the limitations of out-of-state legal counsel in reviewing contracts.

Whether you are a real estate developer, private equity fund manager, or a business professional involved in syndication, understanding these laws is crucial to ensuring your capital-raising efforts are both legally sound and efficient. By the end of this article, you will have a clearer picture of how to navigate Florida’s securities regulations and make informed decisions that align with both state and federal requirements.

How do a State’s Blue Sky Laws Relate to the SEC’s Regulation D?

State Blue Sky Laws and the SEC’s Regulation D interact in a way that balances both federal and state oversight of securities offerings. Regulation D, particularly Rule 506(b) and Rule 506(c), provides a federal exemption from securities registration, which preempts state Blue Sky Laws under 15 U.S. Code § 77r(b)(4)(F). This means that offerings made under Rule 506(b) or Rule 506(c) are not subject to state registration requirements, simplifying the compliance process for issuers.

Federal Preemption

The preemption under Regulation D is a significant benefit for issuers. When an offering qualifies under Rule 506(b) or Rule 506(c), it is exempt from state securities registration, although issuers must still comply with notice filing requirements in each state where the securities are sold. This involves submitting Form D to the SEC and providing a copy along with any state-specific forms and fees to the relevant state authorities. This streamlined process reduces the regulatory burden and facilitates easier access to capital markets.

Rule 506(b) and Rule 506(c) Offerings

• Rule 506(b): This rule allows issuers to raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited investors. However, it prohibits general solicitation and advertising.
• Rule 506(c): This rule permits general solicitation and advertising, provided that all investors are accredited, and the issuer takes reasonable steps to verify their accredited status.

Both rules provide substantial flexibility for syndicators, including real estate syndication professionals, to raise capital efficiently. By leveraging these exemptions, issuers can avoid the more cumbersome and costly state registration processes.

Intrastate Offerings

Despite the federal preemption, there are scenarios where an issuer might choose to comply with state Blue Sky Laws instead. If an offering is confined within a single state—meaning the sponsor, all investors, and the assets are all located in that state—it can be conducted as an intrastate offering under the state’s Blue Sky Laws. This can be advantageous in certain situations, such as when leveraging specific state incentives or addressing particular investor preferences.

For instance, in Florida, an intrastate offering must comply with the Florida Securities and Investor Protection Act (Chapter 517, Florida Statutes). These offerings are generally simpler because they avoid federal requirements but must adhere strictly to state regulations.

In summary, while Regulation D, through Rule 506(b) and Rule 506(c), preempts state Blue Sky Laws and simplifies the securities offering process on a federal level, issuers must still be aware of and comply with state notice filing requirements. Additionally, in specific scenarios, such as entirely intrastate offerings, issuers might opt to follow state Blue Sky Laws. Understanding the interplay between federal and state regulations is crucial for ensuring compliance and optimizing the capital-raising process.

Why Would I Choose Regulation D Rule 506(b) or Rule 506(c) Over the State’s Blue Sky Laws?

Choosing Regulation D Rule 506(b) or Rule 506(c) over a state’s Blue Sky Laws offers significant advantages, particularly for those involved in syndication, such as real estate syndication, private equity funds, and other types of capital raising. Here are the key reasons why these federal exemptions are often preferred:

1. Federal Preemption and Simplified Compliance

One of the primary benefits of using Regulation D exemptions is the preemption of state Blue Sky Laws. Under 15 U.S. Code § 77r(b)(4)(F), offerings made under Rule 506(b) or Rule 506(c) are exempt from state registration requirements. This preemption significantly reduces the regulatory burden on issuers, allowing them to avoid the often complex and varied registration processes required by different states. Instead, issuers only need to comply with federal regulations and submit a Form D filing with the SEC, along with notice filings in the states where the securities are sold.

2. Flexibility in Investor Geography

When conducting a securities offering, the geographic location of investors is a critical consideration. If any investor or the sponsor is located outside of the state, the offering cannot qualify as an intrastate offering under the state’s Blue Sky Laws. This limitation can be particularly problematic if an investor is later discovered to be domiciled outside of the state, inadvertently violating the intrastate requirement and creating a securities law problem.

By opting for Regulation D Rule 506(b) or Rule 506(c), issuers can include investors from multiple states without worrying about the complexities and risks associated with maintaining an intrastate status. This flexibility is crucial for real estate syndication and other syndicators who often seek a diverse investor base to maximize their capital-raising potential.

3. Capital Raising Potential

Regulation D exemptions provide issuers with substantial capital-raising flexibility:

• Rule 506(b): This rule allows issuers to raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited investors. However, it prohibits general solicitation and advertising, making it ideal for private placements where direct investor relationships are leveraged.
• Rule 506(c): This rule permits general solicitation and advertising, provided that all investors are accredited, and the issuer takes reasonable steps to verify their accredited status. This opens up the potential to reach a broader audience and attract more capital.

The ability to raise unlimited capital without the restrictions imposed by state laws makes these rules particularly attractive for large-scale syndications and private placements.

4. Mitigating Compliance Risks

Compliance with state Blue Sky Laws can be complex and fraught with risks, especially if an offering inadvertently fails to meet intrastate requirements. Such mistakes can lead to significant legal and financial consequences. Regulation D Rule 506(b) and Rule 506(c) provide a clear and well-defined path to compliance, reducing the risk of inadvertently violating securities laws.

By adhering to these federal rules, issuers can ensure that their offerings are legally sound and that they are less likely to face unexpected regulatory challenges. This predictability and reduced risk are essential for maintaining investor confidence and protecting the issuer’s reputation.

In summary, choosing Regulation D Rule 506(b) or Rule 506(c) over a state’s Blue Sky Laws offers numerous advantages, including federal preemption, flexibility in investor geography, enhanced capital-raising potential, and reduced compliance risks. For syndicators, such as real estate syndication professionals and private equity fund managers, these benefits make Regulation D a preferred choice for efficient and effective capital raising.

What Are The Notification Rules and Terms For Notifying the State About a Regulation D Rule 506(b) or Rule 506(c) Offering?

Navigating the complexities of securities regulations can often seem daunting, particularly when it comes to understanding the obligations related to offerings like Regulation D Rule 506(b) or Rule 506(c). Among these obligations, one of the key areas of concern usually revolves around providing appropriate notice to state regulators.

Florida’s Notice Requirements for Regulation D Offerings

In the context of Florida, it is imperative to understand the specific nuances of its securities laws, colloquially known as the Florida Blue Sky Laws. The good news for syndicators looking to raise capital in Florida under Regulation D, whether using Rule 506(b) or Rule 506(c), is the simplicity of the notice requirements.

Unlike many states that require formal notice filings along with applicable fees, Florida’s approach is more streamlined. Notices for Regulation D Rule 506(b) or Rule 506(c) offerings are sent to the state through the NASAA Electronic Filing Depository (EFD). The EFD system is an efficient platform designed to simplify the notice filing process for issuers. Through this system, issuers can file their Form D electronically, which is then transmitted to the relevant state securities regulators.

Implications of Florida’s Notice Requirements

While Florida utilizes the EFD system for notice filings, it is crucial to recognize that this does not exempt issuers from other aspects of Florida’s Blue Sky Laws. Compliance with these laws is still necessary to ensure fair and transparent operation within the securities marketplace.

Issuers must remain diligent in understanding and adhering to all other relevant state and federal regulations. This includes ensuring accurate and complete disclosures in the private placement memorandum (PPM) and maintaining proper documentation and records as required under federal law.

Streamlined Process for Issuers

Florida’s approach towards notice requirements for Regulation D Rule 506(b) or Rule 506(c) offerings provides issuers with a streamlined process, eliminating the need for cumbersome paperwork. By using the NASAA EFD system, issuers can efficiently submit the necessary filings, making the fundraising process more efficient and less cumbersome. Issuers can focus on the critical aspects of their offering without the additional burden of state-level notice filings.

Key Considerations for Issuers

• Federal Compliance: Even though Florida utilizes a simplified filing process, issuers must still comply with federal requirements under Regulation D. This includes filing Form D with the SEC within 15 days of the first sale of securities.
• Disclosure and Documentation: Proper preparation and disclosure in the private placement memorandum are essential. This document should include all relevant information about the offering, risks, and other critical details to inform potential investors.
• Record-Keeping: Maintaining accurate records and documentation is vital for compliance and for responding to any potential inquiries or audits from regulators.

Florida’s streamlined approach to notice requirements for Regulation D Rule 506(b) or Rule 506(c) offerings, through the NASAA Electronic Filing Depository, is beneficial for issuers, providing an efficient process for raising capital. However, issuers must not become complacent. Ensuring compliance with all other applicable state and federal laws is crucial to maintaining legal and regulatory integrity. By staying informed and diligent, issuers can navigate the complexities of securities regulations successfully while capitalizing on the advantages offered by Florida’s streamlined process.

What are Florida’s Blue Sky Laws?

Navigating the world of securities regulation can be complex, but understanding the key components of Florida’s Blue Sky Laws can provide clarity for both investors and issuers. These laws are designed to protect investors from fraud and ensure transparency in the securities market. In this article, we will explore several important statutes under Florida’s Chapter 517, which governs securities transactions.

Registration Requirements (Section 517.07)

One of the foundational elements of Florida’s securities regulations is the requirement for securities to be registered before they can be sold or offered for sale in the state. According to Section 517.07, it is unlawful to sell securities unless they are registered, exempt under specific provisions, or classified as federal covered securities. This ensures that potential investors receive a prospectus meeting the state’s regulatory standards before making any investment decisions.

Exempt Securities (Section 517.051)

Not all securities need to go through the rigorous registration process. Section 517.051 outlines the types of securities that are exempt from registration. These include securities issued by governmental entities, certain financial institutions, and specific non-profit organizations, among others. These exemptions are self-executing, meaning they do not require prior filing, but the burden of proving the exemption lies with the issuer.

Viatical Settlement Investments (Section 517.072)

Viatical settlement investments, which involve the purchase of life insurance policies from terminally ill individuals, are subject to specific regulations under Section 517.072. This statute clarifies that such investments do not benefit from certain exemptions and must comply with detailed disclosure and registration requirements to protect investors from potential abuses in this sensitive area of the market.

Burden of Proof (Section 517.171)

In legal proceedings concerning securities transactions, Section 517.171 specifies that it is not necessary for the state to negate any exemptions in complaints or indictments. Instead, the responsibility to prove entitlement to any exemption falls on the party claiming it. This provision helps streamline enforcement actions and places the onus of proof on the issuer or seller.

Prohibition of False Representations (Section 517.311)

Protecting investors from fraudulent claims is a core principle of Florida’s Blue Sky Laws. Section 517.311 makes it illegal to misrepresent that a security or its issuer has been endorsed by state or federal authorities. This statute also requires that any mention of registration include a clear disclaimer that registration does not imply endorsement by the government. This measure ensures transparency and helps maintain investor trust in the market.

By understanding these key statutes, investors and issuers can better navigate the regulatory landscape of Florida’s securities market, ensuring compliance and protecting against fraud.

FL ST § 517.051 Exempt securities

Florida Statute 517.051 outlines the exemptions from the registration requirements for certain securities under Section 517.07 of the Florida Securities and Investor Protection Act. These exemptions include various types of securities, such as those issued or guaranteed by the U.S. government or any of its political subdivisions, foreign governments with which the U.S. maintains diplomatic relations, and certain financial institutions like national banks and savings associations. Other exemptions apply to securities issued by non-profit agricultural cooperatives, specific short-term commercial papers, and securities from religious, educational, and charitable organizations, provided they follow strict disclosure rules. The statute ensures that these exemptions are self-executing, meaning no prior filing is required, but the burden of proof for the exemption lies with the person claiming it in any legal proceeding.

FL ST § 517.07 Registration of securities

Florida Statute 517.07 governs the registration of securities within the state. Under this statute, it is illegal to sell or offer to sell any security in Florida unless the security is exempt under section 517.051, sold in a transaction exempt under section 517.061, classified as a federal covered security, or properly registered pursuant to this chapter. Additionally, securities required to be registered must be accompanied by a prospectus that meets the rules set forth by the commission before each sale. The statute mandates that the registration of securities be recorded and publicly accessible, and it outlines that offers for securities registration can be made prior to registration if they comply with commission rules. The permit for selling registered securities is valid for one year from the issuance date.

FL ST § 517.072 Viatical settlement investments

Florida Statute 517.072 addresses viatical settlement investments, stipulating that exemptions from registration under sections 517.051(6), (8), and (10) do not apply to these investments. Additionally, viatical settlement investments are not considered exempt transactions under section 517.061 unless offered to a qualified institutional buyer. Certain transactions involving viatical settlement investments are exempt from registration provisions but must still comply with sections 517.301, 517.311, and 517.312. These include specific transfers or assignments of viaticated policies, stop-loss coverage provisions, and transfers by conservators appointed by the court.

FL ST § 517.171 Burden of proof

Florida Statute 517.171 outlines the burden of proof in legal proceedings related to securities transactions. According to this statute, it is not necessary for any complaint, information, indictment, or other writ or proceeding to negate the exemptions provided within the chapter. Instead, the responsibility to establish the right to any claimed exemption lies with the party asserting it. This means that in any legal action under this chapter, the defendant must prove their entitlement to an exemption rather than the plaintiff having to disprove it from the outset.

FL ST § 517.311 False representations; deceptive words; enforcement

Florida Statute 517.311 addresses false representations and deceptive words related to securities transactions. It is unlawful for any person involved in issuing or selling securities within the state to misrepresent that such securities or the issuing company are guaranteed, sponsored, recommended, or approved by any state or federal agency. This prohibition also applies to any registered individuals or entities, or those required to be registered under the chapter, from claiming that their credentials have been approved by the state or federal government. Additionally, any statement regarding registration must include a disclaimer clarifying that registration does not imply endorsement by state or federal authorities. This statute aims to protect investors from deceptive practices and ensure transparency in the securities market​.

What are Florida’s Securities Laws Exemptions?

Navigating the intricate realm of securities law can be a daunting task for any business entity or individual. Florida’s Blue Sky Laws, the state’s securities regulations, are no exception. Yet understanding the exemptions to these laws can be crucial for businesses as they strive to operate efficiently and in accordance with the law.

Securities laws typically serve a dual purpose of ensuring transparency in securities transactions and protecting investors. However, recognizing that not all situations necessitate the same degree of oversight, these laws also provide for specific exemptions. In Florida, the list of entities and situations exempted from certain aspects of its Blue Sky Laws is extensive.

Key Exemptions Under Florida’s Securities Laws

Governmental Entities

• Exemptions are granted to governmental entities, including federal corporate instrumentalities and certain foreign governmental entities. This exemption reflects the inherent trust placed in these bodies due to their governmental status and their role in public administration.

Financial Institutions

• Banks, savings banks, savings institutions, savings and loan entities, building and loan entities, land banks, farm loan associations, trust companies, international development banks, and credit unions are exempt from certain securities regulations. These institutions are heavily regulated under other frameworks, which justifies their exemption from additional securities oversight.

Essential Service Providers

• Railroads, public service utilities, and holding corporations benefit from exemptions due to the essential services they provide and the high degree of regulation they already undergo in their regular operations.

Insurance Contracts

• Insurance contracts are exempt from securities laws. This category includes products offered by insurance companies, which are regulated separately under insurance law and considered distinct from traditional securities.

Fixed-Return Securities

• Investments that offer a guaranteed rate of return are also exempt. Fixed-return securities are perceived as less risky compared to variable-return securities, and thus require less regulatory oversight.

Non-Profit Agricultural Cooperatives

• Non-profit agricultural cooperatives are exempt from securities regulations. These cooperatives support farming communities and operate on a fundamentally non-commercial basis, which aligns them more with community support than profit generation.

Non-Profit Organizations

• Non-profit organizations, including those dedicated to charitable, educational, or other socially beneficial purposes, are exempt. Their non-profit status usually entails a high degree of transparency and accountability, reducing the need for additional regulatory oversight.

Commercial Paper

• Current transaction commercial paper is exempt from securities regulations. Commercial paper represents short-term, unsecured debt issued by corporations, typically used for financing short-term liabilities. These transactions are generally considered less risky due to their short-term nature and the financial stability of the issuing corporations.

Understanding the exemptions provided by Florida’s Blue Sky Laws is essential for businesses and individuals involved in securities transactions. These exemptions recognize the varied nature of different entities and transactions, allowing for a tailored approach to regulation that balances the need for investor protection with the practicalities of business operations. By navigating these exemptions correctly, businesses can ensure compliance while operating efficiently within the legal framework.

What are Florida’s Procedures for Securities Law Exemptions?

Understanding the procedures for securities law exemptions in Florida is crucial for businesses and individuals seeking to raise capital while ensuring compliance with state regulations. Florida’s Blue Sky Laws, governed by the Florida Securities and Investor Protection Act, provide specific steps and requirements for claiming exemptions. Here’s a detailed look at the procedures for obtaining securities law exemptions in Florida:

1. Identify Applicable Exemptions

The first step is to determine whether your offering qualifies for any of the exemptions under Florida’s securities laws. As detailed in the previous section, exemptions can apply to various entities such as governmental bodies, financial institutions, essential service providers, insurance contracts, fixed-return securities, non-profit agricultural cooperatives, non-profit organizations, and commercial paper. Carefully review the specific criteria for each exemption to confirm eligibility.

2. Prepare Required Documentation

Even when an offering is exempt, issuers must prepare and maintain thorough documentation to support the exemption claim. This typically includes:

• Description of the Offering: Detailed information about the securities being offered, the terms of the offering, and the nature of the business or project being funded.
• Investor Information: Details about the investors, including whether they meet any specific criteria (e.g., accredited investor status).
• Private Placement Memorandum (PPM): Although not always required for all exemptions, preparing a PPM can be beneficial. It should include comprehensive information about the offering, risks, business operations, and financial statements.

3. File Notice with the NASAA Electronic Filing Depository (EFD)

For offerings under Regulation D Rule 506(b) or Rule 506(c), issuers are required to file a notice with the state through the NASAA Electronic Filing Depository (EFD). Here are the steps:

• Create an EFD Account: Register on the NASAA EFD website to access the filing system.
• Complete Form D: Fill out Form D, which provides details about the offering, the issuer, and the investors.
• Submit the Filing: File the completed Form D electronically through the EFD system. This notice will be transmitted to the Florida Office of Financial Regulation.

4. Pay Applicable Fees

Although Florida does not impose notice requirements for Regulation D offerings, other filings might necessitate fees. It is essential to check for any applicable state fees associated with your specific exemption or notice filing to ensure full compliance.

5. Maintain Compliance Records

Issuers must keep detailed records of all transactions and filings to demonstrate compliance with both state and federal securities laws. These records should include:

• Copies of Filed Documents: Retain copies of all forms and filings submitted, including Form D and any correspondence with state regulators.
• Investor Agreements: Keep signed agreements and other relevant documents from investors.
• Financial Records: Maintain accurate and up-to-date financial records related to the offering and the use of funds.

6. Ongoing Reporting and Updates

Certain exemptions might require ongoing reporting or updates to maintain compliance. Issuers should:

• Monitor Regulatory Changes: Stay informed about any changes in Florida’s securities laws or regulations that might impact your exemption status.
• Update Filings as Necessary: If there are material changes to the offering or business operations, issuers may need to update their filings with the Florida Office of Financial Regulation through the EFD system.

Navigating the procedures for securities law exemptions in Florida involves careful preparation, detailed documentation, and diligent compliance with both state and federal requirements. By following these steps and leveraging tools like the NASAA Electronic Filing Depository, issuers can efficiently manage their filings and maintain compliance, ensuring a smooth and legally sound capital-raising process.

Frequently Asked Questions

Do I Need an Attorney from Florida to Put Together an Offering?

The necessity of hiring an attorney licensed in Florida for putting together an offering largely depends on the nature of the offering and the specific legal requirements it entails. If your offering falls under Regulation D, rather than Florida-specific Blue Sky Laws, you may not need an attorney licensed in Florida.

For instance, if you are working on a real estate syndication deal, such as a multifamily project in Jacksonville, Florida, that will be offered in multiple states, a syndication attorney licensed in another state could likely assist you. This attorney could prepare the private placement memorandum (PPM), establish the entity, and draft the operating agreement. However, they would not be able to provide specific legal counsel on Florida laws and how they might impact your offering.

On the other hand, if you are structuring a private placement memorandum for a development project in Miami, Florida, with all investors based in Florida, and you intend to utilize one of Florida’s Blue Sky Laws as an exemption to registration, you would need to engage an attorney licensed in Florida. This local attorney would be well-versed in the nuances of Florida securities laws and ensure your offering complies with all relevant state-specific regulations.

In summary, while a licensed syndication lawyer from outside Florida can handle many aspects of a Regulation D offering, particularly those that cross state lines, consulting with a Florida-licensed attorney becomes essential when the offering relies on Florida-specific legal exemptions or when all activities and investors are based within the state. This ensures comprehensive compliance and mitigates potential legal risks associated with the offering.

Is it Ok if the Real Estate Syndication Attorney, Licensed Outside of Florida, Looks Over My Purchase Contract?

While a real estate syndication attorney licensed outside of Florida can review your purchase contract, there are limitations to the advice they can provide. They can examine the contract and offer general business consulting advice, such as discussing price and broad deal points like the length of time until closing. However, they cannot provide legal advice on specific terms related to Florida law, as they are not licensed to practice in the state.

For instance, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can review the underlying contract of your purchase in Tampa, Florida. He can offer insights into the general business aspects of the deal, but he will clarify that he cannot comment on or interpret specific contractual terms governed by Florida law. This distinction is crucial to ensure compliance with state legal requirements and to avoid unauthorized practice of law.

Therefore, while out-of-state attorneys can provide valuable general guidance, it is important to consult a Florida-licensed attorney for advice on specific legal terms and compliance with state laws. This approach ensures that all aspects of your purchase contract are properly reviewed and that you receive comprehensive legal counsel.