Iowa Blue Sky Laws for Syndication

Navigating the complex landscape of securities laws is crucial for anyone involved in raising capital, particularly through real estate syndications. One critical area of focus is understanding how state Blue Sky Laws interact with federal regulations, specifically Regulation D. For sponsors and syndicators, grasping the nuances of these laws can make the difference between a successful offering and significant legal complications.

This article delves into Iowa’s Blue Sky Laws and their relationship with SEC’s Regulation D, providing a comprehensive guide for real estate developers, businesses, private equity fund managers, and syndicators. We will explore why Regulation D Rule 506(b) and Rule 506(c) are often preferred over state-specific laws, outline the notification rules and procedures for compliance, and examine the various exemptions available under Iowa’s securities laws. Additionally, we will address common questions about the necessity of using an Iowa-licensed attorney for your offerings and the limitations of out-of-state legal counsel in reviewing purchase contracts.

By understanding these key aspects, sponsors can better navigate regulatory requirements, ensuring their offerings are compliant and well-positioned for success. Whether you are considering a multifamily deal in Des Moines or a development project in Cedar Rapids, this guide will equip you with the knowledge needed to make informed decisions and avoid common pitfalls in the world of securities offerings.

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

When raising capital through securities offerings, it’s essential to understand the relationship between state Blue Sky Laws and federal regulations, particularly the SEC’s Regulation D. This relationship can significantly impact how sponsors of syndications structure their offerings.

Federal Preemption of State Blue Sky Laws

Under 15 U.S. Code § 77r(b)(4)(F), Regulation D Rule 506(b) and Rule 506(c) offerings are generally preempted from state Blue Sky Laws. This preemption means that if a syndication complies with the requirements of Rule 506(b) or Rule 506(c), the offering does not need to meet the additional state registration requirements typically imposed by Blue Sky Laws. This federal preemption is a critical benefit of using Regulation D, as it simplifies the process of raising capital across multiple states.

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

Regulation D provides exemptions that allow companies to raise capital without the expense and complexity of registering their securities with the SEC. Specifically:

• Rule 506(b) allows issuers to raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 non-accredited investors, provided they meet certain sophistication requirements. However, general solicitation and advertising are prohibited.
• Rule 506(c) permits issuers to broadly solicit and advertise their offering, but all purchasers in the offering must be accredited investors, and the issuer must take reasonable steps to verify their accredited status.

These rules facilitate syndications by providing clear guidelines for compliance and by preempting state laws, thus streamlining the capital-raising process.

Intrastate Offerings Under State Blue Sky Laws

Despite the advantages of federal preemption, there are scenarios where a sponsor might choose to conduct an offering under a state’s Blue Sky Laws. If an offering is exclusively intrastate—meaning the sponsor, all investors, and the assets involved are located within the same state—the sponsor may opt to structure the offering under that state’s Blue Sky Laws. This is often referred to as an intrastate offering.

When to Consider an Intrastate Offering

Choosing an intrastate offering can be beneficial under certain circumstances:

• Localized Investment Appeal: When the investment opportunity is highly localized and appeals primarily to residents within the state.
• Simplified Compliance: If the state’s Blue Sky Laws offer a simpler or more advantageous regulatory framework for the specific type of investment.
• Investor Familiarity: Investors may be more comfortable with a regulatory regime they are familiar with, which can enhance trust and participation in the offering.

However, intrastate offerings require strict adherence to the state’s specific securities laws, which can vary significantly from one state to another. This makes it crucial to consult with a knowledgeable syndication attorney to navigate these requirements effectively.

Understanding the interplay between state Blue Sky Laws and the SEC’s Regulation D is vital for sponsors considering a securities offering. While Regulation D Rule 506(b) and Rule 506(c) provide broad preemption of state laws, allowing for streamlined and efficient capital raising across multiple states, there are circumstances where an intrastate offering under state Blue Sky Laws may be advantageous. Careful consideration and legal guidance are essential to determine the best approach for your syndication.

By leveraging the benefits of Regulation D and strategically considering state-specific laws, sponsors can effectively navigate the regulatory landscape to achieve their capital-raising goals.

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

When considering raising capital through securities offerings, sponsors often face the decision of whether to comply with state Blue Sky Laws or utilize the exemptions provided under Regulation D, specifically Rule 506(b) or Rule 506(c). There are several compelling reasons to choose Regulation D over state Blue Sky Laws, particularly for those involved in syndications.

Broad Applicability and Federal Preemption

One of the primary advantages of using Regulation D Rule 506(b) or Rule 506(c) is the broad applicability and federal preemption of state Blue Sky Laws. This preemption simplifies the process of raising capital across multiple states by providing a unified set of rules and reducing the need for compliance with varying state regulations. This is particularly beneficial for real estate syndications and other offerings that attract investors from different states.

Avoiding Jurisdictional Issues

State Blue Sky Laws are designed to regulate securities offerings within a particular state. However, if any investor or the sponsor is located outside of the state, the offering can no longer be considered intrastate and thus cannot fall under the state’s Blue Sky Laws. This situation can lead to significant complications:

• Discovery of Out-of-State Investors: During the course of an offering, it may be discovered that an investor is actually domiciled outside of the state. This discovery can retroactively invalidate the intrastate offering exemption, leading to potential securities law violations.
• Securities Law Problems: Once an offering is deemed to involve out-of-state investors, it is no longer compliant with the state’s Blue Sky Laws and must then meet federal securities regulations. This can create a legal problem if the offering was not structured to comply with Regulation D from the outset.

Choosing Regulation D Rule 506(b) or Rule 506(c) from the beginning helps to avoid these jurisdictional issues by ensuring that the offering is compliant with federal securities laws, regardless of the location of investors.

Flexibility and Investor Reach

Regulation D provides flexibility in terms of solicitation and the types of investors that can participate:

• Rule 506(b) allows for raising an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited investors. This flexibility is crucial for syndications looking to attract a diverse investor base. However, general solicitation and advertising are prohibited under this rule.
• Rule 506(c) permits general solicitation and advertising, expanding the potential reach of the offering. All investors must be accredited, and the issuer must take reasonable steps to verify their accredited status. This rule is particularly advantageous for sponsors looking to widely market their offerings.

Compliance Simplicity

Regulation D offers a streamlined compliance process compared to the often complex and varied requirements of state Blue Sky Laws. Key benefits include:

• Unified Filing Requirements: Regulation D requires filing Form D with the SEC, a straightforward process compared to navigating different registration requirements in multiple states.
• Reduced Legal Complexity: By adhering to a single set of federal regulations, sponsors can reduce legal complexity and costs associated with multi-state compliance.

Risk Management

Using Regulation D helps manage the risks associated with securities offerings:

• Legal Certainty: Compliance with federal regulations provides a clear legal framework, reducing the risk of inadvertent securities law violations.
• Investor Confidence: Adherence to Regulation D can enhance investor confidence by demonstrating a commitment to regulatory compliance and transparency.

Choosing Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws offers significant advantages in terms of flexibility, broad applicability, and reduced legal complexity. For sponsors of real estate syndications and other securities offerings, these rules provide a robust framework for raising capital while minimizing the risks associated with jurisdictional issues and multi-state compliance. By leveraging the benefits of Regulation D, sponsors can effectively navigate the regulatory landscape and achieve their capital-raising goals with greater confidence and efficiency.

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

When conducting a Regulation D Rule 506(b) or Rule 506(c) offering, it is essential to comply with both federal and state notification requirements. Although federal law preempts state Blue Sky Laws for these offerings, states still require issuers to file a notice of the offering and pay associated fees. Below are the notification rules and terms for notifying the state of Iowa about a Regulation D Rule 506(b) or Rule 506(c) offering.

Filing Requirements

1. Form D Submission: Issuers must file Form D with the SEC within 15 days after the first sale of securities in the offering. This filing includes essential information about the issuer and the offering.
2. State Notification via NASAA EFD: In addition to filing with the SEC, issuers must notify the state of Iowa through the North American Securities Administrators Association (NASAA) Electronic Filing Depository (EFD). This can be done by submitting a copy of Form D via the NASAA EFD platform.

• NASAA EFD Platform: Issuers can submit their notice to the state of Iowa electronically through the NASAA EFD. This platform streamlines the notification process and ensures that all required documents and fees are submitted efficiently. For more details on how to use the NASAA EFD, visit NASAA EFD FAQ.

Filing Fees

Iowa requires issuers to pay a fixed filing fee when notifying the state about a Regulation D Rule 506(b) or Rule 506(c) offering. The fees are as follows:

• New Notice Filing Fee: $100
• This fee must be paid at the time of filing the notice with the Iowa Securities Bureau via the NASAA EFD. It covers the initial notification of the offering.

Late Filing Fees

Timely filing is essential to avoid additional penalties. If the notice is filed late, Iowa imposes a late fee:

• Late Fee for Late Filings: $250
• This fee applies if the filing is submitted more than 15 days after the first sale of securities in the state. Issuers should be diligent in meeting the filing deadline to avoid this substantial additional cost.

Key Points to Remember

• Timely Submission: Ensure that the Form D is filed with both the SEC and the Iowa Securities Bureau within 15 days after the first sale of securities. Utilize the NASAA EFD platform to facilitate this process. Timely submission helps avoid late fees and ensures compliance with state notification requirements.
• Accurate Information: Double-check all information provided in the Form D and any state-specific forms to ensure accuracy and completeness. Inaccurate filings can lead to delays and potential penalties.
• Track Deadlines: Maintain a clear schedule of filing deadlines for both federal and state notifications. Implement a reminder system to track these deadlines and ensure timely compliance.

Adhering to the notification rules and terms for a Regulation D Rule 506(b) or Rule 506(c) offering in Iowa is crucial for compliance and avoiding unnecessary penalties. By promptly submitting the required forms and fees through the NASAA Electronic Filing Depository, issuers can focus on successfully raising capital while maintaining regulatory compliance. Understanding and following these rules helps streamline the offering process and builds investor confidence in the issuer’s adherence to legal requirements.

What are Iowa’s Blue Sky Laws?

Iowa’s blue sky laws are designed to regulate the offering and sale of securities within the state to protect investors from fraud. Key provisions include requirements for securities registration (502.301), exemptions and waivers (502.203), and regulations against false statements in publicity (502.506A). The laws also cover the evidentiary burden in legal proceedings (502.503), uniformity and cooperation with other regulatory bodies (502.608), and specific regulations for public joint investment trusts (502.701) and industrial loan companies’ thrift certificates (536A.22). These laws ensure transparency, investor protection, and regulatory compliance within Iowa’s securities market.

IA ST § 502.201 Exempt securities

Iowa Code Section 502.201 outlines specific types of securities that are exempt from certain regulatory requirements under the Iowa Uniform Securities Act. These exemptions include securities issued by U.S. and foreign governments, depository institutions, insurance companies, public utilities, and nonprofit organizations. Additionally, certain cooperative associations, agricultural cooperatives, and securities involved in equipment trust certificates and specific financial contracts are also exempt. The aim is to streamline compliance for these entities while ensuring investor protection through other regulatory mechanisms.

IA ST § 502.203 Additional exemptions and waivers

Iowa Code Section 502.203 provides for additional exemptions and waivers under the Iowa Uniform Securities Act. It allows for the adoption of rules or issuance of orders to exempt specific securities, transactions, or offers from certain regulatory requirements. These rules can exempt a class of securities or transactions from compliance with sections 502.301 through 502.306 and 502.504. Furthermore, orders may waive conditions for exemptions under sections 502.201 and 502.202, either partially or entirely, facilitating regulatory flexibility.

IA ST § 502.204 Denial, suspension, revocation, condition, or limitation of exemptions

Iowa Code Section 502.204 outlines the conditions under which the state can deny, suspend, revoke, or place limitations on exemptions for securities. This applies to exemptions under sections 502.201, 502.202, and 502.203, and involves specific securities, transactions, or offers. Such actions can only be taken following the procedures set out in sections 502.306 and 502.604 and are applied prospectively. Moreover, individuals are not in violation if they were unaware of such orders despite exercising reasonable care.

IA ST § 502.301 Securities registration requirement

Iowa Code Section 502.301 establishes the requirement for securities registration. It is illegal to offer or sell a security in Iowa unless the security is a federal covered security, is exempt from registration under sections 502.201 through 502.203, or is registered under this chapter. This ensures regulatory oversight and protection for investors by mandating that only compliant securities can be marketed within the state.

IA ST § 502.503 Evidentiary burden

Iowa Code Section 502.503 delineates the evidentiary burden in securities-related proceedings. In civil or administrative cases under this chapter, the responsibility to prove an exemption, exception, preemption, or exclusion falls on the person making the claim. In criminal proceedings, the claimant must produce evidence supporting their exemption, exception, preemption, or exclusion. This allocation of the burden of proof ensures clarity and procedural fairness in the adjudication of securities regulations.

IA ST § 502.506 Misrepresentations concerning registration or exemption–official endorsements prohibited

Iowa Code Section 502.506A prohibits making false or misleading statements in any public report, press release, or publicly available information regarding a target company or related to a takeover offer. These misstatements are unlawful if they are likely to induce others to buy, sell, or hold securities of the target company, considering the circumstances at the time they are made.

IA ST § 502.608 Uniformity and cooperation with other agencies

Iowa Code Section 502.608 emphasizes the importance of uniformity and cooperation in securities regulation. It mandates the administrator to collaborate and share information with other state, federal, and international regulatory bodies. This cooperation aims to maximize regulatory effectiveness, ensure investor protection, and minimize business burdens. The section details specific areas for collaboration, such as developing uniform forms, conducting joint investigations, and formulating common systems and procedures.

IA ST § 502.701 Public joint investment trusts

Iowa Code Section 502.701 regulates public joint investment trusts established under chapter 28E for the joint investment of public funds. These trusts fall under the jurisdiction of the administrator, who has the authority to examine their business and records, contract for outside services for these examinations, and share information with other regulatory authorities. The trusts are exempt from registration provisions of sections 502.301 and 502.321I, but must comply with other regulatory requirements to ensure proper oversight and investor protection.

IA ST § 536A.22 Thrift certificates

Iowa Code Section 536A.22 restricts licensed industrial loan companies from selling senior debt to the general public in the form of thrift certificates, promissory notes, or similar instruments. Companies that were selling such debt on January 1, 1996, may continue until a change of control occurs. After a change of control, outstanding senior debt without a maturity date must be redeemed within six months, while those with maturity dates must be redeemed on their stated dates. The total amount of debt sold to the public is capped at ten times the company’s capital, surplus, profits, and subordinated debt.

What are Iowa’s Securities Laws Exemptions?

Iowa’s Blue Sky Laws provide several exemptions from the registration requirements for securities offerings. These exemptions are designed to facilitate capital raising for specific types of entities and transactions while maintaining investor protection. Below is a detailed overview of the key exemptions available under Iowa Code Section 502.201.

Exempt Entities and Transactions

Governmental Entities and Certain Foreign Governments

• Securities issued by the United States, any state, or any political subdivision, agency, or instrumentality thereof, as well as securities issued by certain foreign governments, are exempt from registration.

Financial Institutions

• Securities issued by depository and banking institutions, such as banks and savings and loan associations, are exempt from registration.

Cooperatives

• This includes cooperative housing corporations, mutual or cooperative organizations, and agricultural cooperative associations. These entities can issue securities without the need for state registration.

Economic Development Corporations

• Securities issued by economic development corporations aimed at promoting business and industrial growth within the state are exempt.

Agricultural Development Authority

• Securities issued by the agricultural development authority for the purpose of agricultural development and related activities are exempt.

Membership Camping Contracts

• Contracts for the sale of membership camping, which provide the right to use camping sites and related facilities, are exempt.

Time Shares

• Interests in time-share arrangements, which grant the right to use real property for a specified period, are exempt.

Viatical Settlement Contracts

• Contracts involving the sale of life insurance policies to third parties before the death of the insured are exempt.

Other Entities

• This includes railroads, common carriers, public utilities, public utility holding companies, and insurance companies. Securities issued by these entities are exempt from registration requirements.

1. Equipment Trust Certificates
   • Certificates issued under an equipment trust, where the property is leased or conditionally sold, are exempt.
2. Listed Securities and Clearing Agency Options
   • Securities listed on a registered national securities exchange and options issued by a registered clearing agency are exempt.
3. Non-Profit Persons
   • Securities issued by non-profit organizations are generally exempt. These include charitable, religious, educational, and similar entities.
4. Joint Investment Trusts
   • Securities issued by joint investment trusts that meet certain criteria may be exempt from registration.

Iowa’s securities laws provide a broad range of exemptions to facilitate various types of securities offerings without the need for state registration. These exemptions help specific entities, such as governmental bodies, financial institutions, cooperatives, and non-profit organizations, to raise capital more efficiently. Understanding these exemptions can be crucial for sponsors and syndicators to determine the most appropriate and compliant method of structuring their securities offerings. Consulting with a syndication attorney knowledgeable in Iowa’s Blue Sky Laws can provide further guidance and ensure compliance with all applicable regulations.

What are Iowa’s Procedures for Securities Law Exemptions?

While Iowa provides several exemptions from the registration requirements for securities offerings, issuers must follow specific procedures to ensure that their offerings qualify for these exemptions. Below is a detailed overview of the steps involved in claiming an exemption under Iowa’s Blue Sky Laws.

Initial Assessment and Documentation

Identify Applicable Exemption

• The first step is to determine which specific exemption applies to the offering. This involves a thorough review of Iowa Code Section 502.201 to identify the relevant exemption category (e.g., governmental entities, financial institutions, cooperatives, etc.).

Prepare Supporting Documentation

• Gather all necessary documentation to support the claim for exemption. This may include organizational documents, financial statements, contracts, and any other relevant information demonstrating eligibility for the exemption.

Filing Requirements

Notice of Exempt Offering

• For certain exemptions, issuers may be required to file a notice with the Iowa Securities Bureau. This notice typically includes information about the issuer, the nature of the securities being offered, and the basis for the exemption.

NASAA EFD Submission

• In cases where a notice is required, issuers may need to submit the relevant information through the North American Securities Administrators Association (NASAA) Electronic Filing Depository (EFD). This platform simplifies the filing process and ensures that all required information is submitted efficiently.

Fees and Deadlines

Payment of Filing Fees

• Some exemptions may require the payment of a filing fee. Issuers should check the specific requirements for their exemption category to determine if a fee is applicable and ensure it is paid in a timely manner.

Adherence to Filing Deadlines

• It is crucial to adhere to any specified deadlines for filing notices or other required documents. Missing a deadline can result in the loss of the exemption and potential penalties.

Ongoing Compliance and Recordkeeping

Maintain Accurate Records

• Issuers must maintain accurate and up-to-date records of the offering and all related documentation. This is important for demonstrating compliance with the exemption requirements and for any potential audits or reviews by regulatory authorities.

Periodic Reporting (if applicable)

• Some exemptions may require periodic reporting to the Iowa Securities Bureau. Issuers should be aware of any ongoing reporting obligations and ensure they are met.

Consultation with Legal Counsel

Seek Legal Advice

• Given the complexity of securities laws and the importance of compliance, it is highly recommended to consult with a syndication attorney who is experienced in Iowa’s Blue Sky Laws. An attorney can provide valuable guidance on eligibility for exemptions, the filing process, and ongoing compliance requirements.

Key Points to Remember

• Understand the Specific Exemption Requirements: Each exemption category has unique requirements. Issuers must thoroughly understand these to ensure compliance.
• Timely and Accurate Filings: Ensuring that all required notices and documents are filed accurately and on time is critical to maintaining the exemption.
• Legal Guidance: Engaging with a qualified attorney can help navigate the complexities of securities laws and avoid potential pitfalls.

Navigating Iowa’s procedures for securities law exemptions requires careful attention to detail and adherence to specific filing requirements. By understanding the applicable exemptions, preparing necessary documentation, and complying with filing procedures and deadlines, issuers can effectively leverage these exemptions to facilitate their securities offerings. Consulting with a knowledgeable syndication attorney can further ensure that all regulatory obligations are met and that the offering proceeds smoothly.

Frequently Asked Questions

Do I Need an Attorney from Iowa Then to Put Together an Offering?

Whether you need an attorney licensed in Iowa to put together a securities offering depends on the specifics of your situation. If your offering is under Regulation D and not one of the Iowa-specific Blue Sky Laws, you likely do not need an Iowa-licensed attorney.

For instance, if you require a real estate syndication attorney to prepare a private placement memorandum (PPM) for a multifamily deal in Des Moines, Iowa, that will be offered across multiple states, you may not need an attorney specifically licensed in Iowa. A qualified syndication attorney can assist with drafting the PPM, forming the entity, and writing the operating agreement. However, they would not be able to provide legal counsel on Iowa-specific laws and how they might impact your offering. This is typically sufficient if your legal questions and compliance requirements are covered under federal Regulation D, Rule 506(b), or Rule 506(c).

On the other hand, if you are structuring a private placement memorandum for a development project in Cedar Rapids, Iowa, where all investors are from Iowa and you intend to utilize one of Iowa’s Blue Sky Laws as an exemption to registration, you would need to work with an attorney licensed in Iowa. This local counsel can provide the necessary legal advice on state-specific regulations, ensuring compliance with Iowa’s securities laws and handling any nuances particular to the state’s legal environment.

In summary, the need for an Iowa-licensed attorney hinges on the nature of your offering and whether it falls under federal or state-specific regulations. For multi-state Regulation D offerings, a syndication attorney from outside Iowa can typically manage the process. However, for offerings relying on Iowa’s Blue Sky Laws, local legal expertise is essential to navigate state-specific requirements.

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

It is generally acceptable for a real estate syndication attorney licensed outside of Iowa to review your purchase contract; however, there are important limitations to be aware of. An out-of-state attorney, such as Tilden Moschetti, Esq., from the Moschetti Syndication Law Group, can provide business consulting advice on your contract, such as discussing price and broad deal points like the length of time until closing. This type of advice is more general and relates to the overall structure and feasibility of the deal.

However, this attorney cannot offer legal advice on specific terms within the contract as they pertain to Iowa law. For example, while Tilden Moschetti can look over your contract for a purchase in Davenport, Iowa, and provide insights from a business perspective, he must make it clear that he cannot address any legal specifics or compliance issues related to Iowa statutes and regulations, as he is not licensed in Iowa.

To ensure full legal compliance and to address any state-specific legal concerns, it is advisable to consult with an attorney licensed in Iowa. This local attorney can provide comprehensive legal advice on the purchase contract, ensuring that all terms comply with Iowa law and protecting your interests in the transaction.