Syndicators looking to raise capital from investors in Kentucky should be aware of the Kentucky’s Blue Sky Laws. These laws regulate the securities industry within the state and understanding the basics of Kentucky’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 state, then Kentucky’s Blue Sky Rules apply. 

 

What if I Need to Notify Kentucky about my Regulation D Syndication?

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

Filing fee – Fixed

New notice – $250

Late fee for late filings – None

 

What are Kentucky’s Blue Sky Laws?

KY ST § 286.5-111 Associations exempt from security sale regulations

KY ST § 292.340 Registration of securities

KY ST § 292.400 Exempt securities

KY ST § 292.415 Claim of exemption; effect of failure to file

KY ST § 292.420 Burden of proving exemption

KY ST § 292.450 Unlawful representations concerning registration or exemption

 

What are Kentucky’s securities laws exemptions?

Governmental entities; certain foreign governments including Canada; Financial institutions: banks, savings institutions, trust companies, savings and loan, building and loan, credit unions etc.; Cooperatives: cooperative corporations, rural electric/ telephone cooperative corporations and agricultural cooperative associations; Other entities: common carriers, public utilities, holding companies, and insurance companies; Listed stock exchange securities; Non-profit persons; Current transaction commercial paper; Employee benefit plans

 

What are Kentucky’s procedures for securities law exemptions? 

Applicable to: non-profit persons and agricultural cooperative associations; Procedure includes: filing a claim of exemption and a 10 day period to determine exemption availability; Applicable to: particular employee benefit plans; Procedure may include: notice filing and 5 day review period

 

Frequently Asked Questions

Do I need an attorney from Kentucky then to put together an offering?

That depends. If the offering you are putting together is under Regulation D and not one of the Kentucky-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 Louisville, Kentucky, that was going to be offered in different states, and you didn’t need counsel on questions related to Kentucky 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 Kentucky 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 Lexington, Kentucky, all of the investors were from Kentucky, and you wanted to use one of Kentucky’s Blue Sky Laws above as an exception to registration, then you would need to work with someone licensed in Kentucky.

 

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

They can look, but they can’t give you advice as it pertains to Kentucky. For example, Tilden Moschetti, Esq, syndication attorney for the Moschetti Syndication Law Group, will look, if asked, about the contract underlying your purchase contract in Bowling Green, Kentucky, but makes it clear that he 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 he is not licensed there.