Louisiana Blue Sky Laws for Syndication

Navigating the complexities of securities laws is crucial for anyone involved in raising capital through real estate syndication or private equity. Whether you are a real estate developer, private equity fund manager, or a business professional looking to syndicate, understanding both federal and state securities regulations is essential. Louisiana’s Blue Sky Laws add another layer of compliance to consider, especially for those making offerings under Regulation D.

This comprehensive guide aims to demystify Louisiana’s Blue Sky Laws and their interaction with Regulation D offerings, particularly Rules 506(b) and 506(c). We will explore why you might choose Regulation D over state-specific exemptions, the necessary notification procedures, and the role of syndication attorneys in ensuring compliance. Whether you are planning a multi-state offering or a localized investment project in Louisiana, this article provides valuable insights to help you navigate the legal landscape effectively and avoid common pitfalls.

By the end of this guide, you will have a clearer understanding of the steps required to comply with Louisiana’s securities laws, the importance of timely and accurate filings, and when to seek specialized legal counsel. This knowledge will empower you to make informed decisions and successfully structure your offerings within the regulatory framework.

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

Understanding the relationship between state Blue Sky Laws and the SEC’s Regulation D is crucial for anyone involved in syndication, especially when dealing with private placements. Regulation D, under the Securities Act of 1933, provides exemptions from federal securities registration, facilitating capital raising for businesses and real estate projects. However, even when utilizing these federal exemptions, issuers must be aware of state securities regulations.

Federal Preemption Under Regulation D

For offerings conducted under Regulation D, specifically Rule 506(b) and Rule 506(c), federal law preempts state Blue Sky Laws regarding the registration and qualification of securities. This preemption is codified under 15 U.S. Code § 77r(b)(4)(F). Essentially, this means that states cannot impose their own registration requirements on securities offered under these rules, simplifying the compliance process for issuers.

• Rule 506(b): This rule allows issuers to raise unlimited capital from accredited investors and up to 35 non-accredited but sophisticated investors, provided there is no general solicitation or advertising.
• Rule 506(c): This rule permits issuers to broadly solicit and advertise their offering, but all investors must be accredited, and the issuer must take reasonable steps to verify their accredited status.

Notice Filing Requirements

While state Blue Sky Laws are preempted regarding registration, states can still require notice filings for Rule 506(b) and Rule 506(c) offerings. In Louisiana, this involves submitting a copy of the SEC Form D and paying the applicable filing fee within 15 days of the first sale to state residents. These notice filings are crucial for maintaining state compliance and avoiding penalties.

Intrastate Offerings

If an offering involves a sponsor, all investors, and the assets located entirely within a single state, the sponsor may opt to conduct the offering as an intrastate offering under the state’s Blue Sky Laws. This is a strategic choice for certain localized projects, allowing issuers to tailor the offering to specific state regulations rather than adhering to federal Regulation D requirements.

• Intrastate Offering Exemption: Under this exemption, issuers can raise funds exclusively from investors within the state. This approach can simplify compliance but requires thorough understanding and adherence to state-specific securities laws.

Key Takeaways

• Preemption of State Laws: Regulation D Rule 506(b) and Rule 506(c) preempt state Blue Sky Laws concerning registration, streamlining the capital-raising process across multiple states.
• Notice Filing Requirements: Despite preemption, states like Louisiana still require notice filings and associated fees for these offerings.
• Intrastate Offerings: For offerings confined within a single state, issuers may choose to comply with state Blue Sky Laws as an intrastate offering, potentially simplifying regulatory obligations.

Navigating the intersection of state Blue Sky Laws and Regulation D requires careful planning and legal expertise. Consulting with a knowledgeable syndication attorney can ensure compliance with both federal and state regulations, optimizing the success of your capital-raising efforts.

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

Choosing between Regulation D offerings under Rule 506(b) or Rule 506(c) and state Blue Sky Laws is a critical decision for sponsors and issuers seeking to raise capital. While both options provide pathways to legal compliance in securities offerings, Regulation D offers distinct advantages that often make it the preferred choice, especially for larger or multi-state offerings.

Broad Applicability Across States

One of the most significant advantages of Regulation D Rule 506(b) and Rule 506(c) offerings is their broad applicability across state lines. Unlike state Blue Sky Laws, which can vary significantly and may only apply to intrastate offerings, Regulation D provides a federal framework that preempts state registration requirements under 15 U.S. Code § 77r(b)(4)(F). This preemption simplifies compliance by eliminating the need to navigate different state regulations for each jurisdiction in which an offering is made.

Investor Reach and Flexibility

Rule 506(b) allows issuers to raise unlimited capital from accredited investors and up to 35 non-accredited but sophisticated investors without general solicitation or advertising. This rule is particularly advantageous for sponsors who want to maintain privacy and limit their offering to a known group of investors.

Rule 506(c) permits general solicitation and advertising, provided all investors are accredited, and the issuer takes reasonable steps to verify their accredited status. This rule is ideal for issuers seeking a wider pool of potential investors through public marketing efforts.

Avoiding Intrastate Offering Risks

If any investor or the sponsor is domiciled outside of the state, the offering cannot qualify as an intrastate offering under the state’s Blue Sky Laws. A significant risk of relying solely on state Blue Sky Laws is the potential discovery that an investor is actually domiciled outside the state, which would disqualify the offering from being considered intrastate. This scenario creates a securities law problem, as the offering would then fail to comply with both state and federal regulations, exposing the issuer to legal and financial repercussions.

Consistent Compliance and Reduced Legal Risk

Using Regulation D Rule 506(b) or Rule 506(c) ensures consistent compliance with federal securities laws, thereby reducing the legal risk associated with multi-state offerings. By adhering to a federal standard, issuers can avoid the complexities and potential pitfalls of differing state regulations. This consistency is especially important for larger offerings involving investors from multiple states or even internationally.

Key Takeaways

• Preemption of State Laws: Regulation D offerings under Rule 506(b) and Rule 506(c) preempt state registration requirements, simplifying compliance across multiple states.
• Greater Investor Reach: Rule 506(b) allows for private placements with both accredited and a limited number of non-accredited investors, while Rule 506(c) permits public solicitation with all investors being accredited.
• Reduced Risk of Non-Compliance: Relying on Regulation D mitigates the risk associated with inadvertently involving out-of-state investors in what was intended to be an intrastate offering.
• Streamlined Process: Following federal regulations under Regulation D provides a streamlined and consistent framework, reducing the legal complexities of state-by-state compliance.

Choosing Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws offers issuers a robust, flexible, and compliant pathway for raising capital, making it an attractive option for sponsors aiming to expand their investor base while minimizing regulatory risks. For tailored advice and assistance in structuring your offering, consulting with an experienced syndication attorney is highly recommended.

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 offering under Rule 506(b) or Rule 506(c), it’s essential to understand the notification rules and terms required by the state of Louisiana. Although Regulation D preempts state Blue Sky Laws concerning the registration of securities, issuers must still comply with state notice filing requirements. Here’s what you need to know about notifying Louisiana regarding your Regulation D offering.

Filing Requirements

For both Rule 506(b) and Rule 506(c) offerings, issuers must file a notice with the Louisiana Office of Financial Institutions (OFI). This involves submitting a copy of the SEC Form D and paying the necessary filing fee. Notices are sent to the state through the NASAA Electronic Filing Depository (EFD).

Filing Fee

Louisiana imposes a fixed filing fee for submitting a notice of a Regulation D offering. The current fee structure is as follows:

• New Notice Filing Fee: $300
  This fee is payable at the time of filing the Form D through the NASAA EFD system.

Deadlines

Issuers are required to submit the notice filing to Louisiana within 15 days of the first sale of securities in the state. This aligns with the federal requirement to file Form D with the SEC within 15 days of the first sale, ensuring timely compliance with both federal and state regulations.

Late Filing

Louisiana does not impose a late fee for filings submitted after the 15-day deadline. However, timely filing is crucial to avoid any potential compliance issues or delays in your offering process. Ensuring that all filings are completed on time helps maintain good standing with state regulators and minimizes the risk of administrative complications.

Key Steps for Notification

1. Prepare Form D: Complete the SEC Form D, which includes details about the issuer, the offering, and the types of securities being sold.
2. Submit Form D to the SEC: File the Form D electronically with the SEC within 15 days of the first sale.
3. File Notice with Louisiana via NASAA EFD: Submit a copy of the Form D along with the $300 filing fee through the NASAA Electronic Filing Depository (EFD) within 15 days of the first sale to state residents.
4. Maintain Records: Keep records of all filings and confirmations of receipt from both the SEC and the NASAA EFD for future reference.

Importance of Compliance

Adhering to the notification rules and terms for a Regulation D offering in Louisiana is critical for ensuring legal compliance and smooth operation of your capital-raising efforts. Proper notification helps maintain transparency and accountability, which are essential for building trust with investors and regulators.

Summary

• New Notice Filing Fee: $300
• Deadline: Within 15 days of the first sale
• Late Fee: None
• Filing System: NASAA Electronic Filing Depository (EFD)

By understanding and following these notification rules and terms, issuers can effectively manage their Regulation D offerings in Louisiana, ensuring compliance and minimizing the risk of regulatory issues. For further assistance and expert guidance, consulting with a syndication attorney familiar with both federal and Louisiana state securities laws is recommended.

What are Louisiana’s Blue Sky Laws?

Blue sky laws are state regulations designed to protect investors from securities fraud. In Louisiana, these laws encompass a range of statutes aimed at maintaining transparency and integrity in the securities market. Louisiana Revised Statute 6:242 details the banking powers, including deposit handling and lending. Statute 6:923 provides certain exemptions from security laws for associations. Statute 51:705 outlines the requirements for the registration of securities, while Statute 51:708 specifies which securities are exempt from these requirements. Statute 51:712 identifies unlawful practices in securities transactions, and Statute 51:721 places the burden of proving exemptions on the claimant. Together, these laws form a robust framework to ensure investor protection and market fairness in Louisiana.

LA R.S. 6:242 Banking powers

Louisiana Revised Statute 6:242 outlines the specific powers granted to state banks beyond general corporate capabilities. These powers include receiving and paying deposits, lending money, issuing letters of credit, and investing in various financial instruments. State banks can also act as insurance agents, maintain safe deposit boxes, and participate in the Federal Reserve System. Additionally, they can engage in selling securities, making loans secured by federal agencies, and investing in community development financial institutions. The statute also provides guidelines for banks wishing to surrender fiduciary powers and addresses revocation procedures for trust powers.

LA R.S. 6:923 Exemption from security laws

Louisiana Revised Statute 6:923 provides an exemption for associations and their officers, employees, or agents from state security laws related to supervision, reporting, registration, or regulation in connection with the sale, issuance, or offering of securities. This exemption applies to savings or demand accounts, shares, and stock of any association, making their sale and issuance legal without requiring any action or approval from officials, other than the commissioner responsible for licensing, regulating, or supervising securities.

LA R.S. 51:705 Registration of securities; when and how required; delivery of prospectus

Louisiana Revised Statute 51:705 outlines the requirements for the registration of securities in the state. It prohibits the sale of any securities unless they are registered, exempt, or covered under federal law. The statute details the process for registering securities by qualification, notification, or small issue registration, and specifies the necessary information and documents for the registration statement, including issuer details, financial statements, and a prospectus. It also includes guidelines for the delivery of the prospectus and other conditions to protect investors.

LA R.S. 51:708 Exempt securities

Louisiana Revised Statute 51:708 specifies the types of securities exempt from the registration requirements outlined in R.S. 51:705. These exemptions include securities issued or guaranteed by government entities, banks, savings institutions, federal credit unions, and certain public utilities. The statute also exempts securities from agricultural cooperatives, nonprofit organizations, and those listed on recognized stock exchanges. Additionally, specific promissory notes and securities associated with real estate transactions are exempt, provided they meet the statute’s conditions.

LA R.S. 51:712 Unlawful practices

Louisiana Revised Statute 51:712 addresses unlawful practices in the offer, sale, or purchase of securities. It prohibits false statements or omissions of material facts, the use of deceptive devices or schemes, and misleading statements in documents filed with the commissioner. It also mandates that trustees of investment plans must follow participants’ instructions regarding voting or tendering of securities, and prohibits misrepresentations about the commissioner’s approval of securities.

LA R.S. 51:721 Burden of proving exemption; certificate of compliance or noncompliance as evidence; admissibility of copies of records

Louisiana Revised Statute 51:721 addresses the burden of proving exemptions in securities regulation cases. It places the responsibility on the party claiming an exemption to prove its existence in civil or criminal actions. The statute also stipulates that certificates of compliance or noncompliance issued by the commissioner serve as prima facie evidence in legal proceedings. Additionally, certified copies of records or documents from the commissioner’s office are admissible in court with the same effect as the originals.

What are Louisiana’s Securities Laws Exemptions?

Louisiana provides several exemptions from its Blue Sky Laws, allowing certain securities to be offered and sold without the need for registration. These exemptions are designed to facilitate the issuance of securities by specific types of entities and under particular conditions, reducing the regulatory burden while maintaining investor protection. Understanding these exemptions is crucial for issuers to determine whether their offering qualifies and to ensure compliance with state regulations.

Key Exemptions Under Louisiana Law

Governmental Entities and Certain Foreign Governments:

• Securities issued by the United States, any state, territory, or insular possession of the United States, any political subdivision thereof, or any agency or instrumentality of any of the foregoing.
• Securities issued by foreign governments with which the United States currently maintains diplomatic relations, including securities guaranteed by these governments.

Financial Institutions:

• Securities issued by banks, savings institutions, and other financial institutions such as limited function financial institutions, bank holding companies, savings and loan associations, building and loan associations, credit unions, and industrial loan associations.
• These institutions are typically subject to stringent federal and state regulations, providing a level of investor protection that obviates the need for additional state registration.

Agricultural Cooperatives:

• Securities issued by agricultural cooperatives operating under the agricultural laws of Louisiana or any other state.

Other Entities:

• Railroads and Common Carriers: Securities issued by railroads or other common carriers, which are regulated by governmental authority.
• Public Utilities and Holding Companies: Securities issued by public utility companies and holding companies regulated by federal or state utility commissions.

Listed Stock Exchange Securities:

• Securities listed or approved for listing on recognized stock exchanges, such as the New York Stock Exchange (NYSE), Nasdaq, or any other exchange with similar standards of regulation.

Non-Profit Organizations:

• Securities issued by non-profit organizations operating exclusively for religious, educational, benevolent, fraternal, charitable, social, athletic, or reformatory purposes, and not for pecuniary profit.

Notes Related to Acquiring Real or Personal Property:

• Notes, drafts, bills of exchange, or bankers’ acceptances that arise out of a current transaction or the proceeds of which have been or are to be used for current transactions, and that are secured by a lien on property.

Promissory Notes:

• Promissory notes that are not part of a public offering and meet specific conditions set forth by the Louisiana Office of Financial Institutions.

Securities Meeting Certain Conditions:

• Other securities that meet conditions specified by the Louisiana Office of Financial Institutions, provided these conditions are consistent with investor protection and the public interest.

Practical Implications

Issuers seeking to take advantage of these exemptions must ensure that their securities offerings strictly comply with the conditions set forth in Louisiana Revised Statutes Title 6, Section 923. Proper documentation and a clear understanding of the applicable exemptions are essential to avoid regulatory issues.

Key Considerations for Issuers

• Documentation: Maintain thorough records demonstrating that the offering meets the criteria for the applicable exemption.
• Consultation: Consider consulting with a syndication attorney to ensure that the offering structure complies with Louisiana’s securities laws and to navigate any potential complexities.
• Investor Communication: Clearly communicate to potential investors the nature of the exemption and any relevant details about the offering.

By leveraging these exemptions, issuers can streamline the process of raising capital while ensuring compliance with Louisiana’s securities laws. This approach not only reduces regulatory burden but also helps in achieving a successful and legally compliant securities offering. For detailed guidance and tailored advice, engaging with a knowledgeable syndication attorney is highly recommended.

What are Louisiana’s Procedures for Securities Law Exemptions?

Navigating the procedures for securities law exemptions in Louisiana requires a clear understanding of the regulatory framework and the steps necessary to ensure compliance. Louisiana offers several exemptions under its Blue Sky Laws, but issuers must follow specific procedures to qualify for these exemptions. Here’s a detailed look at the procedures involved in claiming a securities law exemption in Louisiana.

Steps to Qualify for Exemptions

Identify the Applicable Exemption:

• Determine which exemption applies to your securities offering. Louisiana provides exemptions for governmental entities, financial institutions, agricultural cooperatives, certain other entities, listed stock exchange securities, non-profit organizations, notes related to acquiring real or personal property, promissory notes, and other securities meeting specific conditions.

Prepare Required Documentation:

• Gather all necessary documentation to support your claim for an exemption. This may include:
  • Financial statements
  • Articles of incorporation or other organizational documents
  • Evidence of compliance with the specific conditions of the exemption
• Ensure all documents are accurate, complete, and up-to-date.

Notification and Filing:

• Although certain securities are exempt from registration, issuers may still be required to file a notice with the Louisiana Office of Financial Institutions (OFI). This notice serves to inform the state of the exempt offering.
• For specific exemptions, such as those under Regulation D, issuers must submit a copy of the SEC Form D through the NASAA Electronic Filing Depository (EFD) along with the applicable filing fee.

Filing Fee:

• Pay the required filing fee associated with the notice filing. For most Regulation D offerings, the filing fee is $300.
• Ensure the fee is submitted through the appropriate channel, typically via the NASAA EFD system.

Compliance with Timing Requirements:

• Adhere to any timing requirements for filing the notice. For Regulation D offerings, the notice must be filed within 15 days of the first sale of securities in Louisiana.
• Prompt filing helps avoid compliance issues and potential delays.

Maintain Records:

• Keep detailed records of all filings, correspondence, and documents related to the exemption. This includes copies of Form D, proof of payment of filing fees, and any other relevant documentation.
• Proper record-keeping ensures you can provide evidence of compliance if questioned by regulators or investors.

Consult with Legal Counsel:

• Engage a syndication attorney who specializes in Louisiana securities laws to review your offering and ensure that all procedural requirements are met.
• Legal counsel can provide guidance on complex regulatory issues and help mitigate the risk of non-compliance.

Key Considerations for Issuers

• Thorough Documentation: Accurately document all aspects of your offering and the claimed exemption. Missing or incorrect information can lead to regulatory scrutiny and potential legal issues.
• Timely Filing: Adhere strictly to filing deadlines to avoid complications and demonstrate good faith compliance with state regulations.
• Legal Guidance: Consulting with a knowledgeable syndication attorney can streamline the process and provide peace of mind, ensuring all procedural steps are correctly followed.

By understanding and following the procedures for claiming securities law exemptions in Louisiana, issuers can effectively navigate the regulatory landscape and leverage available exemptions to streamline their capital-raising efforts. Proper adherence to these procedures not only facilitates compliance but also builds credibility and trust with investors. For tailored assistance and expert advice, consider partnering with a syndication attorney well-versed in Louisiana’s securities laws.

Frequently Asked Questions

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

Whether you need an attorney licensed in Louisiana to put together your offering largely depends on the specifics of your situation. If your offering is under Regulation D and not specifically reliant on Louisiana’s Blue Sky Laws, then you probably do not need a Louisiana-licensed attorney.

For instance, suppose you are working on a real estate syndication and need an attorney to create a private placement memorandum (PPM) for a multifamily deal in New Orleans, Louisiana, which will be offered across various states. In that case, you likely do not need a Louisiana-specific attorney, provided you do not require counsel on Louisiana-specific legal questions. A licensed syndication lawyer from any state could draft the PPM, establish the entity, and write the operating agreement. However, they would not be able to advise you on the nuances of Louisiana law and how it might impact your offering.

On the other hand, if you are putting together a PPM for a development project in Baton Rouge, Louisiana, with all investors being from Louisiana, and you intend to utilize one of Louisiana’s Blue Sky Law exemptions for registration, you would indeed need the expertise of an attorney licensed in Louisiana. Local legal counsel would be necessary to navigate the specific requirements and ensure compliance with Louisiana’s securities regulations.

In summary, for offerings under Regulation D not reliant on Louisiana-specific exemptions, an attorney from outside Louisiana can typically handle most of the legal work. However, if your offering involves intrastate investors and relies on state-specific Blue Sky Law exemptions, it is prudent and often necessary to engage a Louisiana-licensed attorney to ensure full compliance and proper legal guidance.

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

While a real estate syndication attorney licensed outside of Louisiana can review your purchase contract, they cannot provide legal advice specific to Louisiana law. For example, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, may review your purchase contract for a property in Shreveport, Louisiana. However, he will clarify that he can offer business consulting advice, such as discussing the price and broad deal points like the time frame until closing, but cannot address specific legal terms as he is not licensed in Louisiana.

This limitation means that while an out-of-state attorney can offer valuable insights and general advice, they cannot interpret or provide guidance on any legal nuances specific to Louisiana law. For precise legal advice on contract terms and compliance with Louisiana regulations, it is crucial to consult with an attorney licensed in Louisiana. This ensures that all aspects of the contract are legally sound and that you are fully informed of any state-specific legal implications.