Maine Blue Sky Laws for Syndication

Navigating the complexities of securities laws is crucial for anyone involved in raising capital through syndication, especially real estate developers, private equity fund managers, and other business professionals. Understanding both federal and state regulations is essential to ensure compliance and protect your investments. This article focuses on Maine’s Blue Sky Laws and how they intersect with the SEC’s Regulation D, providing a comprehensive guide for sponsors and syndicators.

Whether you are considering using Regulation D Rule 506(b) or Rule 506(c) for your offerings, or exploring Maine’s specific securities law exemptions, this guide will help you understand the necessary steps and legal considerations. From the notification rules and terms for state filings to whether you need a Maine-licensed attorney, we cover all aspects to ensure your offering is compliant and well-structured.

Dive in to learn more about Maine’s securities laws, the procedures for securing exemptions, and the practical implications for your syndication efforts. With the right knowledge and legal guidance, you can effectively navigate these regulations and successfully raise capital for your projects.

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 looking to raise capital through syndication. Blue Sky Laws are state securities regulations designed to protect investors from fraud. These laws require issuers of securities to register their offerings and provide detailed disclosures to potential investors. However, Regulation D, particularly under Rule 506(b) and Rule 506(c), provides a federal exemption from these state requirements, streamlining the capital-raising process for issuers.

Preemption of State Blue Sky Laws

Under 15 U.S. Code § 77r(b)(4)(F), offerings made pursuant to Rule 506(b) or Rule 506(c) of Regulation D are federally preempted from state Blue Sky Laws. This preemption means that when an issuer conducts an offering under Rule 506(b) or Rule 506(c), they are not required to comply with state securities registration and qualification requirements. Instead, they must file a notice with the SEC (Form D) and adhere to specific federal regulations governing these types of offerings.

This preemption significantly simplifies the process for issuers, allowing them to raise capital across multiple states without the burden of navigating each state’s unique securities laws. However, it’s important to note that while state registration is preempted, states still have the authority to require notice filings and charge fees. Issuers must file a copy of Form D and pay a fee to each state where securities are sold.

Intrastate Offerings

Despite the federal preemption, there are scenarios where a sponsor might choose to conduct an offering under a state’s Blue Sky Laws rather than using Regulation D. One such scenario is an intrastate offering, where the sponsor, all investors, and the assets are located within a single state. In this case, the issuer can opt to rely on the state’s Blue Sky Laws for registration and compliance.

Intrastate offerings are typically conducted under Section 3(a)(11) of the Securities Act of 1933 and Rule 147 or Rule 147A. These rules provide exemptions for offerings confined to a single state, allowing issuers to raise capital from investors within that state without federal registration, provided they comply with the state’s securities laws.

Choosing Between Regulation D and Blue Sky Laws

Issuers must carefully consider whether to use Regulation D or their state’s Blue Sky Laws. Regulation D, through Rule 506(b) and Rule 506(c), offers a streamlined and widely used method for raising capital. Rule 506(b) allows issuers to raise an unlimited amount of money without registering with the SEC, provided they do not use general solicitation or advertising and limit sales to accredited investors and up to 35 non-accredited investors who meet certain sophistication requirements. Rule 506(c), on the other hand, permits general solicitation and advertising but requires all purchasers to be accredited investors.

On the other hand, a state’s Blue Sky Laws might be more suitable for intrastate offerings, where the focus is on local investors and the project is confined within the state. This route can be beneficial for smaller issuances or community-focused projects, allowing closer compliance with local regulations and potentially fostering stronger investor relations within the state.

Understanding the interplay between state Blue Sky Laws and Regulation D is essential for successful syndication. While Regulation D provides significant advantages through federal preemption of state laws, there are circumstances where state Blue Sky Laws might be preferable, especially for intrastate offerings. Sponsors and syndicators should carefully evaluate their options and consult with a knowledgeable syndication attorney to ensure compliance and optimize their capital-raising strategy.

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

When raising capital through syndication, one of the critical decisions a sponsor must make is whether to rely on federal securities exemptions under Regulation D (specifically Rule 506(b) or Rule 506(c)) or to navigate the state’s Blue Sky Laws. While both options have their merits, there are compelling reasons to choose Regulation D exemptions over state Blue Sky Laws.

Federal Preemption and Simplified Compliance

Regulation D, under Rule 506(b) and Rule 506(c), provides federal exemptions that preempt state Blue Sky Laws. This preemption means that issuers can avoid the complexities and variances of individual state securities regulations, streamlining the process of raising capital across multiple states. By filing a notice (Form D) with the SEC and paying any required state notice fees, issuers can focus on compliance with federal regulations, which are more uniform and predictable.

Avoiding Jurisdictional Issues

One of the primary challenges with relying on state Blue Sky Laws is ensuring that all aspects of the offering remain within the state’s boundaries. 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. This geographic restriction can be particularly problematic for real estate syndications and other investments that naturally attract a diverse group of investors.

There is always a risk of discovering that an investor, believed to be within the state, is actually domiciled outside of it. This discovery can retroactively invalidate the intrastate exemption, leading to significant securities law problems. Such a situation could trigger state and federal enforcement actions, potentially resulting in fines, penalties, and rescission rights for investors. By choosing Regulation D exemptions, sponsors can mitigate these risks by adhering to a federal framework that accommodates investors from multiple jurisdictions.

Flexibility and Broader Reach

Regulation D offers greater flexibility and a broader reach compared to state Blue Sky Laws. Under Rule 506(b), issuers can raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited, sophisticated investors, provided no general solicitation is used. This flexibility is crucial for sponsors looking to attract a diverse investor base without the constraints of geographic limitations.

Rule 506(c) further enhances this flexibility by allowing general solicitation and advertising, provided that all purchasers are accredited investors. This provision opens up the potential investor pool significantly, enabling sponsors to market their offerings more broadly and reach a larger audience. The ability to advertise can be particularly advantageous for real estate syndications, where reaching a wide network of potential investors can make a significant difference in the success of the capital raise.

Legal and Compliance Considerations

Navigating multiple state securities laws can be complex and costly. Each state has its own set of regulations, filing requirements, fees, and timelines, which can create a substantial administrative burden for sponsors. Legal fees and compliance costs can quickly add up as sponsors work to ensure they meet the requirements of each state where they offer securities.

In contrast, Regulation D provides a more streamlined and cost-effective approach. By adhering to a single set of federal regulations and making notice filings with the states, sponsors can reduce legal complexities and focus their resources on the offering itself. This efficiency not only lowers costs but also reduces the risk of compliance errors that could lead to enforcement actions or investor disputes.

Choosing Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws offers significant advantages for sponsors engaged in syndication. The federal preemption of state laws simplifies compliance, reduces legal risks, and provides greater flexibility in attracting investors. By leveraging the broad reach and streamlined regulatory framework of Regulation D, sponsors can effectively raise capital while minimizing the potential pitfalls associated with state-specific securities regulations. To navigate these complexities and optimize their offerings, sponsors should work with a knowledgeable syndication attorney who can guide them through the intricacies of Regulation D and ensure compliance with all relevant securities laws.

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 crucial to comply with both federal and state notification requirements. While Regulation D provides a federal exemption from state securities registration, states still require issuers to submit notice filings and pay associated fees. Here, we outline the notification rules and terms for notifying the state about a Regulation D offering, focusing on the essential steps and fees involved.

Notification Rules for Regulation D Offerings

Under Regulation D, issuers must file a Form D with the Securities and Exchange Commission (SEC) within 15 days after the first sale of securities in the offering. Form D provides information about the issuer and the offering, such as the names and addresses of the company’s executive officers and directors, and some details about the offering itself.

State Notification Requirements

Despite federal preemption of substantive state securities laws, states retain the right to require issuers to file notices and pay fees. For a Regulation D offering under Rule 506(b) or Rule 506(c), the specific requirements for notifying the state include:

Filing Form D with the State:

• Issuers must file a copy of the SEC Form D with the relevant state securities regulator where the securities are being sold. This filing must be done within 15 days of the first sale in that state.
• The filing is typically done through the NASAA Electronic Filing Depository (EFD) system, which streamlines the process of filing and paying fees to multiple states.

NASAA Electronic Filing Depository (EFD):

• The NASAA EFD allows issuers to submit Form D filings and pay associated fees electronically. This system simplifies compliance by providing a centralized platform for state notifications.
• The NASAA EFD can be accessed at https://www.efdnasaa.org/FAQ/answer?faq=2.

Filing Fee:

• The filing fee for notifying the state about a Regulation D Rule 506(b) or Rule 506(c) offering is $300. This fee must be submitted along with the Form D filing through the NASAA EFD system.

Late Filing Fee:

• If the notification to the state is filed more than 15 days after the first sale of securities in the state, a late fee of $500 applies. This late fee is in addition to the standard filing fee, making timely filing essential to avoid extra costs.

Practical Steps for State Notification

To ensure compliance with state notification rules for a Regulation D offering, follow these practical steps:

Prepare Form D:

• Complete the SEC Form D with accurate and thorough information about the offering and the issuer.

Submit to SEC:

• File Form D electronically with the SEC within 15 days after the first sale of securities.

State Filings via NASAA EFD:

• Access the NASAA Electronic Filing Depository at https://www.efdnasaa.org/FAQ/answer?faq=2.
• Submit a copy of Form D and pay the $300 filing fee through the EFD system for each state where the offering is made.

Monitor Deadlines:

• Keep track of all filing deadlines to ensure submissions are made within the required timeframe. Implement a system for monitoring the 15-day period following the first sale in each state.

Handle Late Filings Promptly:

• If a filing is delayed, promptly submit the required forms and include the $500 late fee to mitigate further compliance issues.

Complying with the notification rules and terms for state filings in a Regulation D Rule 506(b) or Rule 506(c) offering is a critical aspect of the syndication process. By understanding and adhering to the filing requirements, fees, and deadlines, issuers can avoid unnecessary penalties and ensure their offering proceeds smoothly. Leveraging the NASAA Electronic Filing Depository simplifies the process and helps maintain compliance across multiple states. Engaging a knowledgeable syndication attorney can further assist in navigating these requirements, ensuring full compliance with both federal and state securities laws.

What are Maine’s Blue Sky Laws?

Maine’s Blue Sky Laws are designed to protect investors from fraud in the securities market by ensuring transparency and accountability. These laws encompass a range of regulations, including:

• Exempt Securities (§16201): Identifies types of securities exempt from registration due to their regulated nature.
• Additional Exemptions and Waivers (§16203): Allows the administrator to grant exemptions for certain securities or transactions if it aligns with public interest.
• Denial, Suspension, Revocation of Exemptions (§16204): Empowers the administrator to revoke exemptions for securities if necessary.
• Securities Registration Requirement (§16301): Mandates that securities must be registered unless exempt.
• Evidentiary Burden (§16503): Places the burden of proof on the party claiming an exemption.
• Misrepresentations Concerning Licensing (§16506): Prohibits false claims about the status of licensing or registration.
• Criminal Penalties (§16508): Details the criminal penalties for violating securities laws.

ME ST T. 32 § 16201 Exempt securities

Title 32, §16201 of the Maine Revised Statutes outlines the types of securities exempt from certain regulatory requirements under the Maine Uniform Securities Act. These include securities issued by the U.S. government, states, and municipalities; foreign governments; depository institutions; insurance companies; common carriers and public utilities; federal covered securities; nonprofit organizations; cooperatives; and equipment trust certificates. These exemptions are designed to streamline compliance for entities that are typically subject to other stringent regulations or oversight.

ME ST T. 32 § 16203 Additional exemptions and waivers

Title 32, §16203 of the Maine Revised Statutes grants the administrator the authority to exempt certain securities, transactions, or offers from the requirements of sections 16301 to 16306 and 16504 if it aligns with the public interest and investor protection. Additionally, the administrator can waive conditions for exemptions under sections 16201 and 16202. Rules or orders establishing such exemptions may include a nonrefundable filing fee up to $500. These rules are categorized as routine technical rules.

ME ST T. 32 § 16204 Denial, suspension, revocation, condition or limitation of exemptions

Title 32, §16204 of the Maine Revised Statutes grants the administrator the authority to deny, suspend, condition, limit, or revoke exemptions for certain securities or transactions if it’s in the public interest and protects the public. This action must follow specific procedures and apply prospectively. A person is not liable for unknowingly violating certain sections if they did not and could not reasonably have known about the order.

ME ST T. 32 § 16301 Securities registration requirement

Title 32, §16301 of the Maine Revised Statutes mandates that it is illegal to offer or sell securities in Maine unless the security is a federal covered security, exempt from registration under sections 16201 to 16203, or registered under the specified chapter. This provision ensures that securities transactions within the state are subject to appropriate regulatory oversight, promoting investor protection and market integrity.

ME ST T. 32 § 16503 Evidentiary burden

Title 32, §16503 of the Maine Revised Statutes addresses the evidentiary burden in securities law proceedings. In civil or administrative cases, the person claiming an exemption, exception, preemption, or exclusion must prove its applicability. In criminal cases, the burden is on the defendant to prove any affirmative defense by a preponderance of the evidence. This section ensures that the party seeking the exemption bears the responsibility of substantiating their claim.

ME ST T. 32 § 16506 Misrepresentations concerning licensing, registration or exemption

Title 32, §16506 of the Maine Revised Statutes makes it unlawful to misrepresent the status of licensing, registration, or exemption concerning securities. It clarifies that the filing of applications, licensing, or registration does not imply the administrator has verified the truthfulness or completeness of the records, nor does it indicate endorsement of the person, security, or transaction. Making any contrary representation to clients or prospective clients is prohibited under this law.

ME ST T. 32 § 16608 Uniformity and cooperation with other agencies

Title 32, §16508 of the Maine Revised Statutes outlines the criminal penalties for intentionally or knowingly violating securities laws. Violations, except for specific sections and notice filing requirements, constitute a Class C crime. The State doesn’t need to prove the defendant’s knowledge of the security’s status or registration requirements. The administrator can refer evidence of violations to the Attorney General, who can then initiate criminal proceedings. This statute does not limit the State’s power to prosecute under other laws, and fraudulent schemes may be prosecuted in any relevant venue.

What are Maine’s Securities Laws Exemptions?

Maine offers several exemptions from its securities laws that can be beneficial for issuers looking to raise capital without the burden of full registration. These exemptions are outlined in Title 32, Section 16201 of the Maine Revised Statutes and apply to various entities and types of securities. Understanding these exemptions is crucial for determining whether a particular offering might qualify, thereby simplifying compliance and reducing regulatory hurdles.

Exemptions Under Maine Securities Laws

Governmental Entities:

• Securities issued by the United States, any state, any foreign government with diplomatic relations with the United States, or any political subdivision, agency, or instrumentality of these entities are exempt. This includes a broad range of governmental securities, providing a clear exemption for these instruments.

Certain Foreign Governmental Entities:

• Securities issued by foreign governments or their political subdivisions are also exempt, provided the United States maintains diplomatic relations with these governments. This exemption supports international investment by acknowledging the legitimacy of foreign governmental securities.

Financial Institutions:

• Securities issued by depository institutions such as banks, savings institutions, credit unions, and trust companies are exempt. This exemption extends to securities issued by these entities, reflecting their regulated status and relative safety for investors.

Non-Profit Membership Cooperatives:

• Non-profit membership cooperatives that issue securities to their members are exempt. These cooperatives include agricultural, consumer, or producer cooperatives, which operate on a non-profit basis for the mutual benefit of their members.

Other Entities:

• Securities issued by railroads, common carriers, public utilities, public utility holding companies, and insurance companies are exempt. These entities are typically subject to extensive regulation, and their securities are considered to have inherent stability and oversight.

Equipment Trust Certificates:

• Equipment trust certificates, which are securities representing an interest in or secured by an equipment lease, are exempt. These certificates are commonly used in financing large equipment purchases, such as railroad cars or aircraft.

Listed Securities:

• Securities that are listed or approved for listing on a recognized securities market or securities issued by an issuer that has a class of securities listed on such a market are exempt. This exemption covers securities listed on major exchanges, ensuring that publicly traded securities benefit from reduced regulatory requirements.

Non-Profit Persons:

• Securities issued by non-profit organizations operated exclusively for religious, educational, benevolent, fraternal, charitable, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association, are exempt. This exemption reflects the societal value and regulatory oversight of these organizations.

Key Takeaways

Maine’s securities laws exemptions are designed to facilitate capital raising for certain entities and types of securities by removing the need for full registration. These exemptions cover a wide range of issuers, from governmental and foreign entities to financial institutions and non-profits, reflecting their unique regulatory environments and the perceived lower risk associated with their securities.

For sponsors and syndicators considering an offering in Maine, these exemptions can provide significant advantages. By leveraging these exemptions, issuers can reduce compliance costs and streamline the process of raising capital. However, it is essential to thoroughly understand the specific criteria and conditions associated with each exemption to ensure full compliance.

Engaging with a knowledgeable syndication attorney who is well-versed in Maine’s securities laws can provide invaluable guidance. Such an attorney can help navigate the complexities of these exemptions, ensuring that the offering meets all necessary legal requirements and maximizes the benefits of Maine’s regulatory framework.

Understanding and utilizing Maine’s securities laws exemptions can significantly enhance the efficiency and effectiveness of your capital-raising efforts, allowing you to focus on the growth and success of your investment projects.

What are Maine’s Procedures for Securities Law Exemptions?

Navigating the procedures for securities law exemptions in Maine requires a thorough understanding of the state’s regulatory framework. While certain securities and issuers are automatically exempt from registration under Maine’s Blue Sky Laws, others require specific steps to qualify for exemptions. Here, we outline the procedures to follow to ensure compliance with Maine’s securities laws exemptions.

Identifying the Applicable Exemption

The first step in the process is to determine which exemption applies to your securities offering. As outlined in Title 32, Section 16201 of the Maine Revised Statutes, there are several categories of exemptions, including those for governmental entities, financial institutions, non-profit organizations, and other specified entities.

Automatic Exemptions

For many types of securities, the exemption is automatic, meaning no additional action is required beyond ensuring that the offering meets the criteria set forth in the statute. These automatic exemptions typically apply to securities issued by:

• Governmental entities
• Certain foreign governmental entities
• Depository and banking institutions
• Non-profit membership cooperatives
• Railroads, common carriers, public utilities, and related entities
• Equipment trust certificates
• Listed securities and securities market options
• Non-profit persons

Issuers relying on these automatic exemptions should maintain thorough documentation verifying that their offering meets the statutory requirements to ensure compliance and to provide evidence in case of any regulatory inquiries.

Notice Filings for Exemptions

Some exemptions, while not requiring full registration, do require a notice filing with the Maine Office of Securities. This is a simplified procedure compared to full registration but still necessitates certain filings and fees.

Prepare Notice Filing:

• Identify the appropriate exemption under Maine law.
• Prepare the necessary documentation to support the exemption claim. This may include a description of the securities, the nature of the offering, and information about the issuer.

Submit Form and Fee:

• Complete the required notice filing form. Maine may have specific forms for different exemptions, so it’s important to consult with the Maine Office of Securities or a legal advisor to determine the correct form.
• Submit the form along with any required supporting documents.
• Pay the associated filing fee. The fee structure can vary depending on the type of exemption and the specifics of the offering.

Timing:

• Ensure timely submission of the notice filing. While the timing requirements may differ based on the specific exemption, it is generally advisable to file the notice before commencing the offering or within a specified period after the first sale of securities.

Record-Keeping and Compliance

Maintaining accurate records is crucial for compliance with Maine’s securities laws. Issuers should keep detailed records of all filings, correspondence with the Maine Office of Securities, and any other documentation related to the exemption. This includes:

• Copies of all notice filings and supporting documents
• Proof of fee payments
• Records of communications with state regulators

Engaging Legal Counsel

Given the complexities of securities law and the importance of ensuring compliance, it is highly recommended to engage with a syndication attorney who specializes in securities laws. An experienced attorney can:

• Help identify the appropriate exemption for your offering
• Assist in preparing and submitting the necessary filings
• Ensure that all procedural requirements are met
• Provide ongoing compliance support and advice

Maine’s procedures for securities law exemptions are designed to facilitate capital raising while ensuring investor protection. By understanding and following these procedures, issuers can effectively leverage the available exemptions to streamline their offerings. Ensuring compliance with notice filings, maintaining accurate records, and seeking legal counsel are critical steps in this process. By doing so, issuers can focus on the growth and success of their investment projects while minimizing regulatory risks.

Frequently Asked Questions

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

Whether you need an attorney from Maine to put together an offering depends on the specifics of your situation, particularly the type of offering and the scope of legal advice required. If your offering falls under Regulation D and does not involve the specific nuances of Maine’s Blue Sky Laws, you likely do not need an attorney licensed in Maine.

For instance, suppose you are a real estate syndicator looking to raise capital for a multifamily deal in Portland, Maine, through a private placement memorandum (PPM). If this offering is intended to be presented to investors across different states and does not require counsel on Maine-specific laws, a syndication attorney licensed in another state could assist you. This attorney could help draft the PPM, form the necessary entities, and prepare the operating agreements. However, while they can handle the general aspects of the syndication, they would not be able to advise you on the particularities of Maine’s securities regulations and how they might apply to your offering.

On the other hand, if your offering is more localized, such as a development project in Lewiston, Maine, with all investors domiciled in Maine, and you plan to utilize one of Maine’s Blue Sky Law exemptions, you would need to work with an attorney licensed in Maine. This local attorney would have the necessary expertise to navigate Maine’s specific securities regulations, ensure compliance with state laws, and address any state-specific legal issues that might arise.

In summary, while a syndication attorney from any state can handle the broader aspects of preparing a Regulation D offering, working with a Maine-licensed attorney becomes essential when the offering involves specific state law considerations. Consulting with an attorney familiar with Maine’s legal landscape ensures that you meet all local regulatory requirements, thereby safeguarding your offering from potential legal challenges.

Is it Okay if a Real Estate Syndication Attorney Licensed Outside of Maine Looks Over My Purchase Contract?

While a real estate syndication attorney licensed outside of Maine can review your purchase contract, they are limited in the scope of advice they can provide. They can offer general business consulting advice, such as discussing the price, overall deal structure, and broad deal points like the time until closing. However, they cannot provide legal advice on specific terms of the contract as it pertains to Maine law.

For example, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can review the underlying aspects of your purchase contract for a property in Bangor, Maine. He can discuss and advise on general business aspects of the deal, including negotiation strategies and the feasibility of the terms from a business perspective. However, he would make it clear that he cannot offer legal advice on the specific terms of the contract because he is not licensed to practice law in Maine.

Therefore, while having an out-of-state attorney review your purchase contract can be helpful for business advice, you will need to consult a Maine-licensed attorney for legal advice specific to Maine laws and regulations. This ensures that you are fully informed about the legal implications of your contract and are in compliance with state-specific legal requirements.