Nebraska Blue Sky Laws for Syndication

Navigating the complexities of securities laws is a critical aspect of raising capital, especially for real estate developers, private equity fund managers, and business professionals engaging in syndication. Understanding the interplay between federal Regulation D and state-specific Blue Sky Laws is essential for ensuring compliance and maximizing the success of your offerings. This article delves into Nebraska’s Blue Sky Laws, providing detailed insights into how they relate to Regulation D, the benefits of choosing Regulation D exemptions, and the procedural requirements for notifying the state about your offerings. Additionally, we explore Nebraska’s specific securities law exemptions and the necessity of engaging local legal counsel for certain transactions. Whether you are raising capital for a multifamily project in Omaha or a development in Lincoln, this comprehensive guide will equip you with the knowledge to navigate Nebraska’s regulatory landscape effectively.

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

Understanding the relationship between a state’s Blue Sky Laws and the SEC’s Regulation D is crucial for anyone looking to raise capital through syndication, particularly under Rule 506(b) or Rule 506(c).

Federal Preemption of State Laws

When a sponsor opts to use Regulation D, specifically Rule 506(b) or Rule 506(c), they benefit from federal preemption of state Blue Sky Laws under 15 U.S. Code § 77r(b)(4)(F). This means that these offerings are exempt from state registration requirements, simplifying the process significantly. The primary regulatory burden is to comply with federal securities laws, making Regulation D a preferred route for many syndicators.

Notification Requirements

Even though state Blue Sky Laws are preempted, there are still notification requirements that must be fulfilled. Issuers must file a notice with each state in which they sell securities. This is usually done through the Form D filing, which must be submitted to the SEC and then to the relevant state securities regulators. This ensures that states are aware of the securities offerings occurring within their jurisdictions, even though they do not have regulatory authority over them.

Intrastate Offerings

There is an exception to this preemption when it comes to intrastate offerings. If an offering is made where the sponsor, all investors, and the assets are all located within a single state, the sponsor may choose to register the offering under that state’s Blue Sky Laws. This is often referred to as an intrastate offering.

Intrastate offerings are regulated by state securities laws and can be beneficial in certain situations. For example, they might offer more flexibility in terms of disclosure requirements and can sometimes be less costly. However, they are only practical when all parties involved are within the same state, which is a limitation that does not apply to Regulation D offerings.

Practical Implications for Syndicators

For real estate syndicators, private equity fund managers, and other professionals raising capital, understanding these dynamics is essential. Opting for Regulation D Rule 506(b) or Rule 506(c) provides the benefit of federal oversight, avoiding the complexity of navigating multiple state regulations. This federal preemption streamlines the capital-raising process and provides a clear, unified regulatory framework.

However, in scenarios where the entire investment ecosystem is within one state, and there might be specific advantages under the state’s Blue Sky Laws, an intrastate offering could be considered. In such cases, consulting with a syndication attorney familiar with the specific state laws is advisable to navigate the requirements and leverage any potential benefits effectively.

By leveraging the federal preemption provided by Regulation D and understanding the specific conditions under which state Blue Sky Laws apply, syndicators can make informed decisions about how best to structure their offerings, ensuring compliance while maximizing efficiency and appeal to investors.

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

When it comes to raising capital, particularly through syndication, choosing the right regulatory framework is crucial. While state Blue Sky Laws offer a pathway for intrastate offerings, many sponsors prefer Regulation D Rule 506(b) or Rule 506(c). Here’s why:

Flexibility in Investor Location

One of the primary advantages of Regulation D Rule 506(b) and Rule 506(c) is the flexibility regarding investor location. Under these federal rules, you can solicit investments from accredited investors across the United States and even internationally. This broadens the potential investor pool significantly, which is particularly advantageous for larger syndications and real estate projects seeking substantial capital.

In contrast, state Blue Sky Laws apply strictly to intrastate offerings, where the sponsor, all investors, and the assets must be located within the same state. This limitation can be restrictive, especially if your investment opportunity attracts interest from out-of-state investors. If any investor or the sponsor is outside of the state, the offering cannot rely on the intrastate exemption under state Blue Sky Laws.

Avoiding Securities Law Problems

Using Regulation D Rule 506(b) or Rule 506(c) also helps mitigate the risk of inadvertently violating securities laws. Consider a scenario where you believe all your investors are domiciled within a single state, qualifying your offering under state Blue Sky Laws. If it is later discovered that an investor is actually domiciled outside of the state, your offering would no longer qualify as intrastate. This discrepancy could result in significant legal problems, including the potential invalidation of your offering and the need for costly remediation.

By opting for Regulation D, you sidestep these risks. Rule 506(b) and Rule 506(c) provide clear guidelines that apply uniformly regardless of investor domicile, thereby offering a more straightforward compliance path.

Streamlined Compliance

Regulation D offerings, under Rule 506(b) or Rule 506(c), benefit from federal preemption of state Blue Sky Laws. This means that once you comply with federal requirements, you are not subject to varying state registration requirements. This preemption simplifies the regulatory process, reducing the administrative burden and associated costs.

In contrast, navigating state Blue Sky Laws can be complex and time-consuming, particularly if you need to manage compliance across multiple states. Each state may have different filing requirements, fees, and regulatory expectations, complicating the process for sponsors.

Specific Advantages of Rule 506(b) and Rule 506(c)

• Rule 506(b): This rule allows issuers to raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited investors, provided that no general solicitation or advertising is used. It’s a suitable choice for sponsors who have established relationships with potential investors.
• Rule 506(c): This rule permits general solicitation and advertising, provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify their accredited status. This can be particularly advantageous for sponsors looking to reach a wider audience and raise significant capital quickly.

Choosing Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws offers significant benefits in terms of flexibility, compliance simplicity, and risk mitigation. For sponsors and investors looking to engage in syndications, especially those involving participants from multiple states, leveraging these federal rules ensures a more streamlined and secure approach to capital raising. Always consult with a syndication attorney to navigate these regulations effectively and maximize the benefits of your chosen offering framework.

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 in terms of registration, states still require issuers to file notices and pay associated fees. Here are the key notification rules and terms for notifying the state about your Regulation D offering:

Filing Requirements

Form D Filing

• Federal Requirement: Issuers must file Form D with the SEC within 15 days after the first sale of securities in the offering. This form provides basic information about the issuer and the offering.
• State Requirement: In addition to filing with the SEC, issuers must file a copy of Form D with each state where securities are sold. This ensures that state regulators are aware of the offering and can monitor compliance.

State Filing Fee

Nebraska, like many states, imposes a fixed filing fee for Regulation D offerings:

• New Notice Fee: $200
• This fee is payable at the time of filing Form D with the state. It is a one-time fee per offering, regardless of the amount of capital being raised.

Late Filing Fee

Timeliness is crucial when filing your notice with the state. Nebraska imposes a late fee if the filing is not completed within the specified timeframe:

• Late Fee: $200
• This fee applies if the notice is filed more than 15 days after the date of the first sale of securities. To avoid this additional cost, ensure that your state filing is completed promptly after the initial sale.

Filing Procedure

1. Prepare Form D: Ensure that all information is accurate and complete. This form includes details about the issuer, the offering, and the intended use of proceeds.
2. Submit to the SEC: File Form D electronically through the SEC’s EDGAR system within 15 days of the first sale.
3. Submit to the State via NASAA EFD: File a copy of Form D with the Nebraska Department of Banking and Finance through the NASAA Electronic Filing Depository (EFD) system. The EFD simplifies the process of filing with multiple states and ensures compliance with state notification requirements. The $200 filing fee is paid through this system.

Importance of Compliance

Meeting these notification requirements is essential to maintain compliance and avoid penalties. Failing to file timely notices can result in additional fees and potential regulatory scrutiny. It is advisable to work with a syndication attorney to ensure that all filings are completed accurately and on time.

Understanding and adhering to the notification rules and terms for state filings is a critical aspect of conducting a Regulation D Rule 506(b) or Rule 506(c) offering. By promptly filing Form D with both the SEC and the state of Nebraska through the NASAA EFD system, and by paying the required fees, issuers can ensure compliance and focus on successfully raising capital for their syndication projects.

What are Nebraska’s Blue Sky Laws?

Nebraska’s Blue Sky Laws are a series of statutes designed to protect investors from fraud in the sale of securities. These laws ensure transparency, fair practices, and the accountability of those engaged in securities trading within the state. The state’s legal framework is built to foster investor confidence and maintain the integrity of Nebraska’s financial markets.

One of the foundational statutes, Nebraska Revised Statute 8-1110, details exemptions from registration requirements for certain securities. This includes securities issued or guaranteed by government entities, federal or state credit unions, and regulated public utilities, among others. These exemptions aim to streamline the process for specific, low-risk securities, while ensuring other securities undergo thorough scrutiny.

Nebraska Revised Statute 8-1114 addresses the implications of securities registration, clarifying that the filing of an application for registration does not imply endorsement or verification of the securities by the director. Misrepresentation of this fact is unlawful, reinforcing the importance of honesty and transparency in securities offerings.

Further safeguarding the process, Nebraska Revised Statute 8-1121 places the burden of proving an exemption or exception from a definition on the person asserting it. This ensures that claims for exemptions are substantiated with evidence, preventing misuse of these provisions.

Another critical provision, Nebraska Revised Statute 8-1122.01, asserts the state’s authority to regulate securities activities independently of federal limitations. This statute rejects any federal limits that might preclude the application of Nebraska’s securities laws, thereby affirming the state’s commitment to robust investor protection.

Additionally, Nebraska Revised Statute 21-2116 exempts shares of a corporation’s capital stock and related indebtedness documents from registration under the Securities Act of Nebraska. This exemption also extends to the corporation’s officers and employees, facilitating smoother internal financial operations while maintaining regulatory oversight.

Lastly, Nebraska Revised Statute 23-35-116 ensures public access to county government operations by requiring the county board to designate an official newspaper for publishing legal notices. This statute mandates that the chosen newspaper has a general circulation within the county and sets legal rate limits for publishing notices, ensuring transparency and accessibility.

Together, these statutes form a comprehensive legal framework aimed at protecting investors, ensuring transparency, and maintaining the integrity of Nebraska’s financial markets. By understanding and complying with these regulations, participants in the securities market can contribute to a fair and trustworthy investment environment.

NE ST § 8-1110 Securities exempt from registration.

Nebraska Revised Statute 8-1110 outlines exemptions from the registration requirements for certain securities. Exemptions include securities issued or guaranteed by government entities, certain foreign governments, federal or state credit unions, and regulated public utilities. It also covers federal covered securities, specific securities listed on approved markets, and securities issued by non-profit organizations. Additionally, securities meeting specific issuer requirements, such as U.S.-based registration and financial stability, and securities from international banks with U.S. membership are exempt.

NE ST § 8-1114 Unlawful representation concerning merits of registration or exemption

Nebraska Revised Statute 8-1114 specifies that the filing of an application for registration or notice, or the fact of a security or person being registered, does not imply that the director has verified the truthfulness, completeness, or accuracy of any documents filed. It also clarifies that such filings or registrations do not constitute an endorsement or approval by the director. Misrepresenting these facts to prospective purchasers, customers, or clients is unlawful.

NE ST § 8-1121 Exemption or exception; burden of proof

Nebraska Revised Statute 8-1121 establishes that in any proceeding under the Securities Act of Nebraska, the responsibility of proving an exemption or exception from a definition lies with the person asserting it. This statute places the burden of proof on the claimant to demonstrate their eligibility for the exemption or exception they are invoking.

NE ST § 8-1122.01 Federal limits rejected.

Nebraska Revised Statute 8-1122.01 rejects any federal limits or restrictions that would otherwise preclude the application of state securities laws. This statute asserts the state’s authority to regulate securities activities within Nebraska, regardless of any conflicting federal regulations that might attempt to limit the state’s jurisdiction or enforcement capabilities in this domain​​.

NE ST § 21-2116 Shares; exempt from registration.

Nebraska Revised Statute 21-2116 provides that shares of a corporation’s capital stock, along with documents representing the corporation’s indebtedness to its members, are exempt from registration under the Securities Act of Nebraska. Additionally, the corporation, its officers, and employees involved in such offerings are exempt from registration and qualification as dealers and salesmen under the same act.

NE ST § 23-35,116 Hospital authority; powers; supplemental to other laws; bonds

Nebraska Revised Statute 23-35-116 outlines the requirements for the county board to designate the official newspaper for publishing legal notices, such as meeting minutes, claims against the county, and other official publications. This statute ensures transparency by mandating that the chosen newspaper is one with a general circulation within the county. Additionally, the newspaper must be selected annually, and the rate for publishing legal notices must not exceed the legal rate established by the state​​.

What are Nebraska’s Securities Laws Exemptions?

Nebraska’s securities laws provide several exemptions from registration requirements, allowing certain transactions and issuers to offer securities without the need for extensive regulatory compliance. These exemptions are outlined in the Nebraska Securities Act, specifically in § 8-1110. Understanding these exemptions can help issuers determine if their offerings qualify for simplified regulatory treatment.

Exempt Entities

Governmental Entities

• Securities issued by the United States, any state, any political subdivision of a state, or any governmental or municipal instrumentality of one or more states.
• Securities issued by any foreign government with which the United States maintains diplomatic relations, including Canadian governmental entities.

Financial Institutions

• Securities issued by financial institutions such as banks, savings institutions, trust companies, credit unions, and international banking institutions. These entities are often subject to other regulatory oversight, which justifies their exemption from state securities registration.

Other Regulated Entities

• Securities issued by railroads, common carriers, public utilities, and their holding companies. These entities are typically regulated by other federal or state agencies, providing an additional layer of investor protection.

Listed Stock Exchange Securities

• Securities listed on reputable stock exchanges such as the New York Stock Exchange, NASDAQ, and other similar exchanges. These securities are subject to stringent disclosure and reporting requirements, thereby providing a high level of transparency and investor protection.

Exempt Transactions

Non-Profit Organizations

• Securities issued by non-profit organizations, provided these organizations operate exclusively for religious, educational, benevolent, fraternal, charitable, social, athletic, or reformatory purposes. These organizations must not be for profit, and their securities must be part of a legitimate charitable endeavor.

Institutional Investors

• Transactions involving institutional investors, such as banks, insurance companies, investment companies, and pension or profit-sharing trusts. These investors are presumed to have the expertise and resources to evaluate the merits and risks of the securities offered.

Certain Limited Offerings

• Offers and sales of securities that meet specific conditions, such as those involving a limited number of purchasers or those that do not involve any public solicitation or advertising. These are often referred to as private placements and are designed to facilitate capital raising while protecting investors.

Summary of Exemptions

Nebraska provides a comprehensive list of exemptions designed to facilitate various entities and transactions in raising capital without undergoing the full registration process. These exemptions recognize the inherent regulatory oversight or institutional sophistication of the entities involved, thereby balancing the need for investor protection with the practicalities of capital formation.

Understanding Nebraska’s securities laws exemptions is essential for issuers looking to navigate the regulatory landscape efficiently. By determining whether an offering or issuer falls under one of these exemptions, sponsors can streamline their compliance efforts and focus on their capital-raising activities. However, it is crucial to consult with a syndication attorney to ensure that all conditions for the exemptions are met and to avoid any inadvertent violations of securities laws.

What are Nebraska’s Procedures for Securities Law Exemptions?

Navigating Nebraska’s securities law exemptions involves understanding the specific procedures and requirements to qualify for these exemptions. The Nebraska Securities Act outlines the framework for these exemptions, and issuers must follow certain steps to ensure compliance.

Determining Eligibility

The first step in the process is determining whether your offering or issuer qualifies for an exemption under Nebraska law. Exemptions typically apply to securities issued by governmental entities, certain financial institutions, specific regulated entities, non-profit organizations, and transactions involving institutional investors or limited offerings. Understanding the criteria for these exemptions is crucial before proceeding with any formal filings.

Documentation and Record-Keeping

Once eligibility for an exemption is determined, maintaining thorough documentation and records is essential. Issuers should keep detailed records of all transactions, including information about the nature of the offering, the identities of investors, and the reasons why the offering qualifies for an exemption. This documentation is vital in case of an audit or inquiry by state regulators.

Filing Requirements

While exemptions may relieve issuers from full registration requirements, there are still certain filings that must be completed. For example, even exempt offerings may need to file a notice with the Nebraska Department of Banking and Finance. This notice typically includes basic information about the issuer and the offering, ensuring that state regulators are informed of the transaction. The exact filing requirements can vary depending on the type of exemption being claimed, so it is important to review the specific statutory provisions or consult with a legal expert.

Paying Fees

Exempt offerings may also require the payment of certain fees. These fees can include a filing fee for submitting the notice of exemption and, in some cases, additional fees if filings are submitted late. Ensuring timely payment of these fees is essential to maintain the exempt status of the offering and to avoid penalties.

Ongoing Compliance

Even after securing an exemption, ongoing compliance is critical. Issuers must ensure that they continue to meet all conditions of the exemption throughout the life of the offering. This might include restrictions on the number of investors, the type of solicitation allowed, and reporting obligations. Regular reviews of compliance procedures and legal requirements can help issuers stay within the bounds of the exemption.

Legal Consultation

Given the complexities and potential legal implications of securities law exemptions, consulting with a syndication attorney who specializes in securities law is highly recommended. An attorney can provide guidance on eligibility, assist with documentation, handle filings, and ensure ongoing compliance. This professional support helps mitigate the risk of inadvertently violating securities laws, which can have serious consequences.

Securing a securities law exemption in Nebraska involves a clear understanding of the eligibility criteria, meticulous documentation, timely filing of required notices, and payment of applicable fees. Ongoing compliance and regular consultation with a legal expert are also critical to maintaining the exempt status of an offering. By carefully navigating these procedures, issuers can efficiently raise capital while adhering to Nebraska’s regulatory requirements.

Frequently Asked Questions

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

The need for a Nebraska-licensed attorney depends on the specifics of your offering. If you are putting together an offering under Regulation D and not one of Nebraska’s specific Blue Sky Laws, then you probably do not need a Nebraska-licensed attorney.

For instance, if you require a real estate syndication attorney to create a private placement memorandum (PPM) for a multifamily deal in Omaha, Nebraska, that will be offered in various states, and you do not need advice on Nebraska-specific laws, a licensed syndication lawyer from another state could likely assist you. Such an attorney could help with drafting the PPM, forming the entity, and writing the operating agreement. However, they would not be able to provide legal counsel on specific Nebraska laws and how they might impact your offering.

On the other hand, if you are preparing a private placement memorandum for a development project in Lincoln, Nebraska, with all investors being from Nebraska, and you intend to use one of Nebraska’s Blue Sky Law exemptions, then you would need to work with an attorney licensed in Nebraska. In this scenario, a local attorney would be essential to navigate the specific state laws, ensure compliance with Nebraska’s regulatory requirements, and take advantage of any state-specific exemptions.

In summary, while a licensed syndication attorney from outside Nebraska can handle many aspects of preparing an offering under Regulation D, consulting with a Nebraska-licensed attorney becomes crucial when dealing with Nebraska-specific Blue Sky Laws or when the offering is confined to within the state. This approach ensures compliance with all applicable laws and optimizes the legal and financial structuring of your offering.

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

It is generally acceptable for a real estate syndication attorney who is licensed outside of Nebraska to review your purchase contract. However, there are important limitations to consider. Such an attorney can examine the contract and provide general business consulting advice, such as discussing the price and broad deal points like the length of time until closing.

For example, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can review the underlying contract for your purchase in Bellevue, Nebraska. While he can offer insights into the business aspects of the deal, he must make it clear that he cannot provide legal advice on any specific terms of the contract as he is not licensed to practice law in Nebraska.

This distinction is crucial because legal advice must come from an attorney licensed in the state where the property is located to ensure compliance with local laws and regulations. Without this, there is a risk of missing critical legal nuances that could affect the validity or enforceability of the contract. Therefore, while out-of-state attorneys can be helpful in providing a general overview and business advice, for detailed legal counsel pertaining to Nebraska law, you should consult with a Nebraska-licensed attorney.