Nevada Blue Sky Laws for Syndication

Navigating the complex landscape of securities regulations is crucial for anyone involved in raising capital through syndication, especially in real estate. Whether you are a real estate developer, private equity fund manager, or a business professional looking to leverage Regulation D for your offerings, understanding both federal and state-specific regulations is key to ensuring compliance and successful fundraising. This article delves into Nevada’s Blue Sky Laws and their interplay with the SEC’s Regulation D, providing detailed insights into why you might choose federal exemptions over state laws, the notification rules you must follow, and the exemptions available under Nevada law. Additionally, we address the critical question of whether you need a Nevada-licensed attorney for your offerings and the scope of advice an out-of-state syndication attorney can provide. By the end of this article, you will have a comprehensive understanding of the regulatory requirements and strategic considerations necessary to navigate the securities landscape in Nevada effectively.

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 real estate syndication. Blue Sky Laws are state-level securities regulations designed to protect investors from fraud. However, when it comes to offerings made under Regulation D, specifically Rule 506(b) and Rule 506(c), these state laws are largely preempted by federal regulations.

Preemption by Regulation D Rule 506(b) and Rule 506(c)

Under 15 U.S. Code § 77r(b)(4)(F), offerings made under Regulation D Rule 506(b) or Rule 506(c) are exempt from state Blue Sky Laws. This federal preemption simplifies the regulatory landscape for sponsors, allowing them to focus on complying with federal requirements rather than navigating a patchwork of state laws. This exemption is particularly beneficial for syndicators, as it removes the burden of registering securities at the state level, thereby streamlining the process and reducing costs.

Intrastate Offerings and State Blue Sky Laws

Despite the federal preemption, there are scenarios where a sponsor might choose to rely on state Blue Sky Laws. If an offering is made entirely within a single state—meaning the sponsor, all investors, and the assets are all located within that state—the sponsor may opt to structure it as an intrastate offering. In such cases, the offering would be subject to the state’s Blue Sky Laws rather than Regulation D.

Why Choose an Intrastate Offering?

Choosing an intrastate offering can be advantageous under certain circumstances. For example, if a real estate syndication project is localized within a state, and the sponsor has strong relationships with local investors, leveraging state Blue Sky Laws might provide more flexibility or favorable terms compared to federal regulations. Additionally, some states offer specific exemptions or streamlined processes for intrastate offerings that can be beneficial for local projects.

Implications for Syndicators

For most syndicators, especially those engaging in multi-state projects or targeting a broad investor base, utilizing Regulation D Rule 506(b) or Rule 506(c) is the preferred route due to the preemption of state Blue Sky Laws. This federal exemption not only simplifies compliance but also opens up the potential investor pool nationwide. However, it is essential for syndicators to understand both federal and state regulations to determine the best strategy for their specific situation.

Role of a Syndication Attorney

Navigating the interplay between state Blue Sky Laws and federal Regulation D can be complex. Engaging a knowledgeable syndication attorney is critical to ensure compliance and to optimize the offering strategy. A syndication attorney can provide invaluable guidance on whether to pursue a federal exemption under Regulation D or to consider an intrastate offering under state Blue Sky Laws.

By understanding how state Blue Sky Laws relate to the SEC’s Regulation D, sponsors can make informed decisions that align with their project goals and compliance requirements. Whether leveraging the broad reach of Regulation D or taking advantage of state-specific regulations, the key is to craft a strategy that maximizes the potential for successful capital raising while ensuring full compliance with applicable 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 securities offering under Regulation D, whether under Rule 506(b) or Rule 506(c), it’s essential to comply with both federal and state notification requirements. Although Regulation D provides federal preemption over state Blue Sky Laws, states still require issuers to submit certain notifications and pay associated fees. Here’s what you need to know about the notification rules and terms for notifying the state about a Regulation D Rule 506(b) or Rule 506(c) offering.

Filing Fee and Initial Notice

To comply with state requirements for a Regulation D offering, issuers must file a notice with the state where the offering is made. This typically involves submitting a copy of the Form D, which is also filed with the SEC, along with the state’s specific notice form. The filing fee for this initial notice is a fixed amount:

• New Notice Fee: $100

This fee must accompany the filing to ensure that the notice is processed by the state securities regulator. The initial notice should be filed within 15 days after the date of the first sale of securities in the offering.

Timeliness of Filings and Late Fees

Compliance with the timing of the filing is critical. If the notice is not filed within the prescribed period, issuers are subject to additional late fees. The late fee structure is as follows:

• Late Fee: $50 for filings submitted more than 15 days after the date of the first sale.

This late fee is in addition to the initial notice fee. It’s important to adhere to the 15-day filing deadline to avoid these extra costs and to remain in compliance with state regulations.

NASAA Electronic Filing Depository

To facilitate the filing process, notices are sent to the state through the NASAA Electronic Filing Depository (EFD). The EFD is an online system that streamlines the submission of Form D filings to state securities regulators. Here’s how the process works:

1. Prepare Form D: Complete the Form D, which includes information about the issuer, the offering, and the types of securities being offered.
2. Submit to the SEC: File Form D electronically with the SEC through the EDGAR system.
3. File with the State via NASAA EFD: Submit a copy of the Form D through the NASAA EFD system, along with the required $100 filing fee. The EFD system can be accessed at NASAA EFD FAQ.
4. Address Late Filings: If filing late, include the additional $50 late fee through the EFD system to avoid further penalties.

Importance of Timely Notification

Timely notification to the state is not just a matter of avoiding late fees. Failure to comply with state filing requirements can lead to more severe consequences, such as administrative penalties or restrictions on future offerings within the state. Maintaining compliance with these notification rules helps ensure the legality and smooth execution of the offering.

Role of a Syndication Attorney

Given the complexities of securities regulations and the importance of timely filings, working with a syndication attorney is highly advisable. A knowledgeable attorney can ensure that all filings are completed accurately and on time, helping to avoid late fees and other compliance issues. They can also provide guidance on state-specific requirements and help navigate any challenges that may arise during the filing process.

Understanding and complying with the notification rules and terms for state filings in a Regulation D Rule 506(b) or Rule 506(c) offering is crucial for maintaining regulatory compliance. By adhering to the filing deadlines and ensuring all necessary fees are paid, issuers can avoid penalties and ensure a smooth capital-raising process. Utilizing the expertise of a syndication attorney can further streamline this process, providing peace of mind and professional assurance that all regulatory requirements are met.

What are Nevada’s Blue Sky Laws?

Blue sky laws are state-level regulations designed to protect investors from securities fraud. Nevada’s blue sky laws encompass various statutes to ensure transparency and accountability in securities transactions. Key provisions include the requirement for securities registration (NRS § 90.460), expedited processing of exemption claims (NRS § 90.465), and exemptions for certain securities (NRS § 90.520). The laws also address the authority to revoke exemptions (NRS § 90.550), prohibit false representations about licensing (NRS § 90.610), and establish the burden of proof for exemptions (NRS § 90.690). These regulations collectively aim to safeguard the interests of investors and maintain market integrity.

NV ST 90.460 Registration requirement

Nevada Revised Statutes § 90.460 (2017) mandates that it is illegal for any person to offer to sell or actually sell any security within the state unless the security is registered or qualifies for an exemption under the specified chapter. This law ensures that all securities transactions adhere to regulatory standards to protect investors. For further details, you can refer to the full text here.

NV ST 90.465 Expeditious processing of notice of claim of exemption from registration requirement

Nevada Revised Statutes § 90.465 (2019) outlines the process for expeditious handling of exemption claims from securities registration requirements. Individuals can request expedited processing by paying additional fees: $100 for a 24-hour response or $200 for same-day acceptance if filed before noon Pacific Time. This provision ensures timely administrative responses to exemption claims, facilitating faster securities transactions. For more detailed information, you can visit the full text here.

NV ST 90.520 Exempt securities; filing and fee required for exemption

Nevada Revised Statutes § 90.520 (2019) details the types of securities exempt from registration requirements. These include securities issued, insured, or guaranteed by government entities, certain financial institutions, and specific organizations. Additionally, it outlines the conditions for exemptions, such as filing a notice of intention to sell and paying relevant fees. The statute aims to streamline the process for specific securities while ensuring regulatory compliance. For more details, you can visit the full text here.

NV ST 90.540 Additional exemptions; fee

Nevada Revised Statutes § 90.540 (2013) grants the Administrator the authority to exempt certain securities or transactions from registration requirements under specific conditions. This includes creating exemptions for limited offerings to align with federal exemptions and promoting uniformity among states. The Administrator can mandate the filing of a notice for such exemptions and impose a fee ranging from $300 to $500. This statute ensures flexibility in regulatory compliance while maintaining oversight. For more details, visit the full text here.

NV ST 90.550 Revocation of exemptions

Nevada Revised Statutes § 90.550 (2020) grants the Administrator the authority to deny or revoke specific securities or transaction exemptions under NRS 90.520 or 90.530. Any order issued under this section is not retroactive. Furthermore, individuals who unknowingly offer or sell securities after such an order has been entered, despite exercising reasonable care, do not violate NRS 90.460 or 90.560. This statute ensures that exemptions can be controlled without penalizing unintentional infractions. For more details, visit the full text here.

NV ST 90.610 Unlawful representation concerning licensing, registration or exemption

Nevada Revised Statutes § 90.610 (2021) prohibits false representations concerning the licensing, registration, or exemption status of securities. It clarifies that filing an application or being licensed does not imply that the Administrator has verified the accuracy or endorsed the merits of any person, security, or transaction. Any representation contrary to this clarification is unlawful. This statute is designed to prevent misleading claims about securities’ regulatory status. For more information, visit the full text here.

NV ST 90.690 Burden of proof

Nevada Revised Statutes § 90.690 (2019) establishes that in civil actions or administrative proceedings under Chapter 90, the burden of proving an exemption or an exception from a definition rests with the person claiming it. In criminal proceedings, the person claiming the exemption or exception must provide evidence to support their claim. This statute delineates the responsibilities for proving exemptions to ensure clarity and fairness in legal and administrative processes. For further details, visit the full text here.

What Are Nevada’s Securities Laws Exemptions?

Nevada’s securities laws provide several exemptions that can simplify the process of raising capital within the state. Understanding these exemptions is essential for sponsors, real estate syndicators, and other entities involved in Regulation D offerings. Here’s a detailed look at the various securities laws exemptions available in Nevada:

1. Governmental Entities

Securities issued by the following entities are exempt from Nevada’s securities laws:

• The United States or any state, territory, or possession of the United States.
• Any foreign government with which the United States currently maintains diplomatic relations, including Canadian governmental units.
• Any political subdivision or public instrumentality of the above entities.

2. Financial Institutions

Securities issued by the following financial institutions are also exempt:

• Depository institutions, including banks and trust companies.
• Savings institutions and credit unions.
• Insurance companies and related entities.

3. Non-Profit Membership Cooperatives

Non-profit membership cooperatives, which include organizations operating on a cooperative basis, are exempt from Nevada’s securities laws. This includes agricultural, consumer, and electric cooperatives that do not distribute net earnings to members.

4. Open-End Management Investment Companies or Unit Investment Trusts

Securities issued by open-end management investment companies or unit investment trusts registered under the Investment Company Act of 1940 are exempt. These are typically mutual funds and similar pooled investment vehicles.

5. Other Entities

Certain other entities have exemptions, including:

• Railroads and common carriers regulated by the Interstate Commerce Commission.
• Public utilities subject to regulation by the Public Utilities Commission of Nevada or a similar federal authority.
• Holding companies and subsidiaries of these entities.
• Insurance companies and entities regulated by state or federal insurance regulatory authorities.

6. Equipment Trust Certificates

Equipment trust certificates, which are issued to finance the purchase of equipment by companies (commonly used in the transportation industry), are exempt from Nevada’s securities laws.

7. Listed Stock Exchange Securities and Clearing Agency Options

Securities listed on major stock exchanges and options issued by registered clearing agencies are exempt. This includes securities listed on exchanges like the NYSE and NASDAQ.

8. Non-Profit Persons

Securities issued by non-profit persons are exempt, provided they are organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, social, athletic, or reformatory purposes and do not distribute profits to members.

9. Commercial Paper Obligations

Commercial paper obligations are exempt if they arise out of current transactions and have a maturity of not more than nine months. These are typically short-term debt instruments issued by corporations to meet immediate funding needs.

10. Employee Benefit Plans

Securities issued in connection with an employee benefit plan are exempt, provided the plan is established by an employer for the benefit of its employees. This includes stock options and other securities-related incentives offered to employees.

Understanding the various securities laws exemptions in Nevada can significantly aid sponsors and syndicators in structuring their offerings effectively. These exemptions offer a streamlined path for specific entities and types of securities, reducing regulatory burdens and facilitating smoother capital-raising efforts. However, it’s crucial to consult with a knowledgeable syndication attorney to ensure compliance and to take full advantage of these exemptions. A syndication attorney can provide tailored advice and guide you through the complexities of Nevada’s securities laws, helping to secure your offering’s success.

What Are Nevada’s Procedures for Securities Law Exemptions?

Navigating Nevada’s securities laws involves not only understanding the available exemptions but also following the correct procedures to qualify for and maintain those exemptions. Here’s a detailed guide to the procedures for claiming securities law exemptions in Nevada:

1. Determine Eligibility for Exemption

Before initiating the exemption process, ensure that the securities offering or transaction qualifies for one of Nevada’s statutory exemptions. Common exemptions include those for governmental entities, financial institutions, non-profit cooperatives, certain registered investment companies, and others as detailed in the Nevada Revised Statutes (NRS) 90.520.

2. Prepare Necessary Documentation

Collect and prepare the documentation required to support the exemption claim. This typically includes:

• Detailed information about the issuer and the securities being offered.
• Evidence of compliance with the specific exemption criteria.
• Any supporting documents demonstrating that the offering meets the regulatory requirements for the exemption category.

3. Filing the Notice of Exemption (if required)

While some exemptions may not require a formal filing, certain types of exempt transactions may necessitate notifying the Nevada Securities Division. For these cases:

• Notice Filing: Submit a notice filing to the Nevada Securities Division, detailing the nature of the securities offering and the basis for the exemption.
• Form D Filing: If applicable, file Form D with the SEC and ensure a copy is submitted to the Nevada Securities Division via the NASAA Electronic Filing Depository (EFD) system.

4. Pay the Applicable Fees

Certain exemption filings may require the payment of fees. Ensure that any required fees are paid at the time of filing. This may include:

• Initial Filing Fee: Typically a fixed fee, depending on the type of exemption.
• Late Fee: Additional fees may apply if the notice is filed past the specified deadline.

5. Adhere to Timing Requirements

Timely submission of filings is critical. Ensure that all required notices and filings are submitted within the prescribed deadlines. For example:

• File any necessary notices within 15 days of the first sale of securities if using exemptions that require such notification.

6. Maintain Proper Records

Even if a filing is not required for a particular exemption, maintaining thorough and accurate records is essential. This includes:

• Documentation supporting the eligibility for the exemption.
• Records of all communications and filings with regulatory bodies.
• Detailed records of the securities offering and transactions.

7. Annual Renewal and Updates (if applicable)

Certain exemptions or filings may require annual renewal or updates. Stay informed about any ongoing obligations, such as:

• Annual renewal filings for continuous offerings.
• Updates to the Nevada Securities Division if there are significant changes to the offering or issuer’s status.

8. Compliance with Ongoing Obligations

Ensure ongoing compliance with any conditions or obligations tied to the exemption. This may involve:

• Regular reporting to investors.
• Adherence to specific conduct or operational standards as dictated by the exemption criteria.

Role of a Syndication Attorney

Given the complexities involved in claiming and maintaining securities law exemptions, working with a syndication attorney is highly advisable. An experienced attorney can:

• Provide detailed guidance on eligibility for exemptions.
• Assist with the preparation and submission of required filings.
• Ensure compliance with both initial and ongoing regulatory obligations.
• Help navigate any challenges or issues that may arise during the exemption process.

Navigating Nevada’s procedures for securities law exemptions requires careful attention to detail and strict adherence to regulatory requirements. By understanding the steps involved and maintaining thorough documentation, issuers can effectively leverage these exemptions to streamline their capital-raising efforts. Engaging a knowledgeable syndication attorney can further ensure that all procedural requirements are met, providing peace of mind and facilitating a smoother offering process.

Frequently Asked Questions

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

Whether you need an attorney licensed in Nevada to put together your securities offering depends largely on the specifics of your offering and the regulatory framework you are using. If your offering falls under Regulation D and is not governed by Nevada-specific Blue Sky Laws, you probably do not need a Nevada-licensed attorney.

For instance, if you are looking to engage a real estate syndication attorney to draft a private placement memorandum (PPM) for a multifamily deal in Las Vegas that will be offered in multiple states, and you do not require counsel on Nevada-specific laws, a syndication attorney licensed in another state can likely assist you. Such an attorney can handle the creation of the PPM, set up the entity, and draft the operating agreement. However, they would not be able to provide legal advice on the specific securities laws of Nevada and how they might impact your offering.

Conversely, if you are preparing a PPM for a development project in Henderson, Nevada, and all your investors are based in Nevada, you might consider using one of Nevada’s Blue Sky Law exemptions. In this scenario, it is essential to work with an attorney who is licensed in Nevada. A Nevada-licensed attorney can provide the necessary legal advice on state-specific regulations and ensure that your offering complies with all local securities laws.

In summary, while a licensed syndication lawyer from another state can often manage the general aspects of a Regulation D offering, specific counsel on Nevada’s securities laws and Blue Sky Law exemptions requires the expertise of a Nevada-licensed attorney. This distinction ensures that your offering is compliant with all relevant legal requirements, mitigating the risk of regulatory issues.

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

It is permissible for a real estate syndication attorney licensed outside of Nevada to review your purchase contract; however, their ability to provide advice will be limited. For instance, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can review a contract for a property purchase in North Las Vegas, Nevada. While he can offer business consulting advice, such as discussing the price and broad deal points like the time frame until closing, he cannot provide legal advice on specific terms of the contract due to his lack of licensure in Nevada.

This limitation is important to understand because while an out-of-state attorney can offer valuable insights and general business advice, they are restricted from addressing any legal specifics that pertain to Nevada law. This includes advising on legal nuances, compliance with Nevada-specific regulations, or interpreting contractual terms under Nevada’s legal framework.

Therefore, while you can certainly have an out-of-state syndication attorney review your purchase contract for general business purposes, you will need to consult with a Nevada-licensed attorney to receive comprehensive legal advice on the contract’s terms and ensure compliance with Nevada law. This approach ensures that all aspects of your transaction are legally sound and protects your interests under Nevada’s legal system.