New Mexico Blue Sky Laws for Syndication

Navigating the complexities of raising capital through real estate syndication or other investment vehicles requires a solid understanding of both federal and state securities laws. For real estate developers, private equity fund managers, and other syndication professionals, being well-versed in New Mexico’s Blue Sky Laws and how they interact with the SEC’s Regulation D is essential. These laws, designed to protect investors and ensure fair practices in securities offerings, vary significantly from state to state.

This comprehensive guide delves into the specifics of New Mexico’s Blue Sky Laws, providing valuable insights into how they relate to federal regulations under Regulation D, the procedures for securing exemptions, and the practical considerations for engaging legal counsel. Whether you are planning a multi-state offering or a localized investment project in New Mexico, understanding these regulations will help you navigate the legal landscape effectively and ensure compliance. By exploring the nuances of New Mexico’s securities laws, this article aims to equip you with the knowledge needed to successfully structure your offerings and avoid potential legal pitfalls.

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

State Blue Sky Laws are designed to protect investors from fraud by requiring securities offerings to be registered or to qualify for an exemption at the state level. However, these state laws intersect with federal securities regulations, particularly those under the SEC’s Regulation D.

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

Under 15 U.S. Code § 77r(b)(4)(F), securities offerings made under Regulation D, specifically Rule 506(b) and Rule 506(c), are preempted from state Blue Sky Laws. This means that while states can still require issuers to file notices and pay fees, they cannot require the registration of these offerings or subject them to substantive state regulation. This federal preemption is designed to simplify the process for issuers and to create a more uniform regulatory environment for private offerings across different states.

Rule 506(b) Offerings

Rule 506(b) of Regulation D allows issuers to raise an unlimited amount of money from accredited investors and up to 35 non-accredited investors, provided that no general solicitation or advertising is used. Due to the preemption, issuers conducting Rule 506(b) offerings are primarily subject to federal requirements, though they must still comply with notice filing requirements, commonly known as “Form D” filings, and pay any applicable fees to the states where they sell securities.

Rule 506(c) Offerings

Rule 506(c) permits issuers to use general solicitation and advertising to market their offerings, but all purchasers must be accredited investors, and the issuer must take reasonable steps to verify their accredited status. Similar to Rule 506(b), Rule 506(c) offerings are exempt from state registration requirements due to federal preemption, though notice filings and fees are still applicable at the state level.

Intrastate Offerings

Despite the federal preemption under Regulation D, there are scenarios where state Blue Sky Laws might still apply. If an offering is made where the sponsor, all investors, and the assets are all located within a single state, the sponsor may opt to conduct the offering under the state’s Blue Sky Laws as an intrastate offering. In these cases, the offering is not subject to Regulation D but must comply with the specific requirements of the state’s securities regulations.

Key Considerations for Issuers

For real estate syndication sponsors and other entities raising capital, understanding the interplay between state Blue Sky Laws and Regulation D is crucial. Engaging a knowledgeable syndication attorney can help navigate these regulations and ensure compliance. Whether choosing a federal exemption under Rule 506(b) or Rule 506(c), or opting for an intrastate offering, issuers must carefully consider the regulatory requirements to avoid legal pitfalls.

By leveraging the preemptive effect of Regulation D, issuers can streamline their capital-raising efforts while ensuring they meet all necessary filing obligations at both the federal and state levels. This approach not only facilitates compliance but also maximizes the efficiency of the fundraising process.

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

Choosing between federal and state securities regulations is a critical decision for anyone raising capital through real estate syndication or other investment vehicles. Here’s why you might opt for Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws:

1. Broad Applicability and Preemption

Regulation D, specifically Rule 506(b) and Rule 506(c), provides a framework that is applicable nationwide. These rules preempt state Blue Sky Laws, meaning they eliminate the need for multi-state compliance efforts for registration. This is particularly advantageous for syndications involving investors from multiple states, as it significantly reduces the complexity and administrative burden associated with state-by-state compliance.

2. Flexibility in Investor Base

One of the primary reasons to choose Regulation D offerings over state Blue Sky Laws is the flexibility it offers in terms of the investor base. Rule 506(b) allows for an unlimited number of accredited investors and up to 35 sophisticated non-accredited investors, without the need for general solicitation. Rule 506(c) allows for general solicitation but requires all investors to be accredited and for the issuer to take reasonable steps to verify their accredited status. This flexibility can attract a broader range of investors compared to the constraints of state-specific regulations.

3. Avoiding Compliance Pitfalls with Intrastate Offerings

While intrastate offerings under state Blue Sky Laws can be appealing for their simplicity and local focus, they come with significant risks. If any investor or the sponsor is located outside the state, the offering cannot be classified as intrastate. A common and serious issue arises when an investor, initially thought to be domiciled in-state, is later discovered to reside outside the state. This discovery can retroactively invalidate the intrastate exemption, creating a securities law problem that could lead to penalties and the need to comply with federal securities laws retroactively.

4. Streamlined Process and Lower Costs

By using Regulation D Rule 506(b) or Rule 506(c), issuers can benefit from a more streamlined process. The federal exemptions simplify the compliance process by requiring a single Form D filing with the SEC, which is then followed by notice filings in the states where the securities are sold. This reduces legal and administrative costs compared to navigating multiple state registration processes.

5. Regulatory Certainty

Regulation D provides clear guidelines and a well-established regulatory framework. This certainty is particularly valuable for real estate syndication sponsors and private equity fund managers who require predictable and stable legal environments to operate effectively. The federal rules under Regulation D have been extensively tested and interpreted, providing a wealth of guidance and precedents to follow.

6. Access to a Larger Pool of Investors

Using Regulation D Rule 506(b) or Rule 506(c) allows issuers to tap into a larger pool of potential investors beyond their state boundaries. This is especially important for large syndications or those seeking significant capital, as the local investor base may be insufficient. The ability to solicit investments across state lines without the constraints of state Blue Sky Laws is a significant advantage.

Opting for Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws offers several benefits, including flexibility, streamlined compliance, and access to a broader investor base. It also mitigates the risks associated with the discovery of out-of-state investors in what was thought to be an intrastate offering. For real estate syndications and other capital-raising ventures, leveraging the federal exemptions under Regulation D can provide a more efficient and legally secure pathway to securing the necessary funds. Working with an experienced syndication attorney can further ensure that all regulatory requirements are met and that the offering is structured for success.

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, issuers must comply with specific notification rules and terms to inform the state of their securities offerings. This process ensures that the state is aware of the offering and can collect the necessary fees. Here’s a detailed breakdown of the notification rules and terms for notifying the state about a Regulation D offering:

1. Filing Requirement

Issuers must file a notice with the state when conducting a Regulation D offering. This is typically done by submitting a Form D through the North American Securities Administrators Association (NASAA) Electronic Filing Depository (EFD). The Form D filing is essential for compliance and must be completed accurately to avoid any legal issues.

2. Filing Fee

The state requires a fixed filing fee for new notices of Regulation D offerings. For New Mexico, this filing fee is set at $350. This fee must be paid at the time of the initial filing through the NASAA EFD system to ensure the notice is processed and accepted by the state.

3. Timing of the Filing

To comply with state regulations, the filing should be made in a timely manner. Ideally, issuers should file the Form D notice concurrently with their SEC filing or shortly thereafter. This proactive approach helps avoid any potential penalties associated with late filings.

4. Late Filing Penalties

Failure to file the notice on time can result in significant late fees. The penalties for late filings are structured based on the number of days the filing is delayed:

• 16-25 Days Late: If the filing is submitted 16 to 25 days after the due date, a late fee of $700 is imposed.
• More Than 25 Days Late: For filings that are more than 25 days late, the late fee increases to $1,050.

These late fees are substantial and can impact the overall cost of the offering, making timely filing crucial for compliance and cost management.

5. Content of the Filing

The Form D notice must include specific information about the offering, such as:

• The name and address of the issuer.
• The names of the principal officers and directors.
• A description of the securities being offered.
• The intended use of the proceeds.
• Information about the offering’s structure and terms.

Accurate and complete information is essential to ensure the filing is accepted without issues.

6. Electronic Filing through NASAA EFD

All notices to the state for Regulation D offerings must be sent through the NASAA Electronic Filing Depository (EFD). This system streamlines the filing process and ensures that all necessary information and fees are submitted electronically. The NASAA EFD provides a centralized platform for issuers to file Form D notices, pay filing fees, and manage their compliance with state requirements.

7. Amendments and Updates

If there are any material changes to the information provided in the initial Form D filing, issuers are required to file amendments through the NASAA EFD. This includes changes in the amount of securities offered, the use of proceeds, or any significant alterations in the terms of the offering. Amendments must be filed promptly to maintain compliance with both federal and state regulations.

Understanding and adhering to the notification rules and terms for notifying the state about a Regulation D Rule 506(b) or Rule 506(c) offering is critical for legal compliance and the smooth execution of the offering. By paying the required $350 filing fee on time and avoiding late penalties, issuers can efficiently manage their filings. Additionally, ensuring that all information is accurate and promptly updating any changes helps maintain transparency and compliance with state securities regulations. Utilizing the NASAA Electronic Filing Depository (EFD) system simplifies the filing process, making it easier to meet state requirements. Engaging a knowledgeable syndication attorney can further assist in navigating these requirements and ensuring that all filings are handled correctly.

What are New Mexico’s Blue Sky Laws?

When discussing state blue sky laws, it’s essential to understand specific provisions like those in New Mexico. These laws are designed to protect investors from securities fraud by requiring the registration of securities offerings and sales. Key statutes include Section 58-10-89, which exempts certain savings and loan associations from state securities laws; Section 58-13C-201, which lists securities exempt from registration; Section 58-13C-203, which allows for additional exemptions and waivers; and Section 58-13C-204, which details the process for denying, suspending, or revoking these exemptions. Each of these laws contributes to a regulatory framework that balances investor protection with market efficiency. For more detailed insights, you can visit the provided links to the statutes.

NM ST 58-10-89 Exemption from securities laws

Section 58-10-89 of the New Mexico Statutes exempts savings and loan associations, including their officers, employees, and agents, from state laws that require supervision, registration, or regulation of securities. This exemption specifically pertains to the issuance, sale, transfer, and offering of savings accounts within these associations. This means that these financial activities are not subject to the same regulatory scrutiny as other securities transactions under New Mexico law.

NM ST § 58-13C-201 Exempt securities

New Mexico Statutes Section 58-13C-201 (2018) outlines specific categories of securities exempt from the registration requirements under the New Mexico Uniform Securities Act. These exemptions include securities issued by the U.S. government, states, or political subdivisions; securities from foreign governments recognized by the U.S.; securities from banks and financial institutions; insurance company securities; and securities from nonprofit organizations, among others. This provision ensures that certain securities, deemed less risky or already regulated, do not require redundant state-level registration.

NM ST § 58-13C-203 Additional exemptions and waivers

New Mexico Statutes Section 58-13C-203 (2021) provides the authority to exempt certain securities, transactions, or offers from the registration requirements outlined in the New Mexico Uniform Securities Act. The director can issue rules or orders to grant these exemptions and may also waive conditions for exemptions under Sections 201 and 202. Additionally, the director may require notice of filing and a fee of up to $350 for such exemptions, although no fee is required for specific exemptions under Section 202, Subsection Y.

NM ST § 58-13C-204 Denial, suspension, revocation, condition or limitation of exemptions

New Mexico Statutes Section 58-13C-204 (2021) details the authority to deny, suspend, revoke, condition, or limit exemptions from registration requirements under the New Mexico Uniform Securities Act. This applies to specific securities, transactions, or offers, excluding federal covered securities. Such orders must follow procedures in Sections 58-13C-306 and 58-13C-604 and are applied prospectively. Persons unknowingly violating the act post-order without reasonable knowledge are not deemed in violation.

What Are New Mexico’s Securities Laws Exemptions?

New Mexico’s securities laws provide several exemptions that can simplify the process for certain types of securities offerings and transactions. These exemptions are designed to reduce the regulatory burden on specific entities and types of transactions, provided they meet certain criteria. Here is a detailed overview of the various exemptions available under New Mexico law:

1. Associations and Savings Accounts

Under New Mexico law, associations (including their officers, employees, and agents), savings accounts, and the sale, issuance, transfer, and offering of savings accounts by any association or federal association are exempt from the state’s securities supervision, registration, or regulation. This exemption specifically covers the activities related to savings accounts, ensuring that these financial instruments can be issued and transferred without the need for state-level securities compliance.

2. Governmental Entities and Certain Foreign Governments

Securities issued by governmental entities, including U.S. government agencies and certain foreign governments (e.g., Canada), are exempt from New Mexico’s securities laws. This exemption recognizes the inherent reliability and public interest in these securities, reducing the regulatory requirements for their issuance and transfer.

3. Financial Institutions

A broad range of financial institutions benefit from exemptions under New Mexico securities laws, including:

• Banks
• Savings institutions
• Trust companies
• Savings and loan associations
• Building and loan associations
• Small loan corporations
• Credit unions
• Industrial loan associations

These exemptions facilitate the operations of these financial entities by removing the need for state securities registration and regulation for their securities offerings.

4. Cooperative Corporations

Cooperative corporations, which operate for the mutual benefit of their members, are exempt from New Mexico’s securities regulations. This exemption supports the cooperative business model, enabling these entities to raise capital and issue securities without additional regulatory hurdles.

5. Other Entities

Several other types of entities are also exempt from New Mexico’s securities laws, including:

• Railroads
• Common carriers
• Public utilities
• Holding companies
• Insurance companies

These exemptions acknowledge the regulated nature and public service roles of these entities, providing them with the flexibility to issue securities without state-level oversight.

6. Listed Stock Exchange Securities

Securities listed on major stock exchanges are generally exempt from state securities laws. This exemption reflects the rigorous listing standards and regulatory oversight provided by these exchanges, which ensure that listed securities meet high standards of transparency and investor protection.

7. Non-Profit Persons

Securities issued by non-profit organizations are exempt from New Mexico’s securities laws. This exemption allows non-profits to focus on their charitable and community-oriented missions without the added complexity of state securities compliance.

8. Current Transaction Commercial Paper

Commercial paper issued in the ordinary course of business and maturing within nine months is typically exempt from state securities laws. This exemption facilitates the issuance of short-term debt instruments used by businesses to manage liquidity and finance day-to-day operations.

9. Employee Benefit Plans

Securities issued in connection with employee benefit plans are exempt from New Mexico’s securities laws. This exemption encourages businesses to offer stock options and other securities-based compensation plans to their employees without the burden of state securities registration.

10. Exemptions by Rule or Order

The New Mexico Uniform Securities Act grants the authority to adopt rules or issue orders that can exempt a security, transaction, or offer from any or all requirements of the Act. Specifically:

• Rules can exempt a class of securities, transactions, or offers from sections 301 through 306 and 504 of the Act.
• Orders can waive, in whole or in part, any or all conditions for an exemption or offer pursuant to sections 201 and 202 of the Act.

This flexibility allows the regulatory authorities to respond to changing market conditions and the needs of issuers by providing additional exemptions where appropriate.

Understanding the various exemptions available under New Mexico’s securities laws can significantly simplify compliance for issuers. Whether dealing with associations, financial institutions, cooperative corporations, or specific types of securities transactions, these exemptions provide critical pathways to reduce regulatory burdens and facilitate capital raising. Engaging a knowledgeable syndication attorney can help navigate these exemptions and ensure that offerings are structured to take full advantage of the available regulatory relief.

What are New Mexico’s Procedures for Securities Law Exemptions?

Navigating the procedures for securities law exemptions in New Mexico is essential for issuers looking to streamline their offerings and comply with state regulations efficiently. Understanding the steps and requirements can help ensure a smooth process and avoid potential legal complications. Here’s a detailed guide to the procedures for obtaining securities law exemptions in New Mexico:

1. Identifying Applicable Exemptions

The first step in the exemption process is identifying which exemptions apply to your specific situation. New Mexico offers various exemptions for different types of entities and transactions, including:

• Financial institutions
• Governmental entities
• Cooperative corporations
• Non-profit organizations
• Listed stock exchange securities
• Commercial paper in current transactions
• Employee benefit plans

Refer to the New Mexico Uniform Securities Act and consult with a syndication attorney to determine the most appropriate exemptions for your offering.

2. Preparing the Necessary Documentation

Once the applicable exemptions are identified, gather all required documentation to support your exemption claim. This may include:

• Detailed descriptions of the securities being offered.
• Information about the issuer and its business operations.
• Financial statements and other relevant financial information.
• Documentation proving eligibility for the exemption (e.g., proof of non-profit status, listing on a recognized stock exchange).

Accurate and comprehensive documentation is crucial to substantiate the exemption claim and avoid delays or rejections.

3. Filing the Exemption Notice

For certain exemptions, issuers may need to file a notice with the New Mexico Regulation and Licensing Department. This filing typically includes:

• A completed exemption notice form.
• The supporting documentation gathered in the previous step.
• Payment of any applicable filing fees.

Not all exemptions require a formal notice filing, but when they do, timely submission is essential to maintain compliance.

4. Using the NASAA Electronic Filing Depository (EFD)

For exemptions related to Regulation D offerings, issuers must file their notices through the NASAA Electronic Filing Depository (EFD). The EFD system streamlines the process by allowing issuers to submit Form D filings and pay associated fees electronically. The key steps include:

• Creating an account on the NASAA EFD platform.
• Completing the Form D notice with accurate information about the offering.
• Uploading the necessary documentation.
• Paying the filing fee (typically $350 for New Mexico).

The EFD system ensures that filings are processed efficiently and provides a centralized platform for managing compliance.

5. Responding to State Inquiries

After submitting the exemption notice, the New Mexico Regulation and Licensing Department may review the filing and request additional information or clarification. It is essential to respond promptly and thoroughly to any inquiries to avoid delays in the exemption approval process. Keep all correspondence and documentation organized for reference.

6. Maintaining Compliance

Even after obtaining an exemption, issuers must maintain ongoing compliance with any conditions attached to the exemption. This may include:

• Periodic reporting requirements.
• Restrictions on the types of investors or the manner of offering.
• Maintaining records of the offering and investor communications.

Failure to adhere to these conditions can result in the loss of the exemption and potential legal consequences.

7. Amendments and Updates

If there are material changes to the offering or the issuer’s circumstances, an amended exemption notice may need to be filed. This includes changes in the amount of securities offered, the use of proceeds, or significant alterations in the business operations. Promptly filing amendments ensures that the offering remains in compliance with state regulations.

Understanding and following the procedures for securities law exemptions in New Mexico is vital for issuers seeking to raise capital efficiently while maintaining regulatory compliance. By identifying the appropriate exemptions, preparing thorough documentation, utilizing the NASAA EFD system for filings, and responding to state inquiries, issuers can navigate the exemption process smoothly. Engaging a knowledgeable syndication attorney can further assist in ensuring that all requirements are met and that the offering is structured to maximize regulatory relief.

Frequently Asked Questions

Do I Need an Attorney from New Mexico to Put Together an Offering?

Whether you need an attorney specifically licensed in New Mexico to put together your offering depends largely on the nature of your securities offering and its regulatory requirements. If your offering falls under Regulation D, specifically Rule 506(b) or Rule 506(c), and does not rely on New Mexico-specific Blue Sky Laws, then you may not need a New Mexico-licensed attorney.

For instance, consider a scenario where you need a real estate syndication attorney to draft a private placement memorandum (PPM) for a multifamily deal in Albuquerque, New Mexico. If this deal is intended to be offered to investors in multiple states and you do not require legal counsel on specific New Mexico laws, a licensed syndication attorney from any jurisdiction could likely assist you. This attorney could help you prepare the PPM, form the necessary legal entities, and draft the operating agreement. However, their advice would be limited to federal securities laws and general syndication matters, without delving into the nuances of New Mexico state law.

On the other hand, if you are structuring a private placement memorandum for a development project in Las Cruces, New Mexico, with all investors residing within the state, and you plan to leverage one of New Mexico’s Blue Sky Laws for an exemption from registration, the situation changes. In this case, you would need to work with an attorney licensed in New Mexico. Such a lawyer would be familiar with the state-specific regulatory environment and could provide the necessary guidance to ensure compliance with local securities laws.

In summary, the need for a New Mexico-licensed attorney hinges on whether your offering requires adherence to New Mexico’s specific securities regulations. For multi-state offerings under Regulation D, a general syndication attorney may suffice. However, for intrastate offerings or those utilizing New Mexico-specific exemptions, local legal expertise is indispensable. Engaging the right legal counsel ensures that your offering is compliant and well-structured, thereby safeguarding your investment and adhering to all pertinent regulations.

Is it Ok if the Real Estate Syndication Attorney, Licensed Outside of New Mexico, Looks Over My Purchase Contract?

It is permissible for a real estate syndication attorney licensed outside of New Mexico to review your purchase contract; however, they are limited in the advice they can provide regarding New Mexico-specific legal matters. For example, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can review the purchase contract for a property in Rio Rancho, New Mexico. While he can offer valuable business consulting advice on general deal points such as pricing and the timing of the closing, he cannot provide specific legal counsel on the contract’s terms due to his lack of licensure in New Mexico.

This means that while an out-of-state attorney can help you understand the broader aspects of your deal and suggest strategies from a business perspective, they are not authorized to interpret or advise on the specific legal implications of the contract under New Mexico law. For detailed legal advice and to ensure full compliance with local regulations, consulting a New Mexico-licensed attorney is essential. This approach guarantees that all legal aspects are thoroughly examined and addressed, providing you with comprehensive protection and guidance tailored to New Mexico’s legal framework.