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North Dakota Blue Sky Laws for Syndication

By: Tilden Moschetti, Esq.

Syndicators looking to raise capital from investors in North Dakota should be aware of the North Dakota’s Blue Sky Laws. These laws regulate the securities industry within the state and understanding the basics of North Dakota’s blue sky laws will help you make smart business decisions about how you put together an offer and protect yourself from potential legal trouble.

 

What are Blue Sky Laws in General? 

The purpose of securities laws is to protect investors. There are two levels of regulatory agencies that provide that protection: the Securities and Exchange Commission (the SEC) and each state’s security regulation agency.

Federal law has severely restricted the states’ abilities to review or restrict sales of most securities when offered through a Federal regulation (such as Regulation D offerings). The states do, however, often require a notice be filed with them along with the appropriate fee, conduct investigations, and bring fraud actions if necessary in order to protect those domiciled in their states.

When everything takes place within the state, then North Dakota’s Blue Sky Rules apply. 

 

What if I Need to Notify North Dakota about my Regulation D Syndication?

Here are the basic facts you need to know about giving notice to North Dakota about your Reg D Rule 506b or 506c offer:

Filing fee – Fixed 

New notice – $100

Late fee for late filings – $250

 

What are North Dakota’s Blue Sky Laws?

ND ST 10-04-04 Registration of securities

ND ST 10-04-05 Exempt securities

ND ST 10-04-06.1 Suspension and revocation of exemptions

ND ST 10-04-08.3 Unlawful representations concerning registration or exemption

 

What are North Dakota’s securities laws exemptions?

Governmental entities; certain foreign governmental entities; Financial institutions: depository and banking institutions, and building and loans; Cooperatives; Venture capital corporation; North Dakota Education Association; Other entities: railroads, common carriers, public utilities, public utility holding companies and insurance companies; Collateral secured bonds etc.; Execution of security purchase orders; Equipment trust certificates; Fixed return securities or foreign margin securities; Listed stock exchange securities and clearing agency options etc.; Current transaction commercial paper; Non-profit persons

 

What are North Dakota’s procedures for securities law exemptions? 

Applicable to: governmental entities; Procedure may include: filing notice of terms and $100 filing fee; Applicable to: non-profit persons; Procedure includes: filing application, offering disclosure to commissioner and offeree, fee of $150, notice of exemption basis, and receive written approval; Applicable to: venture capital corporations; Procedure includes: filing application, offering disclosure to commissioner and offeree, fee of $150, report of sales and offers, and receive written approval

 

Frequently Asked Questions

Do I need an attorney from North Dakota then to put together an offering?

That depends. If the offering you are putting together is under Regulation D and not one of the North Dakota specific Blue Sky Laws (as discussed above), then probably not. 

For example, if you needed a real estate syndication attorney to put together a private placement memorandum for a multifamily deal in Fargo, North Dakota, that was going to be offered in different states, and you didn’t need counsel on questions related to North Dakota laws, then chances are a licensed syndication lawyer would be able to help. They could even put together the entity for you and write the operating agreement, they just couldn’t provide you counsel on the specific laws of North Dakota and how they may or may not pertain to your offer.

However, if you were putting together a private placement memorandum for a development project in Bismarck, North Dakota, all of the investors were from North Dakota, and you wanted to use one of North Dakota’s Blue Sky Laws above as an exception to registration, then you would need to work with someone licensed in North Dakota.

 

Is it ok if the real estate syndication attorney, licensed outside of North Dakota, looks over my purchase contract?

They can look, but they can’t give you advice as it pertains to North Dakota. For example, Tilden Moschetti, Esq, syndication attorney for the Moschetti Syndication Law Group, will look, if asked, about the contract underlying your purchase contract in Grand Forks, North Dakota, but makes it clear that he can give business consulting advice (discussion on price and broad deal points like the length of time until closing), but cannot speak to any specific term as he is not licensed there.

Make informed decisions about your syndication.

Contact our syndication and private placement memorandum law firm today!