Syndicators looking to raise capital from investors in Pennsylvania should be aware of Pennsylvania’s Blue Sky Laws. These laws regulate the securities industry within the state and understanding the basics of Pennsylvania’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 syndication of a Reg D offering). 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 Pennsylvania’s Blue Sky Rules apply.
What if I Need to Notify Pennsylvania about my Regulation D Syndication?
Filing fee – Fixed
New notice – $525
Late fee for late filings – None
What are Pennsylvania’s Blue Sky Laws?
PA ST 70 P.S. § 1-201 Registration requirement
PA ST 70 P.S. § 1-202 Exempt securities
PA ST 70 P.S. § 1-204 Exemption proceedings
PA ST 70 P.S. § 1-407 Misleading filings; misrepresentations of commission approval
PA ST 70 P.S. § 1-612 Burden of proof
What are Pennsylvania’s securities laws exemptions?
Governmental entities; certain foreign governmental entities including Canada; Financial institutions: banks, savings associations, credit unions and industrial loan associations etc.; Intra-office registered broker dealer securities; Professional services limited liability company; Security regulated by Interstate Commerce Commission; Security registered under Public Utility Law or Public Utility Holding Company Act of 1935; Listed stock exchange securities; Current transaction commercial paper; Non-profit issuer; Employee benefit plan
Frequently Asked Questions
Do I need an attorney from Pennsylvania then to put together an offering?
That depends. If the offering you are putting together is under Regulation D and not one of the Pennsylvania-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 Philadelphia, Pennsylvania, that was going to be offered in different states, and you didn’t need counsel on questions related to Pennsylvania 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 Pennsylvania 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 Pittsburgh, Pennsylvania, all of the investors were from Pennsylvania, and you wanted to use one of Pennsylvania’s Blue Sky Laws above as an exception to registration, then you would need to work with someone licensed in Pennsylvania.
Is it ok if the real estate syndication attorney, licensed outside of Pennsylvania, looks over my purchase contract?
They can look, but they can’t give you advice as it pertains to Pennsylvania. 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 Allentown, Pennsylvania, 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.