Episode 6 – What are ‘Blue Sky’ laws when it comes to syndication?

My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. One question I oftentimes get from syndicators, because it’s so confusing, is: What exactly are blue sky laws? And how do they fit in with what I’m doing?

One question that often confounds syndicators is: What are blue sky laws? And how do they fit in with securities and my syndication? So, great question. It starts with the understanding that the United States is a federal nation. We are a bunch of states with a federal system on top of it. The states are allowed to legislate for themselves and control themselves until it gets to something that rises to a federal level, something that the federal government is concerned about.

If you have a syndication going on where everything takes place within the same state, most of the time (and I say most of the time because each state has its own rules), the states say you only need to register that with them. For example, if you’re in California, and you’re doing a syndication of real estate, and that real estate is in California, and you’re in California, and every investor is domiciled in California, you can bypass filing under the SEC and just file under the local California rules, same with taxes, etc.

Where it becomes more complicated is, let’s take that same example in California, where you’ve got the property here, you’re here, you’ve got investors here, but you also have Mark, who’s an investor out of Florida. All of a sudden, now this is not all within California. So this no longer applies under the blue sky laws exception to notifying the SEC. You now need to notify the SEC and take advantage of one of the exemptions, probably Regulation D, and then do your state-specific filings as well. You’ll file with them in the state of California. And Florida actually doesn’t require a specific filing. But if it did, then you would file there as well.

So that is how blue sky laws work. It’s that overlay of the federal government over these blue sky laws that let the states control themselves without the interference of the SEC. If you need some help with your syndication, be it for real estate, you’re an entrepreneur, you’re raising some capital for your business, or you’re putting together that new cryptocurrency hedge fund, give us a call. My name is Tilden Moschetti. I am a syndication attorney, and if you need help with your private placement memorandums, we’ve got you covered there too.