Syndicators looking to raise capital from investors in South Dakota should be aware of South Dakota’s Blue Sky Laws. These laws regulate the securities industry within the state and understanding the basics of South 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 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 South Dakota’s Blue Sky Rules apply. 

 

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

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

Filing fee – Fixed

New notice – $250

Late fee for late filings – $275 > 15 days after the date of first sale

 

What are South Dakota’s Blue Sky Laws?

SD ST § 47-31B-201 Exempt securities

SD ST § 47-31B-203 Additional exemptions and waivers

SD ST § 47-31B-204 Denial, suspense on, revocation, condition, or limitation of exemptions

SD ST § 47-31B-301 Securities registration requirement

SD ST § 47-31B-503 Evidentiary burden

SD ST § 47-31B-506 Misrepresentations concerning registration or exemption

SD ST § 47-31B-608 Uniformity and cooperation with other agencies

 

What are South Dakota’s securities laws exemptions?

Governmental entities; certain foreign governmental entities; Financial institutions: depository and banking institutions; Cooperatives: non-profit membership cooperatives and those of listed business type; Other entities: railroads, common carriers, public utilities, public utility holding companies and insurance companies; Equipment trust certificates; Listed security market securities and clearing agency options etc.; Non-profit persons etc.

 

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

Applicable to: non-profit persons etc.; Procedure could include: filing notice of terms, copies of sales materials, and review period; Filing exemption request; or Registration

 

Frequently Asked Questions

Do I need an attorney from South 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 South 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 Sioux Falls, South Dakota, that was going to be offered in different states, and you didn’t need counsel on questions related to South 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 South 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 Rapid City, South Dakota, all of the investors were from South Dakota, and you wanted to use one of South Dakota’s Blue Sky Laws above as an exception to registration, then you would need to work with someone licensed in South Dakota.

 

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

They can look, but they can’t give you advice as it pertains to South 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 Aberdeen, South 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.