Utah Blue Sky Laws for Syndication

Navigating the complex landscape of securities regulation is a crucial step for real estate developers, private equity fund managers, and businesses looking to raise capital through syndication. Utah’s Blue Sky Laws, like those in other states, play a significant role in protecting investors and maintaining market integrity. However, understanding how these state-specific regulations interact with federal laws, particularly the SEC’s Regulation D, is essential for successful capital raising efforts.

In this comprehensive guide, we will delve into the intricacies of Utah’s Blue Sky Laws and their relationship with Regulation D. We’ll explore the benefits of choosing Regulation D Rule 506(b) or Rule 506(c) over state-specific regulations, outline the notification rules and terms for these offerings, and examine the various securities law exemptions available in Utah. Additionally, we’ll discuss the procedures for obtaining these exemptions and the importance of consulting with a knowledgeable syndication attorney.

Whether you’re involved in real estate syndication, preparing a private placement memorandum, or seeking to understand the nuances of securities regulation, this article will provide you with the essential information needed to navigate Utah’s legal landscape effectively.

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

Understanding the relationship between state Blue Sky Laws and the SEC’s Regulation D is crucial for anyone looking to raise capital through syndication. Blue Sky Laws are state-level securities regulations designed to protect investors from fraud. They require securities offerings to be registered with the state or to qualify for an exemption. However, when it comes to Regulation D offerings, specifically Rule 506(b) and Rule 506(c), these state regulations are preempted.

Under 15 U.S. Code § 77r(b)(4)(F), Regulation D Rule 506(b) and Rule 506(c) offerings are exempt from state registration requirements. This means that when you conduct an offering under these rules, you do not need to register the securities at the state level, although you must still file a notice with the states where the securities are sold.

Preemption of State Laws by Regulation D

Regulation D provides a framework for companies to raise capital without having to register their securities with the SEC. Rule 506(b) allows issuers to raise an unlimited amount of money from accredited investors and up to 35 non-accredited investors who meet certain sophistication requirements. Rule 506(c), on the other hand, permits issuers to broadly solicit and advertise an offering, provided that all investors are accredited and the issuer takes reasonable steps to verify their accreditation status.

The preemption of state Blue Sky Laws by these rules simplifies the regulatory burden on issuers, allowing them to focus on compliance with federal regulations. This is particularly beneficial for syndications, private placement memorandums, and real estate syndication deals, where the need for streamlined processes is critical.

Intrastate Offerings

Despite the federal preemption, there are circumstances where state Blue Sky Laws come into play. If an offering is made where the sponsor, all investors, and the assets are located within the same state, the sponsor may choose to structure the offering as an intrastate offering. In this case, the offering would be governed by the state’s Blue Sky Laws rather than Regulation D.

Intrastate offerings can be advantageous for local real estate syndications or small businesses looking to raise capital within their home state. However, they require careful consideration of the state’s specific securities laws and exemptions. Consulting with a syndication attorney who is familiar with both federal and state regulations is essential to navigate these complexities.

By understanding how state Blue Sky Laws relate to Regulation D, sponsors can make informed decisions about the best approach for their capital-raising efforts, ensuring compliance and maximizing the benefits of each regulatory framework.

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

Choosing between Regulation D Rule 506(b) or Rule 506(c) and a state’s Blue Sky Laws for a securities offering involves weighing several important factors. One of the primary reasons to opt for Regulation D is its broad applicability and the preemption of state Blue Sky Laws, which simplifies the compliance process and mitigates certain risks associated with intrastate offerings.

Flexibility with Investors’ Locations

Regulation D Rule 506(b) and Rule 506(c) provide a significant advantage in terms of investor flexibility. If any investor or the sponsor is located outside of the state, the offering cannot be structured solely under that state’s Blue Sky Laws. State Blue Sky Laws are applicable only when the sponsor, all investors, and the assets are entirely within the same state, qualifying the offering as intrastate.

In reality, ensuring that all investors are domiciled within the same state can be challenging. Investors may inadvertently be or become domiciled outside the state, leading to a potential securities law violation. This discovery could transform what was initially believed to be an intrastate offering into an interstate one, thereby violating state securities laws and creating significant legal issues for the sponsor.

Preemption and Simplification

By choosing Regulation D, especially under Rule 506(b) or Rule 506(c), sponsors benefit from the preemption of state Blue Sky Laws under 15 U.S. Code § 77r(b)(4)(F). This federal preemption means that while states cannot require registration of these securities offerings, they can still require a notice filing and the payment of a fee, but the overall regulatory burden is considerably lessened.

For Rule 506(b) offerings, sponsors can raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors. Rule 506(c) allows for general solicitation and advertising, provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify their status.

Avoiding Legal Complications

Choosing Regulation D offerings helps avoid the complications that can arise from intrastate offerings. The potential risk of discovering an investor’s out-of-state domicile and thereby falling out of compliance with state Blue Sky Laws can create significant legal challenges and jeopardize the entire capital-raising effort.

Using Regulation D ensures a more straightforward and robust legal framework, minimizing the risk of securities law violations and providing a clear path for compliance. This is particularly beneficial for syndication, private placement memorandum, and real estate syndication efforts, where maintaining regulatory compliance is crucial for successful fundraising.

Professional Guidance

Consulting with a syndication attorney is critical when navigating these decisions. An attorney experienced in Regulation D offerings can provide invaluable guidance, ensuring that the offering is structured correctly and in full compliance with federal regulations. This reduces the risk of legal issues and enhances the likelihood of a successful capital raise.

In summary, choosing Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws offers greater flexibility, reduces regulatory burdens, and mitigates the risks associated with intrastate offerings. This approach is particularly advantageous for sponsors seeking to raise capital across state lines or through broader investor solicitation.

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, it is essential to comply with both federal and state notification requirements. While Regulation D offerings are exempt from state registration due to federal preemption, issuers must still provide notice filings to the states where the securities are sold. Here are the key notification rules and terms for notifying the state about a Regulation D offering:

Filing Fees

The filing fees for Regulation D offerings can vary from state to state. Generally, these fees cover the administrative costs associated with processing the notice filing. Here’s a breakdown of the typical filing fees you might encounter:

• New Notice Filing Fee: This fee can range from $0 to $100, depending on the state.
• Late Filing Fee: If the notice filing is submitted more than 15 days after the first sale of securities in the state, a late fee of $500 may be imposed. This fee is in lieu of the standard new notice filing fee.

It is crucial to check the specific fee requirements for each state where the securities are being sold to ensure compliance and avoid late fees.

New Notice Filing

For a new notice filing, issuers must submit Form D to the state securities regulator. Form D is a federal form used to report details about the offering, including:

• The type of securities being offered
• The amount of money being raised
• The number of investors
• The terms of the offering
• Information about the issuer and its principals

The new notice filing should be submitted within 15 days of the first sale of securities in the state. The filing process typically involves the following steps:

1. Prepare Form D: Complete Form D with accurate and comprehensive information about the offering.
2. Submit to the SEC: File Form D electronically with the SEC through the EDGAR system.
3. Notify the State: Provide a copy of Form D to the state securities regulator, along with the applicable filing fee.

Late Filing

If the notice filing is not submitted within the 15-day window, a late filing fee of $500 will be imposed. This fee is designed to encourage timely compliance and covers the additional administrative burden associated with processing late filings. To avoid late fees, issuers should prioritize submitting their notice filings promptly.

Key Points for Compliance

• Timeliness: Ensure that Form D is filed with both the SEC and the relevant state securities regulators within 15 days of the first sale of securities.
• Accuracy: Provide complete and accurate information on Form D to avoid potential issues with state regulators.
• Fee Payment: Pay the appropriate filing fees on time to prevent late fees and ensure smooth processing of the notice filing.

NASAA Electronic Filing Depository

Notices are sent to the state through the NASAA Electronic Filing Depository (EFD). The EFD simplifies the process of filing Form D with state securities regulators by providing a centralized online platform. Here’s how to use the EFD for your notice filings:

1. Access the EFD Portal: Visit the NASAA EFD website at https://www.efdnasaa.org.
2. Create an Account: Register for an account if you do not already have one.
3. Complete the Filing: Upload Form D and provide the necessary information about your offering.
4. Pay Filing Fees: Submit the applicable filing fees through the EFD portal.
5. Submit the Filing: Once the filing is complete and the fees are paid, submit the notice to the relevant state securities regulators via the EFD.

Using the EFD helps streamline the filing process, ensuring that your notice filings are submitted accurately and promptly.

Professional Assistance

Navigating the notification rules and terms for state filings can be complex. Engaging a syndication attorney with experience in Regulation D offerings can help ensure compliance with all regulatory requirements. An attorney can assist with preparing and submitting Form D, managing filing fees, and addressing any issues that may arise during the process.

In conclusion, while Regulation D Rule 506(b) and Rule 506(c) offerings benefit from federal preemption of state Blue Sky Laws, compliance with state notification rules is still necessary. Timely and accurate filings, along with the payment of applicable fees, are critical to maintaining compliance and avoiding penalties. Consulting with a knowledgeable syndication attorney can provide valuable guidance and support throughout the notification process.

What are Utah’s Blue Sky Laws?

Blue sky laws are state regulations designed to protect investors from securities fraud by requiring sellers to register their offerings and provide financial details. Utah’s blue sky laws are encapsulated in various sections of Title 61, Chapter 1 of the Utah Code, covering a range of regulatory aspects. These include the licensing requirements for financial professionals (Section 61-1-7), the filing of sales and advertising literature (Section 61-1-11), judicial review procedures for orders (Section 61-1-14), exemptions from registration requirements (Section 61-1-14.5), and the issuance of cease and desist orders (Section 61-1-17). Together, these rules ensure a robust framework for maintaining transparency and protecting investors within the state.

UT ST § 31A-5-301 Securities regulation

Section 31A-5-301 of the Utah Code outlines the regulations for forming and amending the articles of incorporation for insurance corporations. It mandates the necessity of approval from both the commissioner and a majority of the corporation’s voting members or shareholders. Additionally, it specifies the requirements for the articles’ content, including the corporation’s name, purpose, duration, capital stock details, and the number of directors. These regulations ensure that the corporation’s structure and operations align with legal standards and stakeholder interests.

UT ST § 61-1-7 Registration before sale

Section 61-1-7 of the Utah Code addresses the registration and licensing requirements for broker-dealers, agents, investment advisers, and investment adviser representatives. It mandates that these financial professionals must register with the Utah Division of Securities before conducting business in the state. The section outlines the specific application processes, fees, and the necessity for periodic renewal of licenses. Additionally, it specifies the grounds for denial, suspension, or revocation of registration, emphasizing the importance of regulatory compliance and protection of investors.

UT ST § 61-1-11 Provisions applicable to registration generally

Section 61-1-11 of the Utah Code governs the filing of sales and advertising literature related to securities. It requires that any such material must be filed with the Utah Division of Securities before being used. The section details the procedures for filing, including the necessary information and fees. Additionally, it grants the division the authority to prohibit the use of any misleading or deceptive sales literature, ensuring transparency and protection for investors.

UT ST § 61-1-14 Exemptions

Section 61-1-14 of the Utah Code outlines the procedures and requirements for the judicial review of orders issued by the Division of Securities. It grants any person aggrieved by a final order of the division the right to seek judicial review in accordance with the Utah Administrative Procedures Act. The section also specifies that the petition for review must be filed within 30 days after the issuance of the final order. This ensures that individuals have a clear and timely path to challenge decisions made by the division.

UT ST § 61-1-14.5 Burden of proving exemption

Section 61-1-14.5 of the Utah Code addresses the application process for exemptions from registration requirements for certain securities transactions. It specifies the criteria and procedures for obtaining such exemptions, ensuring that the transactions meet specific standards to protect investors. The section also outlines the filing requirements, including the necessary documentation and fees, and grants the Division of Securities the authority to approve or deny exemption requests based on compliance with the law.

UT ST § 61-1-17 No finding by division on merits–Contrary representation unlawful

Section 61-1-17 of the Utah Code details the procedure for issuing cease and desist orders by the Division of Securities. If the division believes a person has engaged or is about to engage in any act violating the securities laws, it may issue a cease and desist order. The section outlines the steps for serving the order, the person’s right to request a hearing, and the consequences of non-compliance, emphasizing the division’s authority to enforce securities regulations and protect the public from unlawful practices.

What are Utah’s Securities Laws Exemptions?

Utah’s securities laws provide a variety of exemptions that can be beneficial for issuers seeking to avoid the full registration process. These exemptions are outlined in Utah Code Ann. § 61-1-14 and are designed to facilitate certain types of offerings by reducing regulatory burdens while still protecting investors. Here are some of the key exemptions available under Utah’s Blue Sky Laws:

Governmental Entities and Certain Foreign Governments

Securities issued by governmental entities, including those of the United States, any state, or any political subdivision, as well as certain foreign governments such as Canada, are exempt from registration. This exemption acknowledges the reduced risk associated with securities issued by established governmental bodies.

Financial Institutions

Securities issued by financial institutions, including banks, savings institutions, trust companies, savings and loan associations, building and loan associations, credit unions, and industrial loan associations, are exempt from registration. These entities are heavily regulated and provide a level of security and oversight that justifies the exemption.

Agricultural Cooperative Associations

Securities issued by agricultural cooperative associations are exempt from registration. These associations, which are organized for the mutual benefit of their members, typically engage in activities related to agriculture and provide an exemption to support their operations.

Open-End Management Investment Companies or Unit Investment Trusts

Securities issued by open-end management investment companies or unit investment trusts registered under the Investment Company Act of 1940 are exempt from registration. This exemption helps streamline the regulatory process for these widely recognized and regulated investment vehicles.

Other Entities

Several other types of entities and their securities also qualify for exemptions under Utah law:

• Public Utilities and Holding Companies: Securities issued by public utilities and holding companies, which are already subject to significant regulatory oversight, are exempt from registration.
• Listed Stock Exchange Securities: Securities listed on a recognized stock exchange are exempt, as the exchange’s listing requirements and oversight provide investor protection.
• Non-Profit Persons: Securities issued by non-profit organizations are exempt, recognizing the charitable nature of these entities and the lower risk to investors.
• Commercial Paper Obligations: Short-term commercial paper obligations, which are typically used for financing accounts receivable and inventory, are exempt due to their short duration and lower risk.
• Employee Benefit Plans: Securities issued as part of an employee benefit plan are exempt, acknowledging that these plans are regulated under federal law and provide a direct benefit to employees.

These exemptions provide valuable avenues for issuers to raise capital without undergoing the full registration process. However, it is crucial to carefully evaluate whether an offering qualifies for an exemption and to ensure compliance with all applicable requirements.

Professional Guidance

Given the complexity of securities laws and the importance of maintaining compliance, consulting with a syndication attorney experienced in Utah’s securities laws can be invaluable. An attorney can help determine if an offering qualifies for an exemption and guide you through the process to ensure all regulatory requirements are met.

In summary, Utah’s securities laws offer a range of exemptions that can facilitate capital raising efforts by reducing regulatory burdens. Understanding and utilizing these exemptions can be a strategic advantage for issuers, particularly when combined with professional legal guidance to navigate the complexities of securities regulation.

What are Utah’s Procedures for Securities Law Exemptions?

Utah’s procedures for obtaining securities law exemptions are designed to streamline the process for certain types of securities offerings, while still ensuring adequate investor protection. These procedures vary depending on the type of exemption sought, but generally involve filing specific notices or applications and paying the required fees. Here are the key procedures applicable to securities law exemptions in Utah:

Notice or Application for Exemption

For many exemptions under Utah securities law, issuers must submit a notice or application to the Utah Division of Securities. This process typically includes the following steps:

1. Preparation of Documentation: Gather all necessary information and documentation related to the exemption being sought. This may include details about the issuer, the type of securities, the terms of the offering, and any supporting materials that demonstrate eligibility for the exemption.
2. Filing the Notice or Application: Submit the notice or application for exemption to the Utah Division of Securities. This can usually be done electronically through the state’s securities regulatory website or via mail, depending on the specific requirements.
3. Payment of Filing Fee: Pay the applicable filing fee at the time of submission. The fee amount can vary depending on the type of exemption and the specifics of the offering. It is important to check the current fee schedule to ensure the correct amount is paid.
4. Review and Approval: The Utah Division of Securities will review the submitted notice or application to determine if the offering qualifies for the requested exemption. If additional information is needed, the Division may request further documentation or clarification.

Specific Procedures for Open-End Management Investment Companies or Unit Investment Trusts

For open-end management investment companies or unit investment trusts seeking an exemption, there are additional specific procedures to follow:

1. Notice of Intent to Sell: These entities must file a notice of intent to sell securities in Utah. This notice should include comprehensive information about the investment company or trust, the nature of the securities, and the terms of the sale.
2. Filing Fee: Along with the notice of intent to sell, a filing fee must be paid. The fee amount is specified by the Utah Division of Securities and is intended to cover the administrative costs associated with processing the notice.
3. Submission Process: The notice of intent to sell and the filing fee can typically be submitted electronically through the NASAA Electronic Filing Depository (EFD) at https://www.efdnasaa.org. The EFD system provides a centralized platform for submitting filings to multiple states, making the process more efficient.
4. Compliance Review: The Utah Division of Securities will review the notice of intent to sell to ensure compliance with state regulations and confirm the eligibility of the exemption. If the submission meets all requirements, the Division will acknowledge the exemption.

Key Considerations

• Timeliness: Ensure that all notices or applications are submitted well in advance of any planned securities sales to allow sufficient time for review and approval.
• Accuracy: Provide complete and accurate information in all submissions to avoid delays or rejections. Inaccurate or incomplete filings can result in additional scrutiny and potential compliance issues.
• Professional Guidance: Consulting with a syndication attorney can help ensure that all procedural requirements are met and that the exemption process goes smoothly. An experienced attorney can assist with preparing the necessary documentation, submitting filings, and addressing any issues that may arise during the review process.

In conclusion, understanding and following Utah’s procedures for securities law exemptions is essential for issuers seeking to take advantage of these regulatory reliefs. By adhering to the notice or application requirements, paying the appropriate filing fees, and utilizing the EFD system for submissions, issuers can efficiently navigate the exemption process and ensure compliance with state securities laws.

Frequently Asked Questions

Do I Need an Attorney from Utah Then to Put Together an Offering?

Whether you need an attorney from Utah to put together an offering largely depends on the specifics of your offering and the jurisdictions involved. If your offering is under Regulation D and not specifically governed by Utah’s Blue Sky Laws, you may not need an attorney licensed in Utah.

For instance, if you are seeking a real estate syndication attorney to draft a private placement memorandum (PPM) for a multifamily deal in Salt Lake City, Utah, which will be offered across various states, and you do not require counsel on Utah-specific laws, a licensed syndication lawyer from any state should be able to assist you. This attorney can help with the creation of the entity, drafting the operating agreement, and ensuring compliance with federal regulations under Regulation D. They would, however, be unable to provide specific legal advice on Utah state laws and their applicability to your offering.

Conversely, if your private placement memorandum is for a development project in West Valley, Utah, with all investors based in Utah, and you intend to utilize one of Utah’s Blue Sky Laws as an exemption to registration, then it is essential to work with an attorney licensed in Utah. In such cases, detailed knowledge of Utah’s securities laws and procedures is critical to ensuring compliance and taking advantage of specific state exemptions.

In summary, while a general syndication attorney can handle many aspects of your offering, particularly those related to Regulation D and federal compliance, engaging an attorney licensed in Utah is crucial when dealing with Utah-specific laws and exemptions. This ensures that all legal nuances and regulatory requirements specific to Utah are properly addressed, avoiding potential legal pitfalls.

Is it OK if the Real Estate Syndication Attorney, Licensed Outside of Utah, Looks Over My Purchase Contract?

A real estate syndication attorney who is licensed outside of Utah can certainly review your purchase contract, but there are important limitations to keep in mind. While they can offer business consulting advice on general aspects of the deal, such as pricing and broad deal points like the length of time until closing, they cannot provide legal advice specific to Utah laws.

For example, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can review the contract underlying your purchase of a property in West Jordan, Utah. He can discuss business elements of the deal and offer general guidance. However, he will make it clear that he cannot speak to specific legal terms or the implications of Utah state laws, as he is not licensed to practice law in Utah.

When seeking advice on specific terms of a contract that pertain to Utah law, it is essential to consult with an attorney who is licensed in Utah. This ensures that you receive accurate and legally sound advice regarding the contract’s compliance with state regulations and any potential legal issues that may arise.

In summary, while an out-of-state syndication attorney can provide valuable business insights and general advice, it is crucial to consult with a Utah-licensed attorney for legal advice specific to Utah’s laws. This dual approach ensures that you benefit from specialized syndication expertise while also maintaining full compliance with state-specific legal requirements.