Wisconsin Blue Sky Laws are critical to be aware of for syndicators looking to raise capital from investors in Wisconsin. These laws regulate the securities industry within the state. Understanding the basics of Wisconsin‘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? 

Securities laws play a crucial role in safeguarding investors from fraudulent practices and misinformation. These rules, governed by two tiers of regulatory authorities, seek to foster transparency, accuracy, and honesty in the sale and issuance of securities.

On one hand, there is the federal agency, the Securities and Exchange Commission (SEC), that sets rules and regulations that all companies issuing securities must follow. This agency is charged with protecting investors, maintaining fair and efficient markets, and facilitating capital formation. Their purview extends across the nation, ensuring that the issuance and trading of securities comply with federal laws.

On the other hand, each state in the U.S. has its own securities regulation agency that governs securities transactions within its borders. These state-level agencies, often referred to as the “Blue Sky” regulators, are responsible for implementing their state’s securities regulations. These regulations, while generally aligning with federal laws, sometimes feature unique provisions to safeguard the financial interests of the residents within the state.

However, it’s important to note that federal laws have imposed significant limitations on states’ abilities to review or control the sales of most securities, especially when these securities are offered through a Federal regulation, like the syndication of a Regulation D offering. Despite this, states retain certain powers in this domain. For instance, states can demand the filing of a notice accompanied by the requisite fee when such offerings are made. Additionally, state regulatory bodies have the power to conduct investigations into securities-related activities and, if necessary, initiate legal actions for fraudulent practices to protect their residents.

For securities transactions that are entirely contained within the state of Wisconsin, the state’s Blue Sky Laws come into play. Named metaphorically to protect investors from fraudulent schemes that have as much value as a patch of ‘blue sky,’ these laws dictate the protocols and regulations for the issuance and sale of securities within the state. These rules, along with federal regulations, form a vital component of investor protection, creating a safer and more transparent investment environment.

 

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

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

Filing fee – Fixed

New notice – $200

Late fee for late filings – None

 

What are Wisconsin’s Blue Sky Laws?

WI ST 551.201 Exempt securities

WI ST 551.203 Additional exemptions and waivers

WI ST 551.204 Denial, suspension, revocation, condition, or limitation of exemptions; burden of proof; additional information

 

What are Wisconsin’s securities laws exemptions?

Wisconsin’s Blue Sky Laws, like those of many other states, are designed to protect investors from fraud by requiring securities to be registered and their issuers to provide certain disclosures. However, not all securities must be registered under these laws. Wisconsin’s securities exemptions play a significant role in its blue sky laws, offering a series of defined categories under which securities are not obligated to register. Here, we delve into those categories.

Exemptions for Government and Quasi-government Securities

The first exemption pertains to securities, including revenue obligations or separate securities as defined in Rule 131 (17 CFR 230.131) under the Securities Act of 1933. Specifically, if a security is issued, insured, or guaranteed by the United States; a state; a political subdivision of a state; a public authority, agency, or instrumentality of one or more states; or by an entity under the supervision of and acting as an instrumentality of the United States under Congressional authority, it is exempt.

This exemption extends to certificates of deposit related to the above, but with one notable exception: revenue obligations payable from payments made concerning property or money used under a lease, sale, or loan arrangement by a non-governmental industrial or commercial enterprise.

Revenue Obligations and Letters of Credit

Wisconsin’s blue sky laws have a specific provision for revenue obligations. These obligations, when backed by a letter of credit from a bank, savings bank, or savings and loan association, are exempt. However, without this backing, a revenue obligation payable from payments concerning property or money used under a lease, sale, or loan arrangement by a non-governmental enterprise is only exempt subject to rules by the division of securities.

Further, a revenue obligation, if backed by a guarantee or irrevocable letter of credit from a depository institution, is exempt from any filing under the division’s rules. The caveat here is that the letter of credit should ensure payment of all principal of the revenue obligations and all accrued and unpaid interest to the event of default, and must be accompanied by an opinion of counsel.

Foreign Government and International Institution Securities

Securities issued, insured, or guaranteed by a foreign government with which the United States maintains diplomatic relations or any of its political subdivisions are also exempt, as long as the security is recognized as a valid obligation by the issuer, insurer, or guarantor.

Moreover, securities issued by international banking institutions or banking institutions organized under U.S. laws, member banks of the Federal Reserve System, or a depository institution insured by the Federal Deposit Insurance Corporation or similar entity are also exempt.

Securities of Authorized Insurance Companies, Public Utilities, and More

Securities issued by an insurance company authorized to do business in Wisconsin, by a railroad, other common carriers, public utilities, or public utility holding companies, and federal covered securities are also exempt.

Securities Issued by Non-profit Organizations and Cooperatives

Securities issued by non-profit organizations, such as those organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, social, athletic, reformatory purposes, or as a chamber of commerce, are exempt. So are a member’s or owner’s interests in a cooperative organized as a nonprofit membership cooperative under the cooperative laws of a state.

Equipment Trust Certificates

Equipment trust certificates with respect to equipment leased or conditionally sold to a person are exempt if any security issued by the person would be exempt under this section or would be a federal covered security.

Finally, it’s important to note that the law allows the adoption of rules or issuance of orders that may exempt a security from registration under certain circumstances.

 

Frequently Asked Questions

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

That depends. If the offering you are putting together is under Regulation D and not one of the Wisconsin-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 Milwaukee, Wisconsin, that was going to be offered in different states, and you didn’t need counsel on questions related to Wisconsin 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 Wisconsin 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 Madison, Wisconsin, all of the investors were from Wisconsin, and you wanted to use one of Wisconsin’s Blue Sky Laws above as an exception to registration, then you would need to work with someone licensed in Wisconsin.

 

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

They can look, but they can’t give you advice as it pertains to Wisconsin. 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 Green Bay, Wisconsin, 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.