Wisconsin Blue Sky Laws for Syndication

Navigating the complexities of securities laws can be a daunting task for issuers and investors alike. Whether you are a real estate developer, business owner, private equity fund manager, or a professional involved in syndication, understanding the regulatory framework governing your offerings is crucial. Wisconsin’s Blue Sky Laws, which regulate the sale of securities within the state, play a significant role in ensuring investor protection and market integrity. However, these state laws intersect with federal regulations, such as the SEC’s Regulation D, creating a layered regulatory environment.

This article aims to demystify the relationship between Wisconsin’s Blue Sky Laws and Regulation D, providing a comprehensive overview of the exemptions, notification requirements, and procedural nuances involved. By delving into key topics such as the advantages of choosing Regulation D Rule 506(b) or Rule 506(c) offerings, the state’s specific securities law exemptions, and the role of legal counsel in navigating these regulations, we equip you with the knowledge needed to make informed decisions. Whether you’re raising capital for a multifamily project in Milwaukee or a development in Madison, this guide will help you understand the essential legal considerations and procedural steps to ensure compliance and success in your securities offerings.

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

State Blue Sky Laws are designed to protect investors from fraud and ensure transparency in securities offerings within each state. However, these laws can vary significantly from state to state, which can create a complex regulatory environment for issuers. To streamline the process and provide a more uniform framework, the Securities and Exchange Commission (SEC) established Regulation D under the Securities Act of 1933.

Regulation D provides a series of exemptions from the registration requirements for securities offerings, specifically through Rules 504, 505, and 506. Of particular importance are Rule 506(b) and Rule 506(c), which offer significant advantages for issuers looking to raise capital without the need to comply with the full registration process.

Preemption of State Blue Sky Laws

Under 15 U.S. Code § 77r(b)(4)(F), offerings made pursuant to Rule 506(b) or Rule 506(c) of Regulation D are preempted from state Blue Sky Laws. This means that if an issuer conducts an offering in compliance with these rules, they are not required to adhere to the registration and qualification requirements of each individual state’s securities laws. Instead, they only need to file a notice with the SEC using Form D and comply with the anti-fraud provisions of federal securities laws.

This preemption simplifies the regulatory landscape for issuers, allowing them to focus on meeting federal requirements without the added burden of navigating varying state regulations. For many syndication sponsors, this makes Rule 506(b) or Rule 506(c) offerings an attractive option when raising capital.

Intrastate Offerings

Despite the advantages of federal preemption, there are scenarios where a sponsor might choose to conduct an offering under a state’s Blue Sky Laws instead. If an offering is entirely intrastate—meaning the sponsor, all investors, and the assets are all located within the same state—the issuer may opt to utilize the state’s securities laws for the offering. This approach is often referred to as an “intrastate offering.”

Intrastate offerings can be beneficial in certain situations, particularly when the issuer has a strong local presence and investor base. By complying with state Blue Sky Laws, the issuer might benefit from less stringent regulatory requirements compared to federal rules, depending on the state’s specific laws.

Choosing the Right Path

When deciding between a federal Regulation D offering under Rule 506(b) or Rule 506(c) and a state-regulated intrastate offering, issuers must consider their specific circumstances and objectives. Key factors include the location of the sponsor and investors, the nature of the assets, and the regulatory environment of the state in question.

In summary, while Regulation D Rule 506(b) and Rule 506(c) offerings provide a streamlined, federally preempted path for raising capital, state Blue Sky Laws still play a crucial role in certain intrastate offerings. Understanding the relationship between these regulatory frameworks is essential for any sponsor or syndication attorney navigating the securities landscape.

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

When it comes to raising capital through syndication, issuers must carefully choose the most appropriate regulatory framework. While state Blue Sky Laws offer certain pathways for intrastate offerings, Regulation D Rule 506(b) and Rule 506(c) often present more advantageous options for several reasons. Here’s why:

Interstate Flexibility

One of the primary reasons to choose a Regulation D Rule 506(b) or Rule 506(c) offering over state Blue Sky Laws is the flexibility to include investors from multiple states. State Blue Sky Laws apply to securities offerings within a specific state, meaning that all investors, the sponsor, and the assets must be located within that state. However, in many syndications, investors are spread across various states or even countries.

If any investor or the sponsor is outside of the state, the offering cannot qualify as an intrastate offering under Blue Sky Laws. This interstate aspect is where Regulation D becomes particularly valuable. Rule 506(b) and Rule 506(c) allow issuers to raise capital from accredited investors nationwide, without the need to register in each state where investors reside. This federal exemption greatly simplifies the process and expands the potential investor pool.

Mitigating Risks of Misclassification

There is also a significant risk associated with misclassifying an offering as intrastate under state Blue Sky Laws. An offering might initially seem to qualify as intrastate, but if it is later discovered that an investor is actually domiciled outside the state, the offering no longer meets the intrastate criteria. This misclassification can lead to serious securities law violations, including penalties and the potential invalidation of the offering.

Regulation D Rule 506(b) and Rule 506(c) mitigate this risk by providing a clear, federally preempted framework that does not hinge on the intrastate status of investors. This preemption ensures that issuers remain compliant with securities laws regardless of investor location, thus avoiding the pitfalls of state-level misclassification.

Simplified Compliance and Reduced Regulatory Burden

Another compelling reason to opt for Rule 506(b) or Rule 506(c) offerings is the simplified compliance process. State Blue Sky Laws often require issuers to navigate a complex web of registration and qualification requirements unique to each state. This can be time-consuming and costly, particularly for offerings that span multiple states.

In contrast, Regulation D provides a streamlined process where issuers only need to file a notice with the SEC using Form D. This significantly reduces the regulatory burden and allows issuers to focus more on their business and less on regulatory compliance. Additionally, the anti-fraud provisions of federal securities laws still apply, ensuring investor protection without the extensive procedural requirements of state laws.

Access to Accredited Investors

Regulation D Rule 506(b) and Rule 506(c) offerings provide access to a broad pool of accredited investors. Rule 506(b) allows for an unlimited number of accredited investors and up to 35 non-accredited investors, though it is generally advisable to focus on accredited investors to ensure compliance and reduce complexity. Rule 506(c) further enhances this by permitting general solicitation and advertising, provided that all investors are accredited and the issuer takes reasonable steps to verify their accreditation status.

In summary, choosing Regulation D Rule 506(b) or Rule 506(c) over state Blue Sky Laws offers significant advantages, including interstate flexibility, reduced risk of misclassification, simplified compliance, and access to a larger pool of accredited investors. These benefits make Regulation D an attractive option for many issuers looking to raise capital through syndication. By leveraging these federal exemptions, sponsors can efficiently and effectively meet their capital-raising goals while ensuring compliance with securities laws.

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, issuers must comply with certain notification requirements at both the federal and state levels. In Wisconsin, these requirements are designed to inform the state about the securities offering while ensuring that issuers adhere to regulatory standards. Here are the key points to consider for notifying Wisconsin about your Regulation D offering:

Filing Requirements

For both Rule 506(b) and Rule 506(c) offerings under Regulation D, issuers are required to file a notice with the Wisconsin Department of Financial Institutions. This notification is necessary to ensure that the state is aware of the securities being offered to its residents, even though the offering itself is preempted from state Blue Sky Laws under federal law.

Filing Fee

Wisconsin imposes a fixed filing fee for submitting the notice of a Regulation D offering. The fee for this notification is $200. This fee is required to cover the administrative costs associated with processing the notice and maintaining records of securities offerings within the state.

Timing of the Filing

Issuers must file the notice in a timely manner to remain compliant with state regulations. The notice should be filed as soon as practicable after the first sale of securities in the offering. Although there is no specific deadline mandated by Wisconsin state law, it is prudent to submit the notice promptly to avoid any potential issues.

Late Fee

Wisconsin does not impose a late fee for delayed filings of the notice. However, timely filing is strongly recommended to ensure compliance and avoid any administrative complications. While there is no financial penalty for late filings, adhering to the proper timeline demonstrates good faith in regulatory compliance and helps maintain a positive relationship with state regulatory authorities.

Electronic Filing via NASAA EFD

Notices are sent to the state through the NASAA Electronic Filing Depository (EFD) system. The EFD provides a streamlined process for filing Form D notices electronically. Issuers can access the EFD at https://www.efdnasaa.org/FAQ/answer?faq=2 to submit their filings. The system is designed to simplify the notification process and ensure that all necessary information is accurately and efficiently transmitted to the Wisconsin Department of Financial Institutions.

Information Required in the Notice

The notice filed through the NASAA EFD typically includes:

• The name of the issuer
• The principal place of business
• A brief description of the securities being offered
• The offering amount
• Information about the intended use of proceeds
• Contact information for the issuer or its legal representative

Compliance and Legal Assistance

Issuers are encouraged to consult with a syndication attorney to ensure that all notification requirements are met accurately. A syndication attorney can provide guidance on the necessary documentation and assist with the filing process, ensuring that the offering remains in compliance with both federal and state regulations.

Notifying Wisconsin about a Regulation D Rule 506(b) or Rule 506(c) offering involves submitting a notice with a fixed filing fee of $200 through the NASAA Electronic Filing Depository system. While there is no late fee for delayed filings, timely submission is recommended to maintain compliance. By following these notification rules and terms, issuers can smoothly navigate the regulatory landscape and focus on successfully raising capital through their offerings.

What are Wisconsin’s Blue Sky Laws?

Wisconsin’s Blue Sky Laws play a critical role in regulating securities transactions within the state, ensuring transparency, fairness, and investor protection. These laws, codified under Wisconsin Statutes Chapter 551, establish various exemptions from registration requirements, allowing certain transactions to proceed with reduced regulatory oversight. Specifically, Sections 551.201, 551.203, and 551.204 provide detailed criteria under which specific securities and transactions are exempt from the usual registration mandates. These exemptions cover a range of scenarios, including government and institutional securities, non-issuer transactions, and limited offerings to select investors. By understanding these exemptions, issuers and investors can navigate the regulatory landscape more efficiently, fostering a more dynamic and accessible market for capital formation in Wisconsin. In this article, we will delve into these sections, exploring the intricacies of each exemption and their implications for securities transactions within the state.

WI ST 551.201 Exempt securities

Under Wisconsin Statutes Section 551.201, certain securities are exempt from registration requirements, provided they meet specific criteria. This exemption covers various categories, including government securities, bank securities, and insurance company securities. Additionally, it includes securities issued by non-profit organizations and certain employee benefit plans. The law aims to streamline the process for entities issuing these types of securities, reducing the regulatory burden while maintaining investor protections. This exemption reflects Wisconsin’s effort to balance fostering investment opportunities with ensuring a secure investment environment.

WI ST 551.203 Additional exemptions and waivers

Wisconsin Statutes Section 551.203 outlines specific exemptions from the registration requirements for certain transactions involving securities. This statute includes exemptions for isolated non-issuer transactions, transactions between issuers and underwriters, and those related to judicial or administrative sales. It also covers certain offerings to limited numbers of investors and transactions with existing security holders. These exemptions aim to facilitate smoother securities transactions under specified conditions, thereby reducing regulatory hurdles for issuers and intermediaries. By providing these exemptions, Wisconsin seeks to promote efficient capital formation while ensuring that adequate safeguards are in place to protect investors’ interests.

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

 Wisconsin Statutes Section 551.204 provides exemptions from registration for specific securities transactions to streamline the regulatory process while maintaining investor protections. This statute includes exemptions for offers and sales to institutional investors, transactions with existing security holders, and certain non-public offerings. It also covers transactions involving the exchange of securities by the issuer, provided no commission or remuneration is paid. By granting these exemptions, Wisconsin aims to facilitate capital formation and reduce regulatory burdens for businesses, allowing them to efficiently raise funds while ensuring that investor interests are safeguarded.

What are Wisconsin’s Securities Laws Exemptions

Wisconsin’s securities laws provide a range of exemptions designed to facilitate various types of securities offerings without the need for full registration under state Blue Sky Laws. These exemptions are detailed in the Wisconsin Uniform Securities Law, specifically under Wisconsin Statutes § 551.201. Understanding these exemptions is crucial for issuers, including those involved in syndications, to navigate the regulatory landscape effectively.

Exemptions for Government and Quasi-government Securities

Securities issued or guaranteed by the United States, any state, or any political subdivision of a state, including municipalities, are exempt from registration under Wisconsin law. This also includes securities issued by public instrumentalities or public authorities of the United States, any state, or any political subdivision of a state. These exemptions recognize the inherent reliability and lower risk associated with government-backed securities.

Revenue Obligations and Letters of Credit

Wisconsin law exempts revenue obligations issued by a public instrumentality or public authority of the United States or any state. Additionally, any security that is a letter of credit or any security where a letter of credit guarantees the payment of principal or interest is also exempt. These financial instruments are typically backed by reliable revenue sources, reducing the necessity for state-level registration.

Foreign Government and International Institution Securities

Securities issued by foreign governments with which the United States maintains diplomatic relations, as well as securities issued by international organizations of which the United States is a member, are exempt. This category includes securities from entities like the International Monetary Fund (IMF) and the World Bank, which are deemed secure and stable due to their international backing and governance.

Securities of Authorized Insurance Companies, Public Utilities, and More

Securities issued by authorized insurance companies, public utilities, and other regulated entities such as railroads, are exempt from registration under Wisconsin’s securities laws. These entities are subject to rigorous oversight and regulation, ensuring their financial stability and reducing the need for additional securities regulation at the state level.

Securities Issued by Non-profit Organizations and Cooperatives

Non-profit organizations and cooperatives that issue securities are often granted exemptions under Wisconsin law. This includes securities issued by charitable, religious, educational, and fraternal organizations. The rationale behind this exemption is the recognition of the social and community benefits these organizations provide, alongside their non-profit status which inherently reduces the risk to investors.

Equipment Trust Certificates

Equipment trust certificates, which are typically used in the transportation industry to finance the purchase of equipment such as railway cars and airplanes, are also exempt. These certificates are secured by the equipment itself, providing a tangible asset backing the security and thereby lowering the investment risk.

Wisconsin’s securities laws exemptions, outlined in Wisconsin Statutes § 551.201, cover a broad spectrum of securities, from government and quasi-government securities to those issued by non-profit organizations and cooperatives. These exemptions are designed to streamline the regulatory process for low-risk securities, facilitating easier access to capital for various entities while maintaining investor protections. For issuers and syndication attorneys, understanding these exemptions is essential for effective compliance and strategic planning in securities offerings.

What are Wisconsin’s Procedures for Securities Law Exemptions?

Navigating the procedures for securities law exemptions in Wisconsin requires a clear understanding of the requirements and steps necessary to comply with the state’s regulatory framework. The Wisconsin Uniform Securities Law, under Wisconsin Statutes § 551.203, outlines specific procedures that issuers must follow to qualify for and maintain these exemptions.

Notification and Filing Requirements

While many securities exemptions under Wisconsin law do not require full registration, issuers must often notify the Wisconsin Department of Financial Institutions (DFI) of their intent to use an exemption. This notification typically involves submitting specific forms and documentation to the DFI. The primary form used for this purpose is the Uniform Notice of Federal Crowdfunding Offering (Form D), which must be filed electronically via the NASAA Electronic Filing Depository (EFD) system.

Fee Payment

Issuers seeking an exemption must pay the applicable filing fee to the Wisconsin DFI. The fee structure varies depending on the type of exemption being claimed. For instance, a notice filing for a Regulation D Rule 506 offering involves a fixed fee of $200. This fee is used to cover the administrative costs associated with processing the exemption notice and maintaining records of the offering.

Documentation Requirements

The documentation required for exemption filings typically includes:

• Form D: For federal exemptions under Regulation D Rule 506(b) or Rule 506(c), the issuer must file Form D with the SEC and provide a copy to the Wisconsin DFI.
• Offering Memorandum: A detailed offering memorandum or private placement memorandum (PPM) that outlines the terms of the offering, the risks involved, and financial information about the issuer.
• Consent to Service of Process: Issuers must submit a consent to service of process form, which designates the Wisconsin DFI as the agent for service of legal documents in case of legal action related to the offering.

Timeline and Deadlines

Issuers must be mindful of the timelines and deadlines associated with filing for exemptions. The notice filing with the Wisconsin DFI should be completed as soon as practicable after the first sale of securities in the offering. While Wisconsin does not impose a specific deadline for filing the notice, prompt submission is advisable to ensure compliance and avoid any administrative complications.

Ongoing Compliance and Reporting

Even after securing an exemption, issuers must comply with ongoing reporting and disclosure requirements to maintain their exempt status. This may include annual or periodic updates to the Wisconsin DFI about the status of the offering and any material changes in the information initially provided.

Legal and Professional Assistance

Given the complexity of securities laws and the importance of compliance, issuers are strongly encouraged to seek the assistance of a syndication attorney. A knowledgeable attorney can provide guidance on the appropriate exemptions, assist with the preparation and filing of required documentation, and ensure that all procedures are followed correctly.

The procedures for securities law exemptions in Wisconsin involve a combination of notification and filing requirements, fee payments, and ongoing compliance obligations. By adhering to these procedures, issuers can effectively navigate the regulatory landscape and take advantage of the available exemptions to facilitate their securities offerings. Working with a syndication attorney can further streamline the process and ensure that all legal requirements are met, reducing the risk of non-compliance and associated penalties.

Frequently Asked Questions

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

The necessity of engaging an attorney licensed in Wisconsin for your securities offering largely depends on the nature and scope of the offering itself. If your offering is structured under Regulation D, rather than Wisconsin-specific Blue Sky Laws, you may not need a Wisconsin-licensed attorney.

For instance, if you are working on a real estate syndication involving a private placement memorandum (PPM) for a multifamily deal in Milwaukee, Wisconsin, and plan to offer it across multiple states, you can typically rely on a licensed syndication attorney from any state. Such an attorney would be capable of drafting the PPM, forming the entity, and preparing the operating agreement. However, this attorney would not be able to advise you on the specific nuances of Wisconsin’s securities laws and their applicability to your offering.

Conversely, if you are preparing a PPM for a development project in Madison, Wisconsin, where all the investors are Wisconsin residents and you intend to utilize one of Wisconsin’s Blue Sky Laws for exemption from registration, it is essential to consult with an attorney licensed in Wisconsin. A local attorney would have the requisite knowledge and expertise in Wisconsin’s securities laws, ensuring that your offering complies with state-specific regulations and leverages the appropriate exemptions effectively.

In summary, while a licensed syndication attorney from outside Wisconsin can assist with many aspects of your offering under Regulation D, you will need a Wisconsin-licensed attorney for guidance and compliance with Wisconsin-specific Blue Sky Laws. This distinction ensures that your offering adheres to all relevant legal requirements, minimizing risks and maximizing the success of your capital-raising efforts.

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

A real estate syndication attorney licensed outside of Wisconsin can certainly review your purchase contract, but their ability to provide specific legal advice regarding Wisconsin law is limited. For instance, Tilden Moschetti, Esq., a syndication attorney with the Moschetti Syndication Law Group, can examine the contract for your purchase in Green Bay, Wisconsin. He can offer business consulting advice, such as discussing the price and general deal terms like the closing timeline. However, he cannot provide legal counsel on any specific terms of the contract as he is not licensed to practice law in Wisconsin.

This means while an out-of-state attorney can provide valuable insights on the overall structure and commercial aspects of the contract, they cannot advise on Wisconsin-specific legal provisions or ensure that the contract complies with state laws. For legal advice related to Wisconsin-specific terms, it is essential to consult with a local attorney who is licensed in Wisconsin and familiar with the state’s real estate laws and regulations. This approach ensures that you receive comprehensive and compliant legal guidance for your real estate transaction in Wisconsin.