December 29, 2020 | By Patrick T. McCloskey
On December 1, 2020 the New York Attorney General (“NYAG”) announced the adoption of significant rule amendments governing the registration and related filing requirements for issuers that are considered “dealers” of their own securities under Section 359-e of the New York General Business Law (“GBL”).1 These changes were initially proposed by the NYAG on April 15, 2020 and became effective on December 2, 2020, upon publication of the notice of adoption in the New York State Register.2
Through the Assessment of Public Comment, the NYAG’s office also clarified its position on certain issues related to the adopted amendments, including (i) the rejection of certain conclusions reached in a 2002 position paper published by the New York State Bar Association’s (“NYSBA’s”) Committee on Securities Regulation regarding New York’s blue sky filing requirements and (ii) the removal a proposal that would have required so-called “finders” to register as brokers in New York.
The Form D and NASAA’s EFD
The amendments to 13 NYCRR 10 finally align New York’s blue sky filing requirements3 with longstanding federal regulations for general securities offerings4 exempt from 1933 Act registration under Rule 506 of Regulation D.5 Effective as of December 2, 2020, a Rule 506 issuer that is subject to registration as a dealer under GBL § 359-e(3) must, subject to a temporary option to use the legacy registration method during a transition period that expires on February 1, 2021: (i) electronically file the federal Form D6 with the NYAG’s Department of Law (the “Department of Law”) through the North American Securities Administrators Association’s (“NASAA's”) electronic filing depository system (“EFD”)7 and (ii) pay the applicable fees through NASAA’s EFD.8 If a filer can demonstrate a material hardship presented by electronic filing or payment, the NYAG may accept filing in paper form or payment by check or other means, in each case at the discretion of the Department of Law.9
Filing the Form D and paying the applicable fees through NASAA’s EFD in accordance with the modified rules will satisfy all of the applicable Rule 506 issuer’s obligations under GBL § 359-e, thereby eliminating the need for such issuers to file a state notice pursuant to GBL § 359-e(2) and a further state notice pursuant to GBL § 359-e(8).10 In addition, non-resident Rule 506 issuers that register as a dealer by filing through NASAA’s EFD need not separately file a Form U-2 consent to service of process with the Department of State.11 The elimination of these filings will spare such Rule 506 issuers $185 in filing fees ($75 for the state notice, $75 for the further state notice, and $35 for the Form U-2), but such savings will be offset by the EFD’s $160 system use fee, resulting in modest net savings of $25.
Another ancillary benefit for Rule 506 issuers that satisfy GBL § 359-e registration and filing obligations through NASAA’s EFD is relief from the requirement to provide the NYAG with copies of the applicable offering documents, including subscription instruments.12 This relief is an unsung benefit of the amendments to 13 NYCRR 10 because, according to the IPB, offering documents provided with a Form 99 filing are subject to the New York Freedom of Information Law (“FOIL”).13
Like the federal deadline, a Form D filed with the Department of Law through NASAA’s EFD must be completed within 15 days of the first sale, but the New York clock runs from the first sale within or from New York.14 Prior to this change, the Form 99 method required a filing before any offer or sale within or from New York.15 Rule 506 issuers should be aware that Form Ds must be filed with the SEC through EDGAR before a Form D can be filed through NASAA’s EFD. Since first-time Form D filers need to obtain EDGAR access codes before filing with the SEC, Rule 506 issuers that fall into this category should initiate the process early enough to meet the applicable deadlines.16 It should also be noted that although the SEC allows multiple issuers to file a single Form D, the IPB has indicated that, for purposes of EFD filings in New York, each issuer must file its own separate Form D through NASAA’s EFD, and any applicable amendments, as well as pay its own applicable fees.17
Consistent with GBL § 359-e(3), an initial Form D filed with the Department of Law through NASAA’s EFD is effective as a dealer registration for four (4) years.18 Any subsequent Form D filed by the applicable issuer with the SEC during the four-year effective period must also be filed with the Department of Law through NASAA’s EFD if such Form D contains information that differs from information previously filed with the Department of Law within such four-year effective period.19 Any such subsequent Form D filing will be deemed to be a “supplemental statement” within the meaning of GBL § 359-e(4), which requires payment of a $30 fee to the Department of Law.20
As mentioned above, during a transition period that expires on February 1, 2021, Rule 506 issuers can elect to satisfy initial GBL § 359-e registration and filing requirements for general securities offerings by utilizing the legacy Form 99 method.21 Such Rule 506 issuers would need to file (i) a Form 99 with the IPB and (ii) a state notice, further state notice and, if a non-resident issuer, a Form U-2 with the Department of State, with payment of the applicable fees through the conventional procedures.22
The IPB’s Form D EFD Guidance also addresses certain transition matters for Rule 506 issuers with an effective Form 99 on file. To the extent such a Rule 506 issuer (i) needs to amend the Form 99 during the applicable four-year effective period and (ii) has not yet filed a Form D with the Department of Law through NASAA’s EFD, the IPB will continue to accept amended Form 99s through December 2, 2024.23 Alternatively, a Rule 506 issuer in this situation may voluntarily transition from the Form 99 by filing a Form D through NASAA’s EFD within the Form 99 four-year effective period, referred to in the Form D EFD Guidance as “first time digitization.” A Rule 506 issuer that chooses this alternative will be required to pay the initial fee to the Department of Law, as well as the EFD system use fee, and will be given a new IPB filing ID and registration date (i.e., such Form D will commence a new four-year effective period).24
According to the Form D EFD Guidance, after December 2, 2024, all active Federal Regulation D Covered Securities Dealers, other than issuers of real estate securities and theatrical syndications (see below), must have a notice filing record on NASAA’s EFD.25
The IPB also alerted issuers to the potential consequences of false statements or material omissions in Form D filings, noting they “may constitute a fraudulent practice under Article 23-A of the General Business Law.”26 The IPB also pointed out that a Form D filing with the Department of Law through NASAA’s EFD will be void ab initio if the applicable issuance does not actually qualify for the Rule 506 exemption, even if such deficiency is not communicated to the issuer at the time of filing.27
Taking a step back, the streamlined procedures for filing a Form D through NASAA’s EFD apply only to Rule 506 issuers that are Federal Regulation D Covered Securities Dealers, as defined.28 This means that an issuer relying on Rule 504 or Section 4(a)(2) for the 1933 Act exemption must, to the extent such issuer is a dealer under GBL § 359-e(1)(a), either file and register in accordance with GBL § 359-e or otherwise seek and obtain an exemption under GBL § 359-(f)(2) before offering or selling any securities within or from New York.29
Rule 506 issuers of real estate securities
Although the new regulatory definitions of Federal Regulation D Covered Securities and Federal Regulation D Covered Securities Dealers do not contain any exceptions or carve outs related to real estate, the Department of Law has taken the position that the amendments do not apply to issuers of real estate securities.30
In the Form D EFD Guidance, the IPB stated “[i]ssuers of Real Estate Securities are currently still required to file the Form 99 as prescribed by the Real Estate Finance Bureau (‘REF’).” In response to a comment requesting clarification that the amendments to 13 NYCRR 10 do not apply to REF filings, the Department of Law expounded on this exception:
The Adopted Rule is only applicable to filings related to general securities offerings which shall be filed with the Investor Protection Bureau. The Adopted Rule is not applicable to filings with the Real Estate Finance Bureau, such as filings of securities constituted of participation interests or investments in real estate, mortgages or leases, including stocks, bonds, debentures, evidences of interest or indebtedness, limited partnership interests or other security or securities as defined in GBL § 352-e, when such securities consist primarily of participation interests or investments in one or more real estate ventures, including cooperative interests in realty. The Real Estate Finance Bureau may accept filings through EFD at a later date and will provide notice of any such change.31
From a GBL § 359-e filing standpoint, this position is currently inconsequential since the REF has essentially imposed a moratorium on Form 99 filings due to Covid-19. In a Memorandum published as a guidance document pursuant to Section 102(14) of the State Administrative Procedure Act (the “REF Covid Relief Memorandum”), the Department of Law stated: (i) the REF does not currently intend to pursue enforcement actions against Rule 506 issuers that are dealers under GBL § 359-e(1)(a) solely for failure to file a Form 99 and (ii) such Rule 506 issuers are specifically advised to not file a Form 99 with REF until after the Covid-19 relief period.32 The REF Covid Relief Memorandum also states that the REF is developing e-submission and e-payment guidelines and will provide Rule 506 issuers that are dealers under GBL § 359-e(1)(a) with a 90-day grace period to come into compliance upon expiration of the Covid-19 relief period.33
Rule 506 issuers of theatrical syndications
With respect to theatrical syndications, the NYAG has given Rule 506 issuers a choice.34 Any such Rule 506 issuer can either avail itself of the new streamlined procedures by filing a Form D through NASAA’s EFD, or it can alternatively utilize the legacy procedure of filing a Form 99.35 Importantly, Rule 506 issuers of theatrical syndications that elect to file a Form D through the EFD will incur the filing fee (either $300 or $1,200, depending upon the size of the offering), plus the $160 EFD system use fee, whereas no such fees will be imposed if such issuer files the legacy Form 99.36
Relief from the payment of filing fees is not the only reason a Rule 506 issuer of a theatrical syndication might opt to stick with the Form 99—which accurately cites the New York Arts and Cultural Affairs Law (the “ACAL”)—not the GBL, as the statutory authority for notification filings by such an issuer. Indeed, Section 23.09(1) of the ACAL expressly provides that the provisions of Article 23-A of the GBL, the New York securities statute that is commonly referred to as the “Martin Act,”37 are not applicable to theatrical syndication offerings subject to the requirements of the ACAL.38 However, since the new regulatory provisions that relate to Form D filings through NASAA’s EFD are predicated on an issuer registering as a dealer under GBL § 359-e,39 any such filing by a Rule 506 issuer of a theatrical syndication could cause such issuer to inadvertently stray into Martin Act territory, a region most issuers (and their principals) would just as soon avoid.40
Considering the filing fees and the Martin Act wrinkle, why would a Rule 506 issuer of a theatrical syndication ever elect to file a Form D through NASAA’s EFD? There still may be good reasons, depending upon the circumstances. As mentioned above, Rule 506 issuers that elect to file the Form D through EFD are not required to provide the offering documents with the filing and such documents should therefore not be subject to FOIL.41 In a similar vein, a Rule 506 issuer of a theatrical syndication filing a Form 99 must also file certain theatrical venture amendments with Amended Form 99(s),42 and although unclear, filing a Form D filing through NASAA’s EFD may negate this requirement.43 Finally, Form 99s need to be filed before any offering to the public within or from New York. As mentioned above, the deadline for the Form D is 15 days after the first sale within or from New York.
If nothing else, the considerations described above demonstrate that any Rule 506 issuer of a theatrical syndication should consult with its own legal counsel before choosing between a Form D EFD filing or a Form 99 filing.44
Other covered security dealers
Obscured by the intrigue surrounding the changes related to the filing of Form Ds through NASAA’s EFD, the amendments to 13 NYCRR 10 added two additional categories of covered securities dealers with their own separate filing requirements.
Securities offered under Tier 2 of Regulation A are now defined as “Federal Tier 2 Securities” and issuers that offer or sell such securities and satisfy the definition of dealer under GBL § 359-e(1)(a) are now defined as “Federal Tier 2 Securities Dealers.”45 Federal Tier 2 Securities Dealers must satisfy their initial GBL § 359-e requirements by filing NASAA’s Uniform Notice Filing of Regulation A – Tier 2 with the Department of Law not later than 21 calendar days prior to the SEC’s qualification of the applicable Form 1-A offering statement.46
Securities offered by an investment company registered under the Investment Company Act of 1940 (the “1940 Act”), or an investment company that has filed a registration statement under the 1940 Act are defined as “Federal Covered Investment Company Securities” and issuers that offer or sell such securities and satisfy the definition of dealer under GBL § 359-e(1)(a) are now defined as “Federal Covered Investment Company Dealers.”47 Federal Covered Investment Company Dealers must satisfy their initial GBL § 359-e requirements by filing NASAA’s Form NF with the Department of Law prior to any offer or sale of Federal Covered Investment Company Securities within or from New York State.48 Issuers of Unit Investment Trusts may file the Form NF through NASAA’s EFD.49
The Assessment of Public Comment
On a broader scale, the Department of Law’s Assessment of Public Comment shed light on two topics that have been grey areas for securities regulation constituents for some time. First, the NYAG’s office finally publicly addressed a 2002 position paper published by the NYSBA’s Committee on Securities Regulation (the “NYSBA Position Paper”), which concluded, among other things, that registration and filings under GBL § 359-e are not required for private placements exempt from registration under Section 4(a)(2) of the 1933 Act. Second, the NYAG’s office provided an explanation for the removal of a 13 NYCRR 10 amendment proposal that would have required so-called “finders” to register as brokers in New York.
The NYSBA Position Paper
The Department of Law rejected the conclusion reached in the NYSBA Position Paper that dealer registration and filings under GBL § 359-e are not applicable to private placements exempt from 1933 Act registration by virtue of Section 4(a)(2).50 In response to a commenter who (i) urged the NYAG to accept the proposition that an issuer filing a federal Form D for a transaction exempt from 1933 Act registration is not offering or selling “to the public,” and (ii) noted that many practitioners have followed the NYSBA Position Paper, the Department of Law wrote, “[u]nder the Martin Act, private placements and other offerings to limited amounts of offerees may qualify as offerings ‘to the public.’”
The Department of Law supported this position by referencing (i) language in definition of dealer that excepts offers and sales to certain offerees, such as a bank, in a private placement;51 (ii) GBL § 359-f(2)(d), under which the NYAG can, on a discretionary basis, exempt issuers from filing and registering under GBL §§ 359-e(2) & (3) when sales are to be made to a limited number of purchasers; and (iii) the holding of the New York Court of Appeals in People v. Landes (1994), where an offering to just twelve people was ruled to have been made to the public.
The Department of Law ultimately drew a critical legal distinction between the phrase “not involving a public offering” contained in Section 4(a)(2) of the 1933 Act and the analogous phrase “offering for sale . . . to the public” contained in the definition of dealer in GBL § 359-e(1)(a):
While New York understands that the SEC has deemed that certain transactions “do not involv[e] a public offering within the meaning of Section 4(a)(2) of the  Act52 for the purpose of federal registration requirements, that determination does not define the phrase “to the public” as used in GBL § 359-e(1)(a).53
Even though not raised by a commenter, the Department of Law also rejected the conclusion in the NYSBA Position Paper that issuers selling through a broker on a “best efforts” basis were not dealers under GBL § 359-e(1)(a).54
The Department of Law did, however, tacitly endorse the NYSBA Position Paper conclusion that Rule 506 offerings are preempted from state registration or qualification except for notice filings substantially similar to the Form D:
The NYSBA [Position] Paper acknowledges that New York State “could impose notice filing requirements substantially similar to those required by Rule 503 and Form D.” This is exactly what is being done for Federal Covered Regulation D Securities Dealers in the [13 NYCRR] Part 10 Proposal. Practitioners should take note.55
In stern language, the Department of Law made clear the NYAG’s view that filings under GBL § 359-e are mandatory for Rule 506 issuers that are dealers under GBL § 359-e(1)(a) and that any failure to make such filings would “subject the delinquent filer to liability prescribed under the law.”56 The Department of Law reiterated this position in response to another comment:
[T]he Department [of Law] rejects the notion that filings under the Adopted Rule are submitted on a voluntary basis. Failure to timely submit a filing under 13 NYCRR 10 as amended, will constitute a violation of law. The Attorney General is authorized to seek relief under GBL § 352 et seq for violations of GBL § 359-e or the rules thereunder. Such remedies include, inter alia, suspending the offer or sale of securities within New York as a result of the failure to submit any filing or fee required under law.
While the NYSBA Position Paper may have been relied upon in the past as justification for an issuer to skip GBL § 359-e filings in connection with a Rule 506 offering (or another offering exempt under Section 4(a)(2)), the failure to make such filings after the Department of Law’s public statements clarifying the NYAG’s position would be risky for obvious reasons. Even if an issuer agrees with the analysis in the NYSBA Position Paper and disagrees with the views expressed by the Department of Law, an NYAG enforcement remedy against an issuer can have serious consequences. As an example, GBL § 359-g(2) provides that any violation of the Martin Act is a misdemeanor, except as otherwise provided therein. As mentioned above, this provision does not require intent, so the failure to register, file and pay fees as required under GBL § 359-e could result in the issuer being charged. A misdemeanor conviction in connection with the purchase or sale of a security is a disqualifying event under Rule 506(d)(1)(i)(A), meaning the convicted issuer would be disqualified from relying on Rule 506 for five (5) years.
It bears repeating that filings under GBL 359-e are not required if the applicable issuer is not a dealer within the meaning of GBL § 359-e(1)(a). As the Department of Law acknowledged in the Assessment of Public Comment, issuers that offer or sell securities to certain enumerated purchasers as part of a private placement are excepted from the definition.57 Even if an issuer is a dealer under GBL § 359-e(1)(a), filings under GBL §§ 359-e(2) and (3) are not required if the issuer applies for and receives an exemption from the NYAG in accordance with GBL § 359-f(2).58 The fee for an application for such an exemption is $300.59
Removal of the finder registration proposal
As mentioned above, the NYAG dropped its proposal that would have required so-called “finders” to register as brokers in New York. However, the Department of Law’s explanation of this omission from the adopted amendments indicates the issue is hardly a dead letter.
In its April 15, 2020 proposal, the NYAG proposed including a new definition in 13 NYCRR § 10.10(a)(8) that would have required any person or entity that, as part of a regular business, received compensation for introducing prospective investors to issuers that are dealers under GBL § 359-e(1)(a) to register as a broker in New York.
On October 7, 2020, the SEC proposed a conditional exemption from federal broker registration under the Securities Exchange Act of 1934, as amended (the “1934 Act”) for finders that engage in certain limited activities. As proposed, this conditional exemption would not preempt state securities laws, meaning any finder registration requirement in New York could severely limit the utility of the federal exemption in the Empire State. The public comment period for the SEC’s proposal expired on November 12, 2020, and it is currently unclear if or when such proposal will be adopted.
The Department of Law explained the rationale behind the NYAG’s removal of the finder registration proposal in the Assessment of Public Comment, stating:
Finder conduct is a subset of conduct defined under GBL § 359-e(1)(b), and thus already requires registration. Based on the comments, and in light of recent proposals by the SEC, the reference to finder has been removed from the Adopted Rule. Instead, OAG intends to issue guidance on the types of finder activity that constitute broker activity under GBL § 359-e(1)(b) and any registration requirement for such finders.
Assuming the SEC’s conditional exemption for finders is ultimately adopted, one would hope New York’s guidance on state finder registration is tailored so that it is aligned and harmonized with the federal exemption.
This post is for general informational purposes only and does not constitute legal advice. No one should rely on the information in this blog post without seeking appropriate legal, accounting, tax or other appropriate advice from an attorney, accountant or other professional properly licensed in the applicable jurisdiction(s).
1See 13 NYCRR Part 10.
2Consistent with its proposal, the NYAG also adopted rule amendments in connection with the registration and related filing requirements for representatives of investment advisers under GBL § 359-eee. These rule amendments, which will become effective on February 1, 2021 and will be codified in 13 NYCRR Part 11, are not discussed herein, but the NYAG’s published guidance on these amendments is available here.
3Unless an exemption is obtained from the NYAG in accordance with GBL § 359-f(2), issuers that are “dealers” under GBL § 359-e(1)(a) are required to file: (i) a “state notice” with the Department of State pursuant to GBL § 359-e(2); and (ii) a registration statement with the Department of Law pursuant to GBL § 359-e(3), in each case before offering or selling any securities to the public within or from New York. Unless the applicable securities are exempt under GBL § 359-f(1), issuers that are “dealers” under GBL § 359-e(1)(a) are also required to file a “further state notice” with the Department of State before offering or selling any securities to the public within or from New York. While these statutory provisions remain unchanged, the amendments to 13 NYCRR 10 streamline the filings for certain issuers of specified “covered securities,” as such term is defined in Section 18(b) of the Securities Act of 1933, as amended (the “1933 Act”).
4As further explained herein, the NYAG’s office has taken the position that (i) the streamlined filing procedures effectuated through the 13 NYCRR 10 amendments do not apply to Rule 506 issuers of real estate securities and (ii) Rule 506 issuers of theatrical syndications may elect to either (1) use the new streamlined filing procedures or (2) continue using the legacy Form 99 filing method.
5Offers and sales by an issuer that satisfy the conditions of paragraph (b) or (c) of Rule 506 are deemed to be transactions not involving any public offering for purposes of the registration exemption contained in Section 4(a)(2) of the 1933 Act. Securities offered and sold in accordance with Rule 506 are covered securities under Section 18(b)(4)(F) of the 1933 Act and, as such, states are preempted from requiring registration or qualification of Rule 506 offerings, except for notice filings. In New York, prior to the amendments to 13 NYCRR 10, such notice filings were made on a Form 99. As a result of the amendments to 13 NYCRR 10, securities offered and sold under Rule 506 are now defined as “Federal Regulation D Covered Securities” and issuers of such covered securities that satisfy the definition of dealer under GBL § 359-e(1)(a) are now defined as “Federal Regulation D Covered Securities Dealers.” See 13 NYCRR §§ 10.10(a)(4) & (5).
6Rule 503 of Regulation D provides that a Rule 506 issuer must electronically file a Form D with the US Securities and Exchange Commission (“SEC”) through its Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system no later than 15 days after the first sale. There is no fee for the federal filing of a Form D.
7NASAA’s EFD is an electronic filing system through which Rule 506 issuers can make notice filings of Form Ds to participating states in accordance with applicable state securities laws and regulations.
8The fees payable to the Department of Law for dealer registration under GBL § 359-e(3) will not change even when paid through NASAA’s EFD. For offerings of $500,000 or less, the fee is $300. For offerings of more than $500,000, the fee is $1,200. See GBL § 359-e(5). See also 13 NYCRR §§10.8(a)(2) & (3). In addition to these fees, NASAA’s EFD requires the issuer to pay a $160 system use fee for each Form D filed. See NASAA EFD FAQs.
9See 13 NYCRR §§ 10.5 & 10.8(c). See also Assessment of Public Comment—Response to Comment 5.
10See 13 NYCRR §§ 10.1(a)(3) & 10.11(b).
11See 13 NYCRR § 10.11(d). See also Assessment of Public Comment—Response to Comment 12.
12The instructions to Form 99 require the issuer to provide the NYAG’s Investor Protection Bureau (“IPB”) or Real Estate Finance Bureau (“REF”), as applicable, with a copy of the offering documents, defined as “any printed materials in which is presented, without limitation, the terms of the transaction, a description of the securities offered, the operative document for the entity which may be formed, any supporting documents and/or the subscription instruments for the issuer.” See Instructions to Form 99 ¶E.1. (General Instructions—Copies Required) & ¶E.2(b). (Definitions—Offering Documents).
13See Instructions to Form 99 ¶E.3. (New York Freedom of Information Law). See also NYAG Investor Protection Bureau FAQs: (“Question : Is the information in the Memorandum or offering literature private? Can the public view it? Answer : The offering literature of [sic] memorandum is public information. The department will consider a request by the filer to withhold certain information as trade secrets.”)
14See 13 NYCRR § 10.11(b). See also Assessment of Public Comment—Response to Comment 11. While not addressed in the amendments to 13 NYCRR 10, the instructions to Form D provide “[t]he date of first sale is the date on which the first investor is irrevocably contractually committed to invest, which, depending on the terms and conditions of the contract, could be the date on which the issuer receives the investor’s subscription agreement or check.” See Form D—General Instructions—When to File.
15See Instructions to Form 99 ¶E.1. (General Instructions—When to File). See also GBL § 359-e(3).
16Among other things, the signature on the application for EDGAR codes must be notarized.
17See Form D EFD Guidance. See also NASAA EFD FAQs.
18See 13 NYCRR § 10.11(b).
19See 13 NYCRR § 10.3(d).
20See GBL § 359-e(5)(f). See also 13 NYCRR § 10.5. It is unclear if a Form D amendment filed within the four-year effective period as an annual renewal for a continuing offering with no different information would be treated as a supplemental statement requiring payment of the $30 fee. See Assessment of Public Comment—Response to Comment 4.
21See Form D EFD Guidance.
22For Rule 506 issuers that opt to proceed through this legacy method during the transition period, the IPB has extended its modified filing and fee payment procedures in response to Covid-19 and, according to the most recent notice, such extension will evidently continue for the duration of the State of Emergency declared by Governor Cuomo’s Executive Order 202. Also, Rule 506 issuers opting for a Form 99 during the transition period should honor the legacy timing requirement, meaning such filing should be made before any offers or sales within or from New York.
23See Form D EFD Guidance. Since the IPB has permitted the filing of initial Form 99s during a transition period that expires on February 1, 2021, this outside date should be pushed back to February 1, 2025. However, if this is not corrected, affected Form 99 filers should heed the IPB’s published guidance.
24A Rule 506 issuer opting for a “first time digitization” will effectively pay the initial fee twice for the same four-year effective period: once for the initial Form 99 filing—and again for the Form D filing through EFD, plus the EFD’s $160 system use fee.
25See Form D EFD Guidance.
28See 13 NYCRR §§ 10.1(a)(2) & (3).
29Rule 504 issuers and Section 4(a)(2) issuers filing to register as a dealer pursuant to GBL § 359-e(3) must file an issuer statement on Form M-11 with the IPB, not a Form 99. See 13 NYCRR § 10.1(a)(2). In the Assessment of Public Comment, the Department of Law clarified the NYAG’s position that offerings exempt from federal registration under Section 4(a)(2) of the 1933 Act may nonetheless be deemed to be made “to the public” for purposes of § 359-e. As a result, GBL § 359-e filings by Rule 504 and Section 4(a)(2) issuers that are dealers under § 359-e(1)(a) should be made unless an exemption is obtained pursuant to GBL § 359-f(2).
30Aside from the requirement of a Rule 506 issuer to make a notice filing with the NYAG, the obligations of an issuer of real estate securities under GBL § 352-e or any other statute or regulation related to real estate are beyond the scope of this article and parties should consult with their own legal counsel with respect thereto.
31See Assessment of Public Comment—Response to Comment 3.
32See Real Estate Finance Bureau Memorandum re: Temporary Submission and Review Policies and Procedures Due to Covid-19 State of Emergency (updated September 18, 2020), at 7 (“Until further notice, REF does not intend to pursue enforcement actions based solely upon the failure to timely file a Form 99 with REF. Therefore, issuers are advised not to submit such documents to REF until further notice.”)
33Id., at 17 (“Although the securities registration filing fee required for Form 99 filings pursuant to GBL § 352-e(7)(a) is exempt under EO 202.18, the broker-dealer registration statement filing fee required for Form 99 filings pursuant to GBL § 359-e(5)(b)-(c) is not exempted. However, as previously discussed in Section II(f) of this guidance document, REF does not intend to pursue enforcement actions based solely upon the failure to timely file a Form 99 with REF until further notice. Accordingly, REF very strongly advises against the submission of any Form 99s while E.O. 202.18 is in effect.”)
34Article 23 of the New York Arts and Cultural Affairs Law and 13 NYCRR Part 50 contain registration and qualification requirements for theatrical syndication offerings within or from New York. However, as mentioned above, in the case of Rule 506 offerings, such registration and qualification requirements are preempted by Section 18(b)(4)(F) of the 1933 Act, save for notice filings.
35See Form D EFD Guidance. Prior to the amendments to 13 NYCRR 10, the sole method for making such notice filings in New York was through a Form 99 with the IPB.
37The Martin Act goes well beyond the registration of dealers under GBL § 359-e. The IPB’s page on the NYAG’s website provides: “[t]he Investor Protection Bureau is charged with enforcing the New York State securities law, commonly known as the Martin Act. The Martin Act gives the Attorney General broad law-enforcement powers to conduct investigations of suspected fraud in the offer, sale or purchase of securities. Where appropriate, the Attorney General may commence civil and criminal prosecutions under the Martin Act to protect investors. The Bureau also protects the public from fraud by requiring brokers, dealers, securities salespersons and investment advisers to register with the Attorney General’s Office.”
38See ACAL § 23.09(1).
39See, e.g., 13 NYCRR §10.11(b) (“Federal Regulation D Covered Securities Dealers must satisfy the initial statement, state notice, and further notice requirements of GBL § 359-e by filing a completed Form D . . .”) (Italics added). See also 13 NYCRR §10.10(a)(5) (“A ‘Federal Regulation D Covered Securities Dealer’ is any person, firm, association, or corporation satisfying the definition of dealer under GBL § 359-e(1)(a) that offers or sells Federal Regulation D Covered Securities.”) (Italics added).
40Although the NYAG has enforcement authority under Article 23 of the ACAL, the authority of the NYAG under the Martin Act and the penalties thereunder are notoriously harsh. As one example, a violation of any provision of the Martin Act constitutes a misdemeanor regardless of intent, whereas a violation of Article 23 of the ACAL is only a misdemeanor if it is willful. See GBL § 359-g(2). Cf. ACAL § 23.21.
41See Note 13, supra.
42See Form 99 Instructions ¶ E.1. (When To File) (“For theatrical ventures, supplemental statements (in the form of Amendment to Form 99) must be filed advising the Department of Law of (i) the date of the first expenditure of investors’ funds, and (ii) date of the last public performance, if any, of the original production in New York State. Such Amendment must be submitted within ten (10) business days of the occurrence.”)
43Aside from the requirement of a Rule 506 issuer to make a notice filing with the NYAG, the obligations of an issuer of a theatrical syndication under the ACAL or any other statute or regulation are beyond the scope of this article and any such issuer should consult with its own legal counsel with respect thereto.
45See 13 NYCRR §§ 10.10(a)(6) & (7).
46See 13 NYCRR § 10.11(c) (“[t]he Department of law may accept electronic or paper filings and payments until such time as the Department of Law designates a system for electronic systems and payments.”)
47See 13 NYCRR §§ 10.10(a)(2) & (3).
4813 NYCRR 10.11(a)(1) provides (“[t]he Department of law may accept electronic or paper filings until such time as the Department of Law designates a system for exclusive electronic filings. The Department of Law may accept filings exclusively through the [NASAA EFD] as soon as such capability is available, approved and implemented by the Department of Law.”)
49See Form D EFD Guidance.
50One of the arguments advanced in the NYSBA Position Paper to support this conclusion was that the inclusion of the words “to the public” in GBL § 359-e indicated that offerings exempt under Section 4(a)(2), which by definition do not involve any public offering, were outside the scope of GBL § 359-e.
51See Note 57, supra .
52The Department of Law cited Rule 506 in a footnote.
53See Assessment of Public Comment—Response to Comment 1.
57See GBL § 359-e(1)(a) (“No person, firm, association or corporation shall be deemed to be a ‘dealer,’ as defined in this subdivision, solely by reason of selling or offering for sale any security or securities to any bank, corporation, savings institution, trust company, insurance company, investment company, as defined in the federal investment company act of nineteen hundred forty, pension or profit-sharing trust, or other financial institution or institutional buyer, whether the purchaser is acting for himself or itself or in some fiduciary capacity, as part of a private placement of securities”).
58See, e.g., GBL § 359-f(2)(d) (“Securities which are to be sold in a limited offering to not more than forty persons; but the attorney-general may grant an exemption for offerings made to more than forty persons when he deems such an exemption within the purposes of this subdivision.”)
59See § 359-e(5)(g). See also GBL § 359-f(2) Exemption Instruction Sheet. In these situations the issuer would still be required to file a further state notice and, if a non-resident issuer, a Form U-2, with the Department of State.