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The Devil is in the Details Part 3: Blue Sky and Form D Filing Requirements for Offshore Funds

Does your offshore fund have blue sky filing requirements?  It depends.

Like other private fund managers, those advising offshore funds offered in the United States (“U.S.”) routinely rely on Regulation D (“Reg D”) to avoid registration with the SEC under the Securities Act of 1933 (“1933 Act”).  Reg D offers two exemptions from registration.  Rule 506(b) provides a safe harbor from registration for securities offerings that do not involve any form of general marketing or solicitation, and may be sold to an unlimited number of “accredited investors” and up to 35 other purchasers.  Rule 506(c)  allows a company to broadly solicit and advertise an offering as long as the investors in the offering are all accredited investors, and the company has taken reasonable steps to verify their accredited investor status.  Reliance on an exemption under the Rule 506 safe harbor requires filing a Form D with the SEC within 15 days of the first sale and applies to offshore funds with U.S. investors.  As noted in our prior blog post, the filing is made via the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.

Rule 506 offerings are exempt from registration under state securities laws (commonly referred to as “blue sky laws”), but states can still require issuers to file a Form D, consent to service of process, and pay a filing fee.  States impose the same requirements on offshore funds offered to U.S. investors.  States require that a Form D be filed within 15 days of the first sale in a particular state (and before the first sale in some states).   Offshore funds that are not offered to U.S. persons are not subject to state blue sky laws but must comply with any applicable foreign regulations.

Offshore funds can also rely on another safe harbor from registration with the SEC, Regulation S (“Reg S”).  Reg S is available for “offers and sales of securities outside the United States” by both U.S. and foreign issuers if certain conditions are met.  The general requirements of Reg S are first, that the offer or sale of the securities must be made offshore.  This means that the buyer is not in the United States at the time of the offer or sale.  The second requirement is that there are “no direct selling efforts” for the securities in the U.S.  This restriction includes any selling efforts by the issuer, its distributors, any of the issuer’s or distributor’s affiliates, or anyone acting on their behalf.  Reg S includes three safe harbors based on the nationality and reporting status of the foreign private issuer, and degree of U.S. market interest in its securities.  Contact HCC for more details, and check out this article from Morrison & Foerster LLP.

HCC offers state blue sky and federal Form D filing services, including initial registration and tracking of any ongoing obligations.  Our service is proactive: we contact each of our clients every month about potential new blue sky filings and track renewals and termination filings.  Form D amendments and EDGAR password renewals are also tracked, and we contact clients before the anniversary date to complete the renewal or filing.  If you are interested in an economical approach to managing Form D or blue sky filings, and in freeing up time for you and your team to focus your attention elsewhere, give us a call.  We’d welcome the opportunity to discuss our services in greater detail.

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