Are you tracking your blue sky renewals? State securities divisions are!
As noted in Part 2 of this series of articles on blue sky filings, private funds (“issuers”) relying on an exemption from registration of their offerings are required to submit a Form D to the Securities and Exchange Commission (“SEC”) within 15 days of the first sale. Additionally, state securities laws (a.k.a “blue sky laws”) require issuers to file a copy of the Form D, in addition to paying a filing fee, within 15 days of the first sale in that state. The North American Securities Administrators Association (NASAA) Electronic Filing Depository System (“EFD”) not only helps to facilitate the electronic submission of blue sky filings to participating states but also provides a more efficient solution for the states securities divisions themselves to monitor those filings. (Don’t be fooled though, states that rely on paper filings are monitoring you too!)
Generally, for states that have renewal requirements, blue sky filings are active for 365 days from the previous filing. If a renewal isn’t submitted by the expiration date, most states require the issuer to start the process over and resubmit an initial filing, which results in a higher fee. For example, a renewal filing may incur a state filing fee of $100, while an initial filing in that state may run closer to $350 – $500. As a penalty, some states require both an initial and renewal filing to be simultaneously submitted, and the issuer incurs both fees.
If you are making a delinquent filing, most states will request underlying data from the issuer of all transactions that have occurred in their state since the initial blue sky filing. A review of this data likely determines if the issuer will incur additional (“late”) fees and/or fines. Additionally, it is common practice for some states, such as Arkansas and New Hampshire, to issue consent orders for any issuer that has violated their blue sky laws. The consent order is posted on their website, includes details of their findings and imposes civil penalties.
Blue sky laws are subject to review by each state’s securities division and are periodically updated. A state that may not have required renewals in the past may have adopted new laws that now require that renewals. It is essential to conduct a review, no less than annually, to determine if there have been changes to blue sky laws in the states where the issuer has active filings. And, while it is a helpful tool, do not rely strictly on the EFD system to track renewals, as this system may not be updated promptly, specifically when there have been amendments to the renewal requirements. Issuers should appoint a person, or dedicated team, to ensure blue sky filing requirements are met as they can become costly if filing obligations are not fulfilled.
Rather than spending the time and resources internally, consider outsourcing your blue sky filings to Hardin, where you will pay one combined fee for the research and filing fees for each state. At Hardin, we have dedicated resources to monitor renewals, and we proactively communicate with our Blue Sky clients every month to check for new investors or changes to the Form D that may require an amendment. Additionally, Hardin monitors state blue sky laws for updates that could impact our client base. For more information or to contact the Blue Sky Filing Team, check out the summary of Hardin’s Blue Sky Filing Service.
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Have a compliance question or want to outsource your blue sky filings? Hardin Compliance can help! Call us today at 1.724.935.6770, or visit our website at www.hardincompliance.com for more information.
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