Are state notice filings for Regulation A issuers still important?

One of the great benefits to issuers under the SEC’s rules for offerings under Tier 2 of Regulation A, effectively created by the JOBS Act, is the preemption of state requirements for registration of the offer and sale of securities. Known as “Blue Sky Laws”, these state specific rules added considerable cost to qualifying an offering under Regulation A.

The SEC determined it was appropriate to preempt state qualification rules by deeming securities offered and sold under Tier 2 of Regulation A to be sold to “qualified purchasers” under Section 18 of the Securities Act. Under Section 18, states are still given the authority to require filing fees and notice filings of any securities offering being filed with the SEC.

Issuers ignore state notice filing requirements at their own peril. One issuer was recently sanctioned by Massachusetts for failing to submit a notice filing of its Regulation A offering in the state before marketing and selling shares to Massachusetts investors.

Issuers need to comply with the notice-filing rules prescribed by state rules prior to any sales. The Massachusetts rule, like rules in other states, requires the notice filing be made 21 days prior to any sales within the state.

What’s more, failure to make the required filings can carry heavy penalties. One issuer was fined $375,000 for failing to make its notice filings (among other violations). Perhaps worse, Massachusetts permanently barred the issuer from offering or selling securities in the state.

As of the date of this blog post, 39 states and the District of Columbia have enacted rules for notice filings. The filing requirements vary by state based on what needs to be filed, how much for the filing fee, and the timing of the filing (e.g., prior to qualification, only after qualification, at least 21 days before any sales, etc.). If you intend to raise capital pursuant to Tier 2 of Regulation A, it is critical that you comply with the requirements of each state.

For more information on assistance with your state notice filings, please contact us.

Edited November 9, 2022

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