New York Modernizes Issuer Filing Requirements for Rule 506 Offerings

December 30, 2020

On Dec. 1, 2020, the New York Department of Law modernized its dealer rules to more closely align with federal requirements for a Regulation D Rule 506 offering. Under the amended rules, an issuer conducting a Rule 506 offering in New York must file a copy of the federal Form D with New York’s Investor Protection Bureau in lieu of the pre-offer Form 99 filing previously required.

Amended Rules for Issuers Conducting Rule 506 Offerings

Effective Dec. 2, 2020, issuers conducting a private placement offering in compliance with Rule 506 of Regulation D promulgated by the Securities and Exchange Commission (SEC) in New York must file a copy of the federal Form D with New York’s Investor Protection Bureau within 15 days of the first sale within or from New York.

The Form D filing in New York should be submitted online through the Electronic Filing Depository (EFD) system developed by the North American Association of Securities Administrators (NASAA), which a number of states have adopted for their Form D filings. These changes generally bring New York in line with other states with respect to notice filings for Rule 506 offerings.

Securities offerings in New York are regulated under New York General Business Law, Chapter 20, Article 23-A, known as the “Martin Act.” In contrast to federal securities laws and those of other states, the Martin Act generally regulates dealers of securities rather than the offer and sale of the securities themselves. Under the Martin Act, “dealer” is generally defined to include the issuer of a security.

Prior to adopting the amended rules, the New York Department of Law required an issuer conducting a Rule 506 offering of securities in New York to register as a dealer prior to making the first offer or sale in New York by filing a Form 99 with the Investor Protection Bureau. This dealer registration was valid for four years. The Form 99 filing was required to be accompanied by a State Notice and Further State Notice filed with the Miscellaneous Records Bureau and a Form U-2, Consent to Service of Process, filed with the Division of Corporations. However, a number of securities practitioners had taken the view that New York’s filing requirements for Rule 506 offerings were inconsistent with, and pre-empted by, The National Securities Markets Improvement Act of 1996 (NSMIA). Consistent with this position, many issuers in Rule 506 offerings relied on federal pre-emption in lieu of registering as a dealer in New York. This view was supported by a position paper prepared by The Committee on Securities Regulation of the New York State Bar Association in August 2002.

The amended rules eliminate the Form 99 filing requirement, as well as the requirements to file a Notice and Further State Notice with the Miscellaneous Records Bureau and to file a Form U-2, Consent to Service of Process, with the Division of Corporations.

The Form D filing in New York provides a four-year dealer registration period that begins on the date of such filing. The state filing fee associated with the new Form D filing will be either $300 or $1,200, depending on the size of the offering, which is consistent with New York’s historical filing fees.

Amended Form Ds will generally be required to be filed with New York when they are filed with the SEC. Form D amendments that include updated information will constitute a “supplemental filing” and will incur a $30 filing fee. An annual amendment to a Form D for any offering that continues beyond the initial four-year filing period will incur a registration renewal fee.

New York’s Investor Protection Bureau will not accept new Form 99 filings or Form 99 renewal filings after Feb. 1, 2021.

Of important note, issuers of real estate securities currently are still required to file the Form 99, as prescribed by New York’s Real Estate Financing Bureau.

Transition for Issuer Dealers Currently Registered Under Form 99

An issuer who received a registration number for a Form 99 submitted to the Investor Protection Bureau may continue to rely on such registration through the four-year registration period. Amended Form 99s will be accepted from these issuers until Dec. 2, 2024. After that date, each active issuer dealer of Rule 506 securities in New York must have a notice filing record on the EFD system.

An issuer currently registered under a Form 99 may, at its option, file a Form D through the EFD system; however, any such filing will prompt the issuer to pay a full registration fee for a new four-year registration period and submit all required information through EFD. The issuer will receive a new filing identification number and a new registration date through the EFD system. Once an issuer has filed as a dealer through the EFD system, the issuer must submit all further related filings (e.g., amendments and renewals) through the EFD system.

For additional guidance on the information in this alert, please contact any of the authors below, any member of McGuireWoods’ securities compliance team or your primary McGuireWoods contact.

McGuireWoods’ securities and compliance team assists private and public companies in capital raising efforts through private and public offerings, and also assists public companies with their reporting obligations under the Securities Exchange Act of 1934, including forms 10-K, 10-Q and 8-K, Section 16 reports and DEF 14A (proxy statements), as well as with Regulation FD and Regulation G compliance. We prepare insider trading policies, develop training programs and assist with other aspects of securities transactions engaged in by company officers, directors and significant security holders, including 10b5-1 plans and Rule 144 compliance.