New Reg D Rule 506 Filing Rules For New York

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In December  2020, the New York State Attorney General altered its filing rules to align with those required by the SEC’s requirements for a Regulation D Rule 506 offering.  Now, for a Rule 506 offering in New York, the issuer must only file a  copy of the federal Form D with New York’s Investor Protection Bureau instead of the former pre-offer Form 99 within 15 days of the first sale within or from New York.   See https://ag.ny.gov/sites/default/files/13-nycrr-10-unofficial.pdf.   The Form D filing would then be submitted online through the Electronic Filing Depository (“EFD”) system developed by the North American Association of Securities Administrators (“NASAA”).  Essentially, with these changes, New York has joined the rest of the states in standardizing their Form D notice filings for Rule 506 offerings.

For many years, the New York State Attorney General required an issuer that conducted a Rule 506 offering to submit a Form 99 prior to making a first offer or sale in New York pursuant to New York General Business Law, Chapter 20, Article 23-A (“Martin Act”).   This oddity is the result of the Martin Act’s regulation of securities dealers as opposed to the regulation of offerings like other states and the federal government.   Thus, to conduct a Rule 506 securities offering, an issuer would have to “register” as a dealer by filing the Form 99 with the Investor Protection Bureau prior to the first sale or offer.  Such a registration would be valid for 4 years, and also required a consent to service of process, among other things.

This position was not universally accepted and a number of noted securities practitioners held the position that New York’s Rule 506 filing requirements were pre-empted by federal law, in particular, The National Securities Markets Improvement Act of 1996 (“NSMIA”).  This position was described in a position paper prepared by The Committee on Securities Regulation of the New York State Bar Association in August 2002.   We note that the New York State Attorney General never adopted this position.

Nonetheless, the new rules eliminate the Form 99 filing requirement, as well as the other filings, and substitute the Form D filing, providing a 4 year dealer registration period beginning on the date of the filing.   There are also filing fees associated with the Form D filing of either $300 or $1,200, depending on the size of the offering.  We also note that, if the issuer files an Amended Form D with the SEC, it will also have to file the same with New York as a “supplemental filing,” and have to pay a $30 filing fee.  Further, any annual amendment to a Form D for any offering, beyond the 4 year filing period, will incur a similar registration renewal fee.

The use of Form 99 filings or renewals ceased on February 1, 2021, but an issuer my still use the Form 99 registration number through the 4 year period, and amended Form 99s will be accepted from these issuers through December 2, 2024, but cease after that date, with the issuer required to file through the EFD system.   However, an issuer could file a Form D through the EFD system even if its Form 99 filing is still valid, but it will have to pay all required registration fees, supply all relevant information, and use a new identification number as well as obtain a new registration date.  Finally, once the EFD system is utilized, an issuer must use it for all future filings, but it is important to note that this system does not apply to real estate securities who will continue to use the old system.

In short, New York has finally entered the modern age and joined the federal government and its sister states in streamlining the Rule 506 filing process.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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