Under U.S. law, every sale of securities must either be registered or fall under an exemption from registration. This determination must be made both with respect to federal law and the law of the particular state (the “blue sky” law) in which the securities are being offered. In the bad old days – pre-1990s – each state had its own unique set of exemptions and filing requirements, meaning that a securities offering in multiple states required a significant amount of research and form preparation. In 1996, Congress passed the National Securities Markets Improvements Act (NSMIA), which effectively pre-empted most state regulation of “covered securities,” including securities sold under Rule 506. Post-NSMIA, states can’t do much more in these transactions than require the issuer to send in a copy of a Form D (as filed with the SEC) and pay a filing fee.
Most states amended their blue sky laws to provide for a NSMIA-compliant procedure. As an aside, New York, with its dysfunctional state government, still requires the preparation and filing of a form that requires information in excess of what is permitted under NSMIA. A committee of the New York State Bar Association issued a position paper arguing that the state’s requirements are effectively preempted. But leaving New York aside, the current procedure with state blue sky regulation is to check each state’s law to see if the state has an exemption that requires no filing at all, and otherwise, the issuer needs to file a copy of the Form D along with the filing fee. Until recently, this was done by mailing a paper copy of the Form D (even though the SEC requires that form to be filed online) along with a paper check.
However, late last year, the North American Securities Administrators Association (NASSA), the association of the state blue sky regulators, launched its own electronic filing depository, enabling issuers to take care of the Form D filing and payment of state filing fees online. This is currently available in some but not all states – as you might assume, New York has not yet signed on. So, while it’s still not completely clear to me why the state regulators are collecting triple-digit filing fees for doing little more than, well, filing, the ability to handle these tasks electronically is a welcome step forward.