As of December 2, 2020, New York has joined other states in requiring that Form Ds filed with the SEC for securities offerings be submitted to the state via the EFD electronic system, replacing the state’s previously-required Form 99.

New York has long been a holdout on this front since 1996 when Congress passed the National Securities Market Improvement Act, which was intended to rationalize the crazy quilt patchwork of individual state “blue sky” laws to be complied with wherever securities were sold. NSMIA expressly preempted any requirements from a state beyond filing a copy of the Form D along with a filing fee and a consent to service of process. Most states quickly amended their blue sky laws to require only what NSMIA permitted. New York, however, continued to require the filing of a Form 99, which clearly required more disclosure from issuers than was permitted under NSMIA.

A subcommittee of the New York State Bar Association issued a position paper to the effect that New York’s Form 99 requirement could be disregarded for private placements because of the preemption by NSMIA. Many large law firms, in turn, advised their clients that no filing in New York was necessary. Still, it’s an uncomfortable position for risk-averse corporate law firms to advise clients that it’s acceptable to ignore what, from the state AG’s perspective, was still a requirement.

Now, with New York having relented on this issue, the procedure is the same as with most states: prepare and file the Form D with the SEC, and then just check the box for New York on the EFD filing. New York’s filing fee of $300 to $1,200, depending on the offering amount, is added to the total from other states on the filing. This development eliminates one of the quirks of New York law that made it unique, but it’s really an unqualified good development and long overdue.

The SEC recently brought an enforcement action against a fund investing in digital assets for a failure to register a sale of securities under Section 5 of the Securities Act. The fund had filed a Form D with the SEC that, in itself, offers no clue as to what went wrong. The form reports the sale of fund interests under the exemption provided by Rule 506(b) of Regulation D. This is the common exemption used for private placements of securities, and by complying with the applicable rules under Regulation D, there would be a safe harbor protecting the issuer against a registration violation.

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Jason Zweig, writing in the Wall Street Journal, discusses efforts to make securities disclosure more understandable to the typical investor. He quotes the Nobel-laureate behavioral economist Richard Thaler as saying that “nobody reads” the dense disclosure mandated by the SEC. This is clearly a bit of hyperbole, but I think we can all agree that a majority of investors don’t read a prospectus cover to cover before making their investment decision. The question is what to do about it.

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