Source: http://www.nysba.org/Sections/Business/Committees/Securities_Regulation_Committee/Position_Paper_on_Private_Offering_Exemptions_and_Exclusions.html
Timestamp: 2016-12-04 14:17:28
Document Index: 35178002

Matched Legal Cases: ['§ 4', '§ 359', '§ 352', '§ 352', '§ 359', '§ 4', '§ 4', '§ 359', '§ 4', '§ 359', '§ 15', '§ 15']

Private Offering Exemptions and Exclusions Under the New York State Martin Actand Section 18 of the Securities Act of 1933
of the New York State Bar AssociationThis position paper was originally prepared for, and submitted to, the Office of the New York State Attorney General in August 2002. The Committee on Securities Regulation of the Business Law Section of the New York State Bar Association ("Committee") is composed of members of the New York Bar, a principal part of whose practice is in securities regulation. The Committee includes lawyers in private practice and in corporation law departments. A draft of this position paper was circulated for comment among members of the Committee, and the views expressed in this position paper are generally consistent with those of the majority of the members who reviewed the position paper in draft form. The views set forth in this position paper, however, are those of the Committee, and do not necessarily reflect the views of the organizations with which its members are associated, the New York State Bar Association, or its Business Law Section.
IntroductionNew York State’s securities statute, Article 23-A of the General Business Law ("GBL"), known as the Martin Act, is unique among state securities laws in two important respects. First, the Martin Act does not require the registration of securities, other than securities sold in real estate offerings, theatrical syndications or intra-state offerings. Instead, it requires some issuers to register as dealers in their own securities.
All offerings exempt under § 4(2) of the Securities Act, and all offerings exempt under Rule 506 ("Rule 506 offerings"), are excluded from the registration requirements of the Martin Act. An issuer that sells its own securities in New York exclusively to, from or through a bank, dealer or broker, whether on a firm commitment or "best efforts" basis, is excluded from the requirement to register as a dealer for that transaction. Section 18 of the Securities Act pre-empts New York State from requiring any filing with respect to securities offered under Rule 506, other than Form D (or a substantially similar form), a consent to service of process and a fee. Section 15(h) of the federal Securities Exchange Act of 1934 ("Exchange Act") preempts New York State from requiring federally-registered brokers to file the Further State Notice form (described in GBL § 359-e(8)) for securities offerings. The Non-Public Offering ExclusionGBL § 352-e requires the registration of certain real estate syndication offerings. Section 352-e provides that it is illegal "to make or take part in a public offering or sale in or from the state of New York" of real estate securities as defined in that section without filing a written offering statement or prospectus with the OAG (unless an exemption is available). Securities covered by § 352-e include interests in limited partnerships owning real estate or mortgages, shares in real estate investment trusts, cooperative apartment shares, condominium units and resort timeshare units.
The Exclusion for Offerings "to, from or through" a Bank, Dealer or BrokerGBL § 359-e(1)(a) excludes certain persons from the definition of dealer, stating, in part, that "[n]o person shall be deemed to be a ‘dealer,’ as defined in this subdivision, or a broker, as defined in subdivision (b), solely by reason of the fact that he is engaged in the business of (i) selling, offering for sale, purchasing or offering to purchase any security or securities to, from or through any bank, dealer or broker…." The meaning of this provision is clear on its face. An issuer selling securities to an underwriter or underwriting syndicate in a firm commitment offering is excluded from the definition of dealer, and an issuer selling securities through a broker or group of brokers in a best efforts offering is likewise excluded from the definition of dealer. Although the OAG has recognized the exclusion for issuers selling in firm commitment offerings, to date it has not publicly recognized the equally valid exclusion for issuers selling through brokers in best efforts offerings. See, e.g., "Broker-Dealer and Securities Registration Information Sheet, Part I(C), CCH Blue Sky L. Rep. ¶42,573 (revised May 1993).
Section 18 Preemption for Rule 506 OfferingsSection 18(a)(1) of the Securities Act, as amended by NSMIA in 1996, provides that no law, rule, regulation or order, or other administrative action of any State "requiring, or with respect to, registration or qualification of securities, or registration or qualification of securities transactions, shall directly or indirectly apply to a security that (A) is a covered security or (B) will be a covered security upon completion of the transaction." Section 18(b)(4)(D) provides that a security is a covered security in a transaction that is exempt from registration under the Securities Act under "Commission rules or regulations issued under Securities Act § 4(2), except that this subparagraph does not prohibit a State from imposing notice filing requirements that are substantially similar to those required by rule or regulation under § 4(2) that are in effect on September 1, 1996."
Section 15(h) Preemption of Further State Notice FilingGBL § 359-e(8) provides that no dealer may sell or offer to sell securities to the public within New York State as principal or agent unless the dealer has filed a form known as the Further State Notice. The Further State Notice requirement is thus an operational reporting requirement for brokers or dealers. For reasons discussed above, no Further State Notice should be required in any § 4(2) or Rule 506 offering, because such offerings do not involve the sale of securities to the public. To the extent that § 359-e(8) requires filing of a Further State Notice by broker-dealers registered under § 15 of the Exchange Act, that requirement is preempted in any case by § 15(h) of the Exchange Act. Section 15(h)(1) provides, in pertinent part, that
Charles H.B. BraistedGuy P. LanderPeter W. LaVigneEllen LiebermanAlan M. ParnessDouglas B. Pollitt