On December 15, 2014, the North American Securities Administrators Association launched the Electronic Filing Depository (“EFD”), an internet accessible database that allows issuers to submit Form D for Rule 506 offerings under Regulation D and pay related fees to state securities regulators. It also allows anyone to search EFD’s Form D database.
This is a big deal. Rule 506 of Regulation D is a “safe harbor” for the private offering exemption under Section 4(a)(2) of the Securities Act. Issuers relying on the Rule 506 exemption do not have to register their offering of securities with the SEC or state securities regulators, but they must file a Notice of Exempt Offering of Securities on Form D with the SEC and state securities regulators after they first sell their securities. The National Securities Markets Improvement Act of 1996 (“NSMIA”) was enacted to preempt state securities laws where they duplicate federal laws. As a result of NSMIA, states may not require registration under their blue sky laws of “covered securities”, which includes securities sold under Rule 506 of Regulation D, but are allowed to require issuers to make notice filings and pay filing fees when conducting offers and sales of covered securities in their state. Most states only require that Rule 506 issuers file a copy of the Form D and pay a filing fee, but there are subtle substantive and mechanical differences among the states that make the process of complying with the blue sky requirements in multistate offerings enormously tedious and burdensome.
The launch of EFD will help alleviate these burdens. EFD will reduce the time needed to prepare individual state paper filings as well as provide additional benefits such as a means of following the status of a state’s processing of a filing and a digitized depository of filings for public review.
Although state participation is voluntary, 38 states have already opted in. Characteristically, New York is one of those not to have done so, which is unfortunate because New York’s filing requirements are arguably the most cumbersome, with the requirement to send blue sky filings to three different addresses in the state.
So far, EFD only covers Form D filings and fee payment; it is not yet designed to handle any other blue sky filings required by participating states.
The NASAA hosts free training webinars on the use of EFD. The next webinar is scheduled for February 5, 2015, with another webinar tentatively scheduled for February 23, 2015. You can register here for the webinars.