Rule 506 Notice Filings

Frequently Asked Questions

Topics

General Filing Requirements
Timing
Election of Exemption/Notice Filing
Potential Licensing Issues
Amendments

General Filing Requirements

Timing

When do I file? Your filing must be received by our office within 15 days after the first sale of the security "in this state."  For non-Connecticut issuers, this means 15 days following the first sale to a Connecticut purchaser.  Connecticut-based issuers that are directing offers from Connecticut to investors in other jurisdictions should file within 15 days of the first sale in any jurisdiction. Our non-Connecticut client just advised us that it made its first Connecticut sale 18 days ago.  We plan on sending the filing to you via overnight courier.  What enforcement consequences does our client face? Although the late filing is a technical violation of the Connecticut Uniform Securities Act, it is unlikely that the department will pursue enforcement measures just because your filing is a few days late, particularly since you are making a good faith effort to comply. Our firm has a new client that did several Rule 506 offerings over the past few years.  The client never filed a Rule 506 notice in Connecticut, even though several Connecticut purchasers were involved.  May we just make a routine filing without comment? We would discourage such an approach.  The best thing to do would be to provide a detailed written explanation for the delinquencies, including any mitigating circumstances, so we can fully evaluate the matter.

Election of Exemption/Notice Filing

We represent an issuer that will be relying on Rule 506 for federal purposes.  May we rely on another exemption, such as the accredited investor exemption, for Connecticut purposes or must we make a Rule 506 notice filing with Connecticut? You do not have to rely on Rule 506 for Connecticut purposes if another exemption is available to you.

Potential Licensing Issues

Are there any licensing issues involving Rule 506 offerings? Connecticut licenses several categories of firms and individuals who sell securities:  (1) broker-dealer firms; (2) broker-dealer agents; and (3) agents of issuer.  While the National Securities Markets Improvement Act of 1996 ("NSMIA") preempted the states from conducting a substantive review of the merits of a Rule 506 offering, it left intact the states' ability to require a notice filing and did not affect state licensing responsibilities or the investigation of fraudulent conduct. What is an agent of issuer? An agent of issuer is an individual who represents the issuer in attempting or attempting to effect purchases or sales of securities.  Examples include employees of an issuer and so-called "finders." Must all agents of issuer be registered? No.  The Connecticut Uniform Securities Act provides an exclusion from the "agent" definition for certain individuals who do not receive any compensation or other remuneration directly or indirectly related to securities purchases or sales.  These individuals are:  1) the general partner of a partnership issuer; 2) an officer of a corporate issuer; 3) a director of a corporate issuer; and 4) any person occupying a similar status or performing functions similar to a general partner, officer or director.  The burden of proving the exclusion is on the person claiming it. What individuals occupy a similar status or perform functions similar to a general partner, officer or director? What does agent of issuer registration involve? Three things:  (1) Form U-4; (2) a $100 registration fee (renewable annually); and (3) passage of the Series 63 examination. What is a CRD number? A Central Registration Depository ("CRD") number is an identifier assigned by FINRA's registration database to individuals and firms that are, or have been, registered as broker-dealers or broker-dealer agents.  If an individual has worked in the securities industry, he or she will have a CRD number; otherwise, not. We represent a Connecticut-based issuer.  The principals of the issuer will be responsible for Connecticut sales on an uncompensated basis.  However, for New York sales, we plan to have one of our Stamford, Connecticut employees and a "finder"/consultant based in Bridgeport, Connecticut contact prospective investors.  Should those individuals be registered as agents of issuer? Yes.  Neither the employee nor the finder/consultant qualifies for the definitional exclusion, and each is transacting business from Connecticut. In our offering, Connecticut sales will be effected through X, president of the issuer.  X is registered as an agent of ABC brokerage firm.  Is this significant? Certain rules may impact an agent's ability to participate in private securities transactions absent the consent of his or her employing broker-dealer. On our Form D, we listed several brokerage firms as receiving compensation for sales in several states, including Connecticut.  We received a letter from the Division flagging three of the firms because they were not registered in Connecticut.  In retrospect, we only named them because we might conceivably use them, but really did not intend to do so.  How should we handle this matter? Explain the situation fully in a detailed written response to the Division.

Amendments

	Does Connecticut require that we file amendments to our Form D?  When?
No. If you file Form D electronically with the SEC, the Form D amendments are viewable online, and you do not have to file the amendments in paper form with the Division.

Securities Registration, Exemptions and Notice Filings