Thursday, December 16, 2010

Nebraska No-Action Letter Interprets "Institutional Buyer" Definition

Legal counsel for the Nebraska Department of Banking and Finance, responding to a no-action letter request, interpreted the definition of an "institutional buyer" specified by statutory exemption at Section 8-1111(8) of the Nebraska Securities Act and elaborated upon in a 1985 interpretative opinion (No. 10), by agreeing with the requesting limited liability partnership (LLP) that entities other than those expressly stated in the exemption and interpretative opinion may be institutional buyers for purposes of exempting from registration the securities they buy but only if the entities have the prescribed characteristics of an institutional buyer as listed in Joseph Long's Blue Sky Law treatise.

The LLP inquired whether, and contended that, large manufacturers, commodity trading firms, utilities, government agencies and municipalities would fall within the statutory exemption's "other financial institutions or institutional buyers" category because of the entities' large securities portfolios and sophisticated investment activities, further advocating that restricting institutional buyers to the statutory exemption's banks, savings institutions, trusts, pensions, profit sharing plans and insurance or 1940-Act investment companies, and to the interpretative opinion's business development and small business investment companies would be a strained and, therefore, unintended reading of those provisions by the Department of Banking and Insurance.

Legal counsel concluded, however, that while the LLP mentioned entities could be institutional buyers for purposes of exempting from registration in Nebraska the securities offered and sold to them, the determining factors from Joe' Long's treatise for a particular entity's meeting the definition would include not only whether the investors are sophisticated about securities and understand the appropriate questions to ask regarding particular transactions, but whether the investors have sufficient economic leverage to refuse a securities offering to insure their questions are sufficiently answered; overall, the determination focuses on the investment part of the entity's business rather than on the amount of cash it can generate.

For more information, please click on http://www.ndbf.org and/or email Sheila Cahill, Legal Counsel for the Nebraska Department of Banking and Finance at sheila.cahill@bkg.ne.gov.

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