Tuesday, June 21, 2011

Texas Adopts Form D Electronic Filing and Accredited Investor Definitions

The Electronic Form D (EFD) System being developed by the North American Securities Administrators Association (NASAA) for multi-state electronic filing of 2008-adopted Form D was adopted for use in Texas by the State Securities Board, along with new definitions for accredited investors, individual accredited investors and institutional accredited investors, effective June 21, 2011.

Please note: Proposed rule amendments pertaining to investment advisers--(1) initial application using new Part 2 of Form ADV, (2) post-registration reporting on new Part 2, (3) disclosure "brochure rule" requirements, and (4) specified language for use in investment advisory contracts--were part of the January, 2011 proposed rules package that included the June 21, 2011 adopted rules. The investment advisers rule changes, however, were already adopted on March 9, 2011. There is a previous blog posting on the IA rule changes.

I. Regulation D and Intrastate Limited Offering Exemptions

Exemption under Rule 505 and 506 of federal Regulation D. Electronic Form D. Issuers making an offering under either Rule 505 or 506 of federal Regulation D are required to electronically submit Form D and the applicable fee through the EFD System when that system becomes available. Form D, Notice of Exempt Offerings of Securities, is the Form D that took effect on September 15, 2008. The "EFD System" is the Electronic Form D system provided by the North American Securities Administrators Association (NASAA) to be used for electronic filing of Form D with the Texas Securities Commissioner when that system becomes available.

Rule 506--Consent to Service of Process eliminated. The consent to service of process requirement is eliminated for Rule 506 offerings, leaving issuers to file a notice on Form D and the applicable fee [1/10 of 1% of the aggregate amount of securities to be offered for sale in Texas, with a maximum fee of $500]. NOTE: The notice and fee payment, as well as any applicable notice and fee payment for excess sales, must be electronically submitted through the EFD system when that system becomes available.

Intrastate limited offering exemption. Issuers not registered as securities dealers who do not sell securities by or through a registered securities dealer need to file a sworn notice on Texas Form 133.29, Intrastate Exemption Notice for Sales Under Regulation 109.13(l), not less than 10 business days before any sale exempt under this exemption is consummated in whole or in part to individual accredited investors. The definition of an "individual accredited investor" for this intrastate limited offering exemption is a natural person described in Rule 501(a)(5) and (6) as promulgated by the SEC under the Securities Act of 1933.

No notice is required for sales made exclusively to institutional accredited investors. The definition of an "institutional accredited investor" for this intrastate limited offering exemption is an entity described in Rule 501(a)(1) - (4), (7) and (8) as promulgated by the SEC under the Securities Act of 1933.

An accredited investor includes any person who the issuer reasonably believes comes within the definition of an accredited investor at the time of the sale of the securities to that person. The definition of an "accredited investor" for this intrastate limited offering exemption is a person who is either an individual accredited investor or an institutional accredited investor.

II. Accredited Investor Exemptions and Definitions

Exemption for sales to financial institutions and certain institutional investors. The definition of an "institutional accredited investor" in the exemption for securities and for dealers in connection with sales to financial institutions and certain institutional investors is an entity described in Rule 501(a)(1) - (4), (7) and (8) as promulgated by the SEC under the Securities Act of 1933.

Sales to individual accredited investor exemption. The definition of an "individual accredited investor" in the exemption for sales to individual accredited investors is a natural person described in Rule 501(a)(5) and (6) as promulgated by the SEC under the Securities Act of 1933.

Accredited investor exemption. The definition of an “accredited investor” in the accredited investor exemption is a person who is either an individual accredited investor or an institutional accredited investor.

III. Administration

Charge for certified copies of public records. The charge for certified copies of public records is $1.00 per page plus a $15.00 certification fee, increased from $10.00.

Historically underutilized business program. The State Securities Board adopts by reference the rules of the Comptroller of Public Accounts for the Historically Underutilized Business Program in the Texas Administrative Code.

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