The Controversy Around Reg A Tier 2 Blue Sky Notices
There is ongoing debate about whether Blue Sky notices are required for Regulation A (Reg A) Tier 2 offerings. While Reg A Tier 2 benefits from state law preemption under the Securities Act of 1933, which exempts issuers from complete Blue Sky registration, this preemption does not eliminate all state-level requirements. The SEC’s rule states that Tier 2 offerings are exempt from state securities law registration, but it does not explicitly exempt issuers from notice filings.
As a result, while some issuers assume they are free from Blue Sky compliance, most states still require notice filings. Failing to file these notices can lead to penalties, fines, and restrictions on securities sales. Therefore, understanding the nuances of Blue Sky compliance is essential for issuers conducting Reg A Tier 2 offerings.
Are Blue Sky Notices Required for Reg A Tier 2?
While Reg A Tier 2 offerings are exempt from full Blue Sky registration, at least 42 states still require notice filings. For example, see WA guidance on its state filing requirements. These filings inform state regulators about the offering and typically include a copy of Form 1-A, the SEC qualification, and payment of filing fees. Notice filings help maintain transparency and allow state regulators to monitor securities sales activity within their jurisdictions.
Notice filings typically include:
- A copy of the Form 1-A (offering circular) was submitted to the SEC.
- The SEC qualification
- Filing fees, which vary by state.
- A consent to service of process (Form U-2), granting the state jurisdiction over legal proceedings.
Failing to submit required notices can result in fines, legal penalties, and sales restrictions in non-compliant states.
21-Day Waiting Period Before Sales
In addition to notice filings, most states impose a 21-day waiting period before initial sales can begin. This means that issuers must wait at least 21 calendar days after filing Blue Sky notices before offering securities to investors. You can see a full list of blue sky waiting periods on our Reg A blue sky state fees list.
For example, states like Minnesota and Washington require that notice filings be submitted at least 21 days before the first sale of securities. This waiting period allows state regulators to review the offering and ensure compliance with local securities laws.
Failing to observe the 21-day notice rule can lead to enforcement actions and legal consequences, even if the offering is qualified at the federal level. All in all, these waiting periods need to be complied with before companies can make sales. View a full list of blue sky filing fees and waiting periods.
Reg A Tier 2 Blue Sky Notice Requirements
To help issuers comply with Reg A Tier 2 Blue Sky regulations, we’ve created a comprehensive compliance guide covering the necessary filings, deadlines, and best practices.
Access our full Reg A Tier 2 compliance guide here
Consequences of Non-Compliance
Failing to comply with Blue Sky notice requirements can result in:
- State-imposed fines and penalties range from hundreds to thousands of dollars.
- Restrictions on securities sales in non-compliant states.
- Reputational damage, diminishing investor confidence, and deterring future fundraising efforts.
Best Practices for Reg A Tier 2 Blue Sky Compliance
To avoid penalties and ensure compliance, issuers should follow these best practices:
- Track filing deadlines: Submit Blue Sky notices promptly to avoid late fees or sales restrictions.
- Verify state-specific requirements: Some states may request additional forms or documents.
- Maintain accurate records: Keep copies of filings, confirmations, and correspondence with regulators.
- Consult with compliance experts: Work with specialists familiar with Blue Sky regulations to avoid costly mistakes.
Conclusion
While Reg A Tier 2 offerings benefit from state law preemption, Blue Sky notice filings are still required in most states. Additionally, issuers must adhere to the 21-day waiting period before initiating sales, which can catch issuers off guard if they are unaware of state-specific rules.
At Blue Sky Comply, we offer free consultations to help issuers assess their Blue Sky filing requirements and avoid costly compliance mistakes.
