Rule 504 Exemptive Filings
An issuer relying on Rule 504 of federal Regulation D and claiming the corresponding state exemption must file with the Securities Division before offering or selling securities in or from Connecticut. Rule 504 offerings are addressed in Section 36b-21(b)(10)(B) of the Connecticut Uniform Securities Act and Section 36b-31-21b-9b of the Regulations thereunder. Issuers planning on engaging in public solicitation or advertising should confer with their legal counsel concerning registration by qualification in Connecticut.
Requirements and Limitations
- Limit on Number of Non-accredited Investors. Connecticut Regulations provide that the number of non-accredited investors in this state cannot exceed 35.
- Pre-Sale Disclosure Statement Required for Each Connecticut Offeree. Issuers may prepare their own disclosure statement or use Form U-7. The pre-sale disclosure statement must contain several items:
- Name, address and state of organization of the issuer
- Names and residence addresses of the issuer's officers, directors, general partners or other principals, however designated
- Brief description of the offering (including the securities offered and the intended use of proceeds)
- Issuer's balance sheet dated within 120 days of the start of the offering and a profit and loss statement for the issuer's most recent fiscal year and for any period between the close of the last fiscal year and the date of the balance sheet. The financial statements need not be audited
- Principal factors that make the offering speculative or one of high risk
- Connecticut legend in bold print on the outside cover: "THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE BANKING COMMISSIONER OF THE STATE OF CONNECTICUT NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL."
- Blank Check Companies. An issuer that is a blank check, shell or dormant company may not use the Connecticut exemption for Rule 504 offerings. Section 36b-3(3) of the Connecticut Uniform Securities Act defines "blank check company" and Section 36b-3(21) of the Act defines "shell company" and "dormant company."
- Commission ceiling. Connecticut Regulations restrict the amount of commissions or other remuneration that may be paid in connection with the offer or sale of securities under Rule 504 to 15% of the initial offering price. This ceiling does not apply where the issuer (1) files an itemizing statement with the Division before the first sale of securities in this state; and (2) provides each purchaser with a pre-sale copy of the itemizing statement.
- "Bad Boy" Disqualifier. Connecticut Regulations prevent certain issuers from using the state exemption for Rule 504 offerings where the issuers or their principals are subject to certain disciplinary proceedings.
- Resale of the Securities. Connecticut Regulations require (1) written pre-sale disclosure to purchasers concerning limitations on resale of the securities (restricted status); and (2) placement of a legend on the security.
What to File
- Nonrefundable $150 fee payable to "Treasurer, State of Connecticut"
- Form D (in paper form)
- Pre-Sale Disclosure Statement required by subsections (e) and (j) of Section 36b-31-21b-9b(e) of the Regulations
- The name and address of the person who will offer or sell the securities in this state, whether that person will receive any direct or indirect remuneration related to offers or sales of such securities and whether that person is engaged in the business of effecting securities transactions
To date, Connecticut, alone or in connection with other states, has not developed an electronic filing system for state private placement filings. Just because you have made your federal filing with the SEC electronically through EDGAR does not mean you have fulfilled state filing requirements. You must still make a paper filing with Connecticut.
Impact of SEC Release No. 33-8891
On February 6, 2008, the Securities and Exchange Commission issued Securities Act Release No. 33-8891. The Release requires that, for federal purposes, Form D be filed electronically through EDGAR effective March 15, 2009. A new version of Form D was created for this purpose. EDGAR is an online database accessible to anyone having a computer with Internet access.
The changes affect filings made under Rules 504, 505 (since repealed by the SEC effective May 22, 2017) and 506 of Regulation D as well as those under Section 4(a)(5) of the Securities Act of 1933.
Timing Pre-Sale Pre-Sale Disclosure Document File with Division $150 Fee Payable to "Treasurer, State of Connecticut" Remit to Division Consent to Service of Process No separate filing since included on Form D Form D File Form D with Division in paper form Form D Appendix (on prior versions of Form D) Not required Signed Form D Typed signature accepted* Selling individual or entity information** See below Form D Amendments Not required (viewable online)
*SEC authentication procedure relied upon for E-filers
**Section 36b-31-21b-9b(h) of the Regulations under the Connecticut Uniform Securities Act requires that Rule 504 issuers provide the Division with the “name and address of the person who will offer or sell the securities in this state, whether the person offering or selling the securities in Connecticut shall receive any direct or indirect remuneration related to offers or sales of such securities and whether such person is engaged in the business of effecting securities transactions.” The Commissioner may also request additional information under Reg. Section 36b-31-21b-9b(j).
SEC Forms (external link)
Securities Lawyer's Deskbook (Univ. of Cincinnati College of Law)
EDGAR (external link)
For more information or assistance, contact us at:
Connecticut Department of Banking
Securities and Business Investments Division
260 Constitution Plaza
Hartford, CT 06103-1800
Attention: Olympia Thompson, License and Applications Analyst
Attention: William Olesky, Associate Examiner
Fax: (860) 240-8295