808 KAR 10:210.

Registration exemptions - Federal Regulation D.

 

      RELATES TO: KRS

292.410(1)(q), 17 C.F.R. 230.262, 230.501, 230.504, 230.505, 230.508, 239.500

      STATUTORY

AUTHORITY: KRS 292.500(3), 17 C.F.R. 230.262, 230.501, 230.504, 230.505,

230.508

      NECESSITY,

FUNCTION, AND CONFORMITY: KRS

292.500(3) authorizes the commissioner

to

promulgate administrative regulations necessary to carry out the provisions of

KRS Chapter 292. KRS 292.410(1)(q) authorizes the commissioner to exempt from KRS

292.330 to 292.390 a transaction for which the commissioner finds that registration

is not necessary or appropriate in the public interest or for the protection of

an investor. This administrative regulation establishes an exemption for an

offer or sale of a security that complies with specified federal regulations

and the requirements established in the administrative regulation.

 

      Section 1. (1) Pursuant to KRS

292.410(1)(q), an offer or sale of a security offered or sold in compliance

with 17 C.F.R. 230.504 or 230.505, or an offer or sale made exempt by 17 C.F.R.

230.508(a) shall be exempt from KRS 292.340 to 292.390 if the offer or sale

meets the requirements established in subsections (3) and (4) of this section.

      (2) A person who receives a

commission, finder fee, or other remuneration in connection with a sale of a

security made pursuant to the exemption established in subsection (1) of this

section shall not be relieved of compliance with the requirements of KRS

292.330.

      (3) The exemption established in

subsection (1) of this section shall apply if:

      (a)

The issuer does not offer or sell the security by means of a form of general

advertisement or general solicitation except as permitted by 17 C.F.R. 230.504.

The following shall not constitute "general solicitation" within the

meaning of this paragraph:

      1. Solicitation

of an indication of interest in accordance with the applicable terms and

conditions; or

      2. An offer to

sell a security and the dissemination of written offering material in

accordance with the terms of this administrative regulation at least thirty

(30) days after the withdrawal of an application by the issuer to register the

same class of securities;

      (b)1. The issuer

reasonably believes that each purchaser of the securities in Kentucky is:

      a. Acquiring the

security for investment; and

      b. Aware of the

restrictions imposed on transferability and resale of a security.

      2. The basis for

reasonable belief may include:

      a. Obtaining a

written representation signed by the purchaser that the purchaser is acquiring

the security for the purchaser's own investment and is aware of the

restrictions imposed on the transferability and resale of the security; and

      b. Placement of

a legend on the certificate or other document that evidences the security

stating that the security have not been registered under KRS Chapter 292, and

setting forth or referring to the restrictions on transferability and sale of

security.

      (c)1. The issuer

shall file with the office a notice on Form D (17 C.F.R. 239.500):

      a. No later than

fifteen (15) days after the first sale of a security from or into Kentucky in

the case of a transaction pursuant to 17 C.F.R. 230.505; or

      b. At least ten

(10) business days prior to the first sale of a security from or into Kentucky

in the case of a transaction pursuant to 17 C.F.R. 230.504.

      2. During the

time specified in subparagraph 1 of this paragraph, the office shall not have

determined that the exemption provided by this administrative regulation is not

available.

      3. A notice on

Form D shall be manually signed by a person duly authorized by the issuer.

      4.a. Information

furnished by the issuer to an offeree shall be filed with the notice required

by subparagraph 1 of this paragraph.

      b. If the

information is altered in a material way during the course of the offering, the

office shall be notified of the amendment within fifteen (15) days after an

offer using the amended information.

      5. At the time

of filing of the notice on Form D, the issuer shall pay to the commissioner a

filing fee of $250.

      6. If the issuer

files an additional document with the United States Securities and Exchange

Commission subsequent to its initial filing, a copy of the document shall be

filed with the office.

      (d)1. An issuer

selling a security in reliance on this exemption furnishes written information

to a prospective investor to comply with the antifraud provisions of KRS

Chapter 292 and applicable federal law.

      2. In an offering in reliance on 17 C.F.R.

230.504 to a person who is not an accredited investor, the office shall

consider the information provided to a prospective investor in determining

whether the exemption established by this administrative regulation is available;

and

      (e) In a sale to a nonaccredited

investor pursuant to 17 C.F.R. 230.504, the issuer and a person acting on his behalf shall have reasonable grounds to believe,

and after making reasonable inquiry shall believe, that the purchaser either

alone or with his purchaser representative has the knowledge and experience in

financial and business matters that he is capable of evaluating the merits and

risk of the prospective investment.

      (4)(a) Except as

provided in paragraph (b) of this subsection, the exemption established in

subsection (1) of this section shall not apply if the issuer or a person described

in 17 C.F.R. 230.262:

      1. Has filed a registration statement

which is the subject of a currently effective stop order entered pursuant to a

federal or state law within five (5) years prior to the commencement of the

offering;

      2. Has been convicted within five (5)

years prior to commencement of the offering of a felony or misdemeanor in

connection with the purchase or sale of a security or a felony involving fraud

or deceit including forgery, embezzlement, obtaining money under false pretenses,

larceny or conspiracy to defraud;

      3. Is currently subject to a federal

or state administrative order or judgment entered by that state's securities

administrator within five (5) years prior to reliance on this exemption or is

subject to a state's administrative order or judgment in which fraud or deceit

was found and the order or judgment was entered within five (5) years of the

expected offer and sale of a security in reliance upon this exemption;

      4. Is currently subject to a state's

administrative order or judgment which prohibits the use of an exemption from

registration in connection with the purchase or sale of a security; or

      5. Is subject to an order, judgment

or decree of a court of competent jurisdiction temporarily or preliminarily

restraining or enjoining, or is subject to an order, judgment or decree of a

court of competent jurisdiction, entered within five (5) years prior to the

commencement of the offering permanently restraining or enjoining, the person

from engaging in or continuing a conduct or practice in connection with the

purchase or sale of a security or involving the making of a false filing with a

state.

      (b) The prohibitions of paragraph

(a)1, 2, 3 and 5 of this subsection shall not apply if:

      1. The person subject to the

disqualification is duly licensed or registered to conduct securities related

business in the state in which the administrative order or judgment was entered

against the person; or

      2. The broker-dealer employing the

person is licensed or registered in Kentucky and the Form BD filed with

Kentucky discloses the order, conviction, judgment or decree relating to the

person.

      (c) A disqualification pursuant to

paragraph (a) of this subsection shall be automatically waived if the state

which created the basis for disqualification determines upon a showing of good

cause that it is not necessary under the circumstances that the exemption be

denied.

      (d) It shall be a defense to a

violation of paragraph (a) of this subsection if the issuer sustains the burden

of proof to establish that he did not know, and in the exercise of reasonable

care could not have known, that a disqualification under paragraph (a) of this

subsection existed.

      (5) A failure to

comply with a term, condition or requirement established in subsection (2) or

(3)(c) or (d) of this section shall not result in loss of the exemption for a

new offer or sale to a particular individual or entity if the person relying on

the exemption shows:

      (a) The failure

to comply did not pertain to a term, condition or requirement directly intended

to protect that particular individual or entity;

      (b) The failure

to comply was insignificant with respect to the offering as a whole; and

      (c) A good faith

and reasonable attempt was made to comply with all applicable terms, conditions

and requirements of this section.

      (6) If an

exemption is established only through reliance upon subsection (5) of this

section, the failure to comply shall be actionable by the commissioner.

      (7)(a) An offer or

sale which is exempt pursuant to this administrative regulation shall not be

combined with an offer or sale exempt under another administrative regulation

or KRS Chapter 292.

      (b) If an offer or sale fails to

comply with all the conditions for this exemption, the issuer may claim the

availability of another applicable exemption.

      (8) This exemption shall not relieve

an issuer or a person acting on behalf of an issuer from the requirement to

provide disclosure to a prospective investor to satisfy the antifraud

provisions established within KRS Chapter 292.

      (9) In a

proceeding involving this administrative regulation, the burden of proving the

exemption or an exception from a definition or condition shall be upon the

person claiming it.

      (10) The exemption

established in this administrative regulation shall not be available to an

issuer for a transaction which is:

      (a) In technical compliance with the

requirements of this administrative regulation; and

      (b) Part of a plan or scheme to evade

registration or the requirements of this administrative regulation.

 

      Section 2. Adoption Without Change.

The offer or sale of a security offered or sold pursuant to Federal Regulation

D is governed by:

      (1) 17 C.F.R. 230.262, August 13,

1992;

      (2) 17 C.F.R. 230.501, March 20,

1989;

      (3) 17 C.F.R. 230.504, June 14, 1996;

      (4) 17 C.F.R. 230.505, August 13,

1992; and

      (5) 17 C.F.R. 230.508, August 13,

1992.

 

      Section 3. Incorporation by

Reference. (1) Form B-D, "Application for Registration as

Broker-Dealer", July 1988 edition, is incorporated by reference.

      (2) It may be inspected, copied, or

obtained at the Department of Financial Institutions, 1025 Capital Center

Drive, Suite 200, Frankfort, Kentucky, 40601, Monday through Friday, 8 a.m. to

4:30 p.m.

      (3) A copy may also be obtained from

the National Association of Securities Dealers (NASD), 1735 K Street, N.W.,

Washington, D.C., 20006, or a regional NASD office. (11 Ky.R. 1969; eff. 7-9-85; Am. 12 Ky.R. 358; eff. 10-8-85; 1762; eff.

6-10-86; 13 Ky.R. 1112; eff. 1-13-87; 16 Ky.R. 53; 543; eff. 10-8-89; 24 Ky.R.

2186; 25 Ky.R. 91; 313; eff. 6-25-98; TAm eff. 11-7-2012.)