US STATES' REGULATORY RESPONSES TO THE COVID-19 PANDEMIC
On April 16, 2020, the North American Securities Administrators Association (NASAA) released a chart detailing each state's regulatory response to the COVID-19 pandemic.1 While the Securities and Exchange Commission (SEC) has well-known securities laws imposing requirements on entities offering and selling securities, the US states also maintain state-level securities laws known as Blue Sky Laws, typically requiring sellers of new issues to register offerings and provide financial details of a deal and the entities involved; Blue Sky Laws also generally mandate licenses for broker firms, investment advisers and individual brokers offering securities in a state. As observed by the NASAA President, the chart reveals that state securities regulators, charged with implementing such laws, remain active, responsive and committed to "maintaining essential regulatory operations," even as most have shifted to working remotely through telecommuting.2
The chart first sets forth information about the continued operation of state securities regulators, including whether staff are available by phone/email, whether regulators have flagged possible delays for the Central Registration Depository for broker-dealers and associated persons (CRD) and the Investment Advisor Registration Depository (IARD) licensing or mail processing, and whether electronic filings are encouraged or mandated in response to the COVID-19 shutdowns. The chart also specifies forms of relief from certain state regulatory requirements, including relief for displaced securities professionals in the event that, for example, they are working outside of the jurisdiction in which they are currently registered because of the COVID-19 outbreak. In addition, many states' Blue Sky Laws require state-level filing of certain securities offerings including, for example, securities offered under Regulation D.3 The chart notably indicates any state relief for late paper filings of such offering documents, and provides links to further information about related forms of relief offered.4 We are not aware of any states that have suspended such filing requirements at this time.
This note provides a brief overview of the manner in which the securities regulators in three key jurisdictions captured in the NASAA chart-New York, California and Texas-have responded to the adverse impacts caused by COVID-19 on the securities industry. Though different in nature, each have taken steps to ensure some form of regulatory relief to industry participants, including broker-dealers, investment advisers and those submitting filings of securities offerings pursuant to state law requirements. Our COVID-19 Resource Center has details of other regulatory responses across the globe.5 Our Financial Regulatory Developments Focus site provides snapshots of the regulatory responses in the EU and U.K. as well as at international level.6
The New York Department of Law overseen by the Office of the Attorney General has published guidance from the Investor Protection Bureau (IPB) and the Real Estate Finance Bureau (REF) granting forms of relief from certain filing requirements under the Martin Act, General Business Law (GBL) because of logistical challenges posed by the COVID-19 outbreak. Most significantly, the IPB and REF have extended relief for the filing of Form 99 as required by the Martin Act. Unlike most states which require only a notice filing of the federally required Form D7 for issuers relying on certain exemptions from registration of applicable securities with the SEC (such as Rule 506 of Regulation D, among others), New York requires that issuers file the New York-specific Form 99 with the IPB or REF (as applicable) when planning to sell exempt securities to New York investors.
However, the relief granted by each bureau is not uniform and there are a few significant differences. The IPB has granted and specified relief in the form of deadline extensions for certain registration filings and electronic supplements to Form 99 (and other) filings. The REF, meanwhile, provides more detailed guidance and associated relief, encouraging those making certain filings with the bureau not to do so until further notice (subject to certain exceptions). Notably, both bureaus have stipulated that those making submissions should expect delays in reviews due to alternative work schedules and telecommuting.
- Relief Granted by the IPB. In a notice issued on March 24, 2020,8
the IPB grants two primary forms of limited relief for filings
(other than real estate related filings) submitted after March 1,
2020 under certain sections of the Martin Act.9 The IPB
further notes that it will institute "electronic filing
procedures to allow for the continuity of operations" to the
extent possible during the disruption period caused by the COVID-19
outbreak. The IPB's relief is as follows:
- Filing Deadline Extensions. The IPB grants a 90-day extension from April 30, 2020 for the filing of registration renewals, amendments, financial statements or Form NY-IAQ10 by broker-dealers, salespersons or investment advisers (as applicable) that would have been due between March 1, 2020 and April 30, 2020.
- Submission of Securities Offerings Filings. Issuers filing Form 99 or a request for exemption for certain securities offerings (and other filings pursuant to additional sections of the Martin Act11) directly to IPB must now submit applicable documentation by email in addition to the required paper and/or CD filings. The IPB's notice sets forth the email addresses and other procedures for electronic submissions. Each email submission of a completed Form 99 and accompanying documents (including the private placement memorandum and Form D (if already filed)) that requires any payment is subject to additional conditions.
- Relief Granted by the REF. The REF provides
more substantive relief for those making submissions to the bureau
in its memorandum released on March 25,
2020.12 As noted above, the REF's guidance is more
detailed, and the below bullets only addresses certain forms of
relief granted. The REF's memorandum also details updated or
additional procedures associated with (1) the digital distribution
of the offering plan and amendments thereto, (2) price change only
amendments and (3) sales after the expiration of the terms of the
offering plan, among others. Notably, the REF states that it does
not have the ability to process new submissions to the REF
digitally, and thus, paper copies of all new submissions must still
be mailed during the period in which certain relief may be granted.
Select relief granted by the REF is as follows:
- Broker-Dealer and Salesperson Registration Statements. As a general matter, the REF advises broker-dealers and salespersons not to submit registration statements and supplemental registration statements required under GBL § 359-e to the REF until further notice. However, a broker-dealer registration statement is still required with the submission of a new offering plan, as appropriate. Additionally, a new or supplemental broker-dealer registration statement is required with an amendment submission if there is a change to the sponsor or any of the principals associated with a securities offering.
- Submission of Securities Offerings Filings. The REF further advises issuers that must file Form 99 with the REF prior to the sale or offer of sale of real estate related securities under GBL § 352-e or GBL § 352-g not to submit applicable documentation to the REF until further notice. Any Forms 99 not filed should be provided to the REF within 90 days after the conclusion of the relief period.
- Notarization and Original Signature Relief. The REF stipulates that it will accept photocopies or scans of original signatures as a sufficient substitute for wet signatures where required. It also provides relief from notarization requirements if the applicant or registrant includes certain language as laid out in the REF's guidance.
- General Notarization Relief. On March 19, 2020, Governor Andrew Cuomo issued Executive Order 202.7 providing general relief for any notarization required under New York law.13 The Executive Order allows notarization to proceed via video-conference subject to certain requirements, including (1) the person seeking notarization, if not personally known to the notary, must furnish valid photo ID during the video-conference; (2) the person seeking notarization must affirm that he or she is physically situated within the State of New York; and (3) the video-conference tool must allow for direct interaction between the person signing the document and the notary. As the IPB guidance detailed above (unlike that of the REF) does not provide for separate notarization relief, those submitting documents requiring notarization to the IPB must rely solely on Executive Order 202.7 for such relief as required.
On its website, the Texas State Securities Board (Securities Board) has indicated that it remains fully operational and has helpfully instituted various forms of relief applicable to security industry participants, the most notable of which are detailed below.14
- Relief for Displaced Securities Professionals. In recognition of the fact that many securities and advisory firms and their employees are conducting business from temporary locations and would otherwise have to update certain forms (e.g., Form BD, Form U-415) to reflect such changes, the Securities Board first provides a temporary waiver for this required update.16 The covered period for this relief extends from March 13 to June 30, 2020, but is contingent on (1) the temporary relocation being linked to the COVID-19 outbreak and (2) a prompt update of the applicable form, if the temporary arrangement remains in place for more than 30 days after June 30th.
- Filing Extensions. The Securities Board has also instituted relief allowing advisers to make late filings or delivery of Form ADV, Form PF17 and/or disclosure statements/brochures to customers without facing any associated penalty from March 13 to June 30, 2020.18 Advisers relying on this waiver will not be sanctioned as long as they email the Securities Board and disclose on their public website their reliance on the same. The required Form ADV, Form PF and/or disclosure statement/brochure must also be delivered as soon as practicable and in any event no later than 45 day after the original due date of such filing or delivery.
- Relief for Securities Offerings Filings. Finally, the Securities Board allows filers submitting paper filings for certain types of offerings19 under Texas law to make these filings by emailing a scan of the original documents to be filed to firstname.lastname@example.org The email must include certain information to enable efficient processing. If the filing requires an associated fee, such fees must be mailed. The Securities Board advises those mailing fees to enclose the cover email transmitting the original documentation (and including the above information) with the fee payment.
- Notarization Relief. On April 8, 2020, the Texas Governor issued an executive order permitting the appearance before a notary public via videoconference when executing certain documents, including self-proved wills, durable powers of attorney, medical powers of attorney, directives to physicians, or oaths of an executor, administrator, or guardian.21 This relief lasts until the Texas Disaster Declaration issued on March 13, 2020 is lifted or otherwise expires. Certain conditions must apply whenever notarization relief pursuant to this order is invoked as follows: (1) The notary public must verify the identity of the signing person at the time a signature is taken through the use of two-way audio and video conference technology; (2) the notary must verify a person's identity through either personal knowledge or the examination of a government-issued ID containing both the signature and photograph of such person; and (3) the signing person must transmit the signed document through electronic means to the notary, who must affix his or her signature/seal to the document before returning to the person through electronic means.
The California Department of Business Oversight (DBO) has also provided relief for industry participants, similar to that afforded by the Texas State Securities Board.
- Filing Extensions. In guidance released on March 30, 2020, the DBO extends the deadline for certain filings for Notices of Change, such as those required pursuant to Form BD, Form ADV, Form U-4, Form PF and Annual/Interim Reports by 45 days.22 However, the agency prominently specifies that its guidance does not alter or provide relief for the methods of submitting the filings where required. In the same guidance, the DBO also allows licensees filing initial or transfer Form U-4s to do so electronically without obtaining a wet signature in certain situations and subject to certain requirements, and further advises those relying on any relief to retain a copy in their records.
- Relief for Securities Offerings Filings. Additionally, the DBO indicated in a separate notice that, to facilitate the efficient and timely review of securities applications and notices pursuant to Corporate Code Section 25100 et seq.-setting forth the exemptions available under California law for registration of securities offerings-all such filings should be submitted electronically through the DBO's self-service portal.23 The DBO will also accept application/notice documents that are signed electronically using e-signature software (e.g., DocuSign), and in such instances, notarization requirements are waived.
As described above, state regulators are taking steps to provide relief to the security industry and industry participants in light of the current environment, and the NASAA chart provides a helpful tool for quickly evaluating such efforts. Our team at Shearman & Sterling LLP is committed to staying abreast and informed of such developments and would be pleased to answer any questions.
1. North American Securities Administrators Association,
NASAA Member COVID-19 Regulatory Response
Overview (April 16, 2020).
2. North American Securities Administrators Association, New Resource Shows Strong State COVID-19 Regulatory Response (April 16, 2020).
3. Relatedly, the SEC has issued relief from certain notarization requirements for Form ID, a prerequisite to gaining access to the EDGAR platform where Form D is filed. Currently, those filing Form ID must simply include a line beneath the notary box stating that: "Applicant was unable to obtain notarization due to COVID-19 difficulties." However, the SEC requires applicants to follow-up within 90 days of obtaining access to EDGAR with notarization of the authorized signature on a copy of the completed Form ID. The notarized version of Form ID must be uploaded to the EDGAR platform.
4. E.g., relief from certain notarization requirements.
5. See the Regulatory Responses section of our COVID-19 Resource Center.
6. See the COVID-19 section of our Financial Regulatory Developments Focus site.
7. Form D is used to file a notice of an exempt offering of securities with the SEC within 15 days after the first sale of securities in the offering. Form D must be filed by companies that have sold securities without registration under the Securities Act of 1933 ("Securities Act") in an offering made under Rules 504 or 506 of Regulation D or Section 4(a)(5) of the Securities Act.
8. Office of the Attorney General, Notice of Coronavirus Conditional Relief and Limited Service Continuity Plan by the Investor Protection Bureau (March 24, 2020).
9. Specifically, GBL § 359-e or GBL § 359-eee, GBL §680 et seq., and the regulations promulgated thereunder (13 NYCRR 10, 13 NYCRR11, or 13 NYCRR 200) related to registration including CRD and IARD rules, other than real estate related filings.
10. Investment adviser representatives of New York-registered investment advisor firms must file a Form NY-IAQ with the IPB. Investment adviser representatives of SEC-registered investment advisor firms do not need to file the Form NY-IAQ with the IPB.
11. Applicable to all filings required to be submitted directly to IPB or the Department of Law: (1) under GBL § 359-e or GBL § 359-eee, 13 NYCRR 10 or 13 NYCRR 11 related to registration, other than real estate related filings, and (2) under GBL §680 et seq. or 13 NYCRR 200.
12. New York Department of Law, Memorandum regarding Temporary Submission and Review Policies and Procedures Due to COVID-19 State of Emergency (March 25, 2020).
13. Executive Order 202.7, Continuing Temporary Suspension and Modification of Laws Relating to Disaster Emergency.
14. Texas State Securities Board, State Securities Board Response to Coronavirus (COVID-19).
15. The Form U4 is used by broker-dealers to register associated persons with self-regulatory organizations (SROs) and jurisdictions; the Form U5 is used terminate the registrations of associated persons. The Form BD is used by broker-dealers to register with the Securities and Exchange Commission, SROs, and jurisdictions. The Form BDW is used or to withdraw their registration with such entities.
16. Texas State Securities Board, Waiver by the Securities Commissioner: Temporary Office and Work Locations - Filing Relief for Securities Professionals.
17. Form ADV is the uniform form used by investment advisers to register with both the SEC and state securities authorities. Form PF is required to be filed by SEC-registered investment advisers (and those required to be SEC-registered) who manage any number of private funds with at least $150 million in private fund assets under management as of the adviser's most recent fiscal-year end.
18. Texas State Securities Board, Waiver by Securities Commissioner: Filing Extension Relief for Investment Advisers.
19. For example, Reg A Tier 2 Offerings, Initial/Amendment/Renewal for fully registered securities offerings, Secondary Trading Exemption filings, etc. See Texas State Securities Board, Notification to Certain Securities Filers.
21. Press Release, Governor Abbot Temporarily Suspends Certain Statutes to Allow for Appearance Before Notary Public Via Videoconference (April 9, 2020).
22. Business, Consumer Services, and Housing Agency, Department of Business Oversight, Guidance to Broker Dealers and Investment Advisers (March 30, 2020).
23. Business, Consumer Services, and Housing Agency, Department of Business Oversight, Notice to Securities and Franchise Filers (March 22, 2020).
Special thanks to Caitlin Hutchinson Maddox for her contribution to this publication.
Article orignally published on 29 April 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.