Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
292.410(1)(q),
17 C.F.R.
230.262,
230.501,
230.504,
230.505,
230.508,
239.500
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
transfer-ability 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.
STATUTORY AUTHORITY:
KRS
292.500(3),
17 C.F.R.
230.262,
230.501,
230.504,
230.505,
230.508