Md. Code Regs. 02.02.04.15

Current through Register Vol. 51, No. 24, December 2, 2024

Section 02.02.04.15 - Coordination with SEC Rule 505 or 506

A. Scope.

(1) This regulation exempts under the Maryland Securities Act, Corporations and Associations Article, § 11-602(15), Annotated Code of Maryland, certain transactions from the registration requirements of the Maryland Securities Act, Corporations and Associations Article, § 11-501, Annotated Code of Maryland.

(2) This regulation and the Maryland Securities Act, Corporations and Associations Article, § 11-602(15), Annotated Code of Maryland, do not provide an exemption from the antifraud provisions of the Maryland Securities Act, Corporations and Associations Article, Subtitles 3 and 7, Annotated Code of Maryland.

B. Conditions.

(1) An offering under this regulation shall satisfy the terms of 17 CFR § 230.505 (1994) (SEC Rule 505, Exemption for Limited Offers and Sales of Securities Not Exceeding $5,000,000) or 17 CFR § 230.506 (1994) (SEC Rule 506, Exemption for Limited Offers Without Regard to Dollar Amount of Offering), which are incorporated by reference.

(2) The burden of proving an exemption under this regulation is on the person claiming the exemption.

(3) Remuneration for Solicitation or for Sales.

(a) Except as provided in §B(3)(b) of this regulation, a commission or similar remuneration may not be paid or given, directly or indirectly, for the solicitation of a prospective purchaser or in connection with sales of securities under this regulation.

(b) A commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under this regulation may be paid or given to:

(i) A broker-dealer that the issuer reasonably believes is registered under the Maryland Securities Act, Corporations and Associations Article, § 11-405, Annotated Code of Maryland; or

(ii) An individual who the issuer reasonably believes has not received a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities on behalf of more than one other issuer within a 12-month period immediately before the first sale by the individual in the offering of securities under this regulation.

C. Disqualification.

(1) An exemption under this regulation is not available if the issuer, any of the issuer's directors, officers, general partners, trustees, or any other person that performs similar functions, beneficial owners of 10 percent or more of a class of its equity interests, or promoters currently connected with it in any capacity, or any person, other than a broker-dealer currently registered under the Maryland Securities Act, Corporations and Associations Article, § 11-405, Annotated Code of Maryland, that has been or will be paid or given, directly or indirectly, a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under this regulation:

(a) Within 5 years before the first sale of securities in an offering under this regulation, has filed a registration statement or application for exemption from registration that is currently subject to a stop order under a state's securities laws;

(b) Within 5 years before the first sale of securities in an offering under this regulation, has been convicted of or has pleaded nolo contendere to a felony or misdemeanor in connection with the purchase or sale of a security or in connection with the making of a false filing with the SEC or with a state securities administrator, or a felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, conspiracy to defraud, or theft;

(c) 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 5 years before the first sale of securities in an offering under this regulation and permanently restraining or enjoining, that person from engaging in or continuing any conduct or practice in connection with the offer, purchase, or sale of a security or in connection with the making of a false filing with the SEC or a state securities administrator;

(d) Is subject to a United States Postal Service false representation or cease and desist order entered under 39 U.S.C. § 3005 within 5 years before the first sale of securities in an offering under this regulation or is subject to a temporary restraining order or preliminary injunction entered under 39 U.S.C. § 3007 or 18 U.S.C. § 1345 with respect to conduct alleged to have violated 39 U.S.C. § 3005; or

(e) Is subject to a state administrative order entered by a state securities administrator in which fraud or deceit was found, if the final order was entered within 5 years before the first sale of securities in an offering under this regulation.

(2) An exemption under this regulation is not available if the issuer or any of its predecessors or affiliates is subject to an order issued by the Commissioner or an order, judgment, or decree of a court of competent jurisdiction temporarily, preliminarily, or permanently restraining or enjoining the person for failure to comply with §D of this regulation.

(3) Waiver of Disqualification.

(a) The Commissioner may waive by order a disqualification under §C(1) or (2) of this regulation, if the Commissioner determines that the order would be consistent with the public interest.

(b) A waiver by the Commissioner of a disqualification under §C(1) or (2) of this regulation is without prejudice to the Commissioner in other proceedings or matters with respect to the issuer or any other person.

D. Notice Filing. Not later than 15 days after the first sale of securities under this regulation, the issuer shall file with the Commissioner:

(1) A manually signed notice on a completed SEC Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption), as filed with the SEC and as that form may be amended from time to time, which filing or filings shall:

(a) Constitute the issuer's representation and affirmation to the Commissioner that it has complied with 17 CFR § 230.505 (SEC Rule 505, Exemption for Limited Offers and Sales of Securities Not Exceeding $5,000,000) or 17 CFR § 230.506 (SEC Rule 506, Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering), and

(b) Include in the Appendix, the information requested in the fifth column with respect to Maryland;

(2) A statement by the issuer or issuer's counsel of the first date of a sale of securities in Maryland made under this regulation; and

(3) The fee required by the Maryland Securities Act, Corporations and Associations Article, § 11-506, Annotated Code of Maryland.

E. Insignificant Deviations.

(1) A failure to comply with a term of §B or D of this regulation, including a failure to comply with a term of SEC Rule 505 or Rule 506, does not result in the loss of an exemption from the registration requirements of the Maryland Securities Act, Corporations and Associations Article, § 11-501, Annotated Code of Maryland, for an offer or sale to a particular individual or entity, if the issuer or other person relying on the exemption demonstrates that:

(a) The failure to comply did not pertain to a term directly intended to protect that particular individual or entity or class of individuals or entities;

(b) The failure to comply did not pertain to 17 CFR § 230.502(c) (SEC Rule 502, General Conditions to Be Met), 17 CFR § 230.505(b)(2)(i), (ii), or (iii) (SEC Rule 505, Exemption For Limited Offers and Sales of Securities Not Exceeding $5,000,000), 17 CFR § 230.506(b)(2)(i) (SEC Rule 506, Exemption For Limited Offers and Sales Without Regard to Dollar Amount of Offering);

(c) The failure to comply was insignificant with respect to the offering as a whole; and

(d) The issuer made a good faith and reasonable attempt to comply with all applicable terms of this regulation.

(2) The Commissioner retains the right to take action under the Maryland Securities Act against an issuer or other person that fails to comply with a term of this regulation, and establishes an exemption only through reliance upon §E(1) of this regulation.

Md. Code Regs. 02.02.04.15