Chapter 40. Exempt Securities and Transactions
21VAC5-40-10. Commercial paper.
Commercial paper as referred to under § 13.1-514 A 9 of the Act, shall be considered as any note, draft, bill of exchange, or banker's acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof, the maturity of which is likewise limited. Commercial paper shall also exemplify the following characteristics: prime quality negotiable paper of a type not ordinarily purchased by the general public, issued to facilitate well recognized types of current operational business requirements, and of a type eligible for discounting by Federal Reserve Banks.
Statutory Authority
§ 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Rule 500, Case No. SEC810005, eff. July 1, 1981; amended by Case No. SEC890040, eff. July 1, 1989; amended to renumber, June 25, 1991 by Case No. SEC910057, eff. July 1, 1991.
21VAC5-40-20. Exchange and automated quotations system.
In accordance with § 13.1-514 A 12 of the Act, the National Association of Securities Dealers Automated Quotations System (NASDAQ) is approved by the commission; provided, however, that the securities for which the NASDAQ exemption is being claimed, and the issuer of such securities, meet the following conditions:
1. If the issuer is not organized under the laws of the United States or a state, it has appointed a duly authorized agent in the United States for service of process and has set forth the name and address of such agent in its prospectus.
2. A class of the issuer's securities is required to be and is registered under § 12 of the Securities Exchange Act of 1934, and has been so registered for the three years immediately preceding the offering date.
3. Neither the issuer nor a significant subsidiary has had a material default during the last seven years (or the issuer's existence if less than seven years) in the payment of (i) principal, interest, dividend, or sinking fund installment on preferred stock or indebtedness for borrowed money, or (ii) rentals under leases with terms of three years or more.
4. The issuer has had consolidated net income (before extraordinary items and the cumulative effect of accounting changes) of at least $1 million in four of its last five fiscal years including its last fiscal year; and if the offering is of interest bearing securities, has had for its last fiscal year, such net income, but before deduction for income taxes and depreciation, of at least one and one-half times the issuer's annual interest expense, giving effect to the proposed offering and the intended use of the proceeds. "Last fiscal year" means the most recent year for which audited financial statements are available, provided that such statements cover a fiscal period ended not more than 15 months prior to the commencement of the offering.
5. If the offering is of stock or shares, other than preferred stock or shares, such securities have voting rights and such rights include (i) the right to have at least as many votes per share, and (ii) the rights to vote on at least as many general corporate decisions, as each of the issuer's outstanding classes of stock or shares, except as otherwise required by law.
6. If the offering is of stock or shares, other than preferred stock or shares, such securities are owned beneficially or of records, on any date within six months prior to the commencement of the offering, by at least 1,200 persons, and on such date there are at least 750,000 such shares outstanding with an aggregate market value, based on the average bid price for that day, of at least $3,750,000. In connection with the determination of the number of persons who are beneficial owners of the stock or shares of an issuer, the issuer or broker-dealer may rely in good faith for the purposes of this section upon written information furnished by the record owners.
7. Any securities issued or guaranteed as to both principal and interest by an international bank of which the United States is a member is so exempted without regard to the conditions in this section.
8. If the offering is of interest bearing securities of a finance company with liquid assets of at least 105% of its liabilities (other than deferred income taxes, deferred investment tax credits, capital stock and surplus) at the end of each of its last five fiscal years, the applicable net income requirement of subdivision 4 of this section, but before deduction for interest expense, shall be one and one-quarter times the issuer's annual interest expense. "Finance company" means a company engaged primarily in the business of wholesale, retail, installment, mortgage, commercial, industrial or consumer financing, banking or factoring. "Liquid assets" means cash, receivables payable on demand or not more than 12 years following the close of the company's last fiscal year, and readily marketable securities, in each case less applicable reserves and unearned income.
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Rule 502, Case No. SEC810005, eff. July 1, 1981; amended to renumber, June 25, 1991 by Case No. SEC910057, eff. July 1, 1991; amended, Virginia Register Volume 14, Issue 22, eff. July 1, 1998.
21VAC5-40-30. (Repealed.)
Historical Notes
Derived from Rule 503, Case No. SEC830011, eff. July 1, 1983; amended by Case No. SEC840009, eff. July 2, 1984; Case No. SEC890040, eff. July 1, 1989; amended to renumber, Case No. SEC910057, eff. July 1, 1991; amended, Case No. SEC930038, eff. August 1, 1993; amended, Virginia Register Volume 11, Issue 21, eff. July 1, 1995; Volume 13, Issue 25, eff. September 1, 1997; Volume 14, Issue 22, eff. July 1, 1998; Volume 19, Issue 23, eff. July 1, 2003; Volume 25, Issue 22, eff. July 1, 2009; repealed, Virginia Register Volume 34, Issue 9, eff. December 1, 2017.
21VAC5-40-40. (Repealed.)
Historical Notes
Derived from Rule 504, Case No. SEC870031, eff. September 1, 1988; amended by Case No. SEC890040, eff. July 1, 1989; amended to renumber by Case No. SEC910057, eff. July 1, 1991; amended by Case No. SEC920112, eff. December 15, 1992; repealed, Virginia Register Volume 29, Issue 20, eff. June 3, 2013.
21VAC5-40-50. Foreign issuer.
In accordance with § 13.1-514 A 13 of the Act, any equity or debt security issued by an issuer organized under the laws of any foreign country is exempted from the securities registration requirements of the Act provided the following criteria are met:
1. With respect to an equity security, the security meets the marginability requirements of regulation T adopted by the Board of Governors of the Federal Reserve System ("the Board") or is an American Depository Receipt representing such a security; and
2. With respect to a debt security, the security meets the marginability requirements of regulation T adopted by the Board.
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Rule 505, Case No. 900034, eff. July 1, 1990; amended to renumber by Case No. SEC910057, eff. July 1, 1991; amended by Case No. SEC920008, eff. October 15, 1992; Virginia Register Volume 15, Issue 22, eff. July 1, 1999.
21VAC5-40-60. (Repealed.)
Historical Notes
Derived from Rule 506, Case No. SEC920008, eff. October 15, 1992; amended, Virginia Register Volume 11, Issue 21, eff. July 1, 1995; repealed, Virginia Register Volume 29, Issue 20, eff. June 3, 2013.
21VAC5-40-70. Solicitations of interest prior to the filing of a registration statement.
A. In accordance with § 13.1-514.1 C of the Act, an offer, but not a sale, of a security made by or on behalf of an issuer for the sole purpose of soliciting an indication of interest in receiving a prospectus (or its equivalent) for the security is exempt from the securities and, where the offer is made by an agent of the issuer, agent registration requirements of the Act if all of the conditions set forth in subdivisions 1 through 11, below, are satisfied:
1. The issuer is or will be a business entity organized under the laws of one of the states or possessions of the United States or one of the provinces or territories of Canada and is engaged in or proposes to engage in a business other than petroleum exploration or production or mining or other extractive industries;
2. The solicitation of interest is not for a so-called "blind pool" offering or other offering for which the specific business in which to be engaged or property to be acquired cannot be described at the time of the solicitation;
3. It is intended that the security be registered under the Act and that the offering be conducted pursuant to either Regulation A (17 CFR §§ 230.251-230.263) or Rule 504 of Regulation D (17 CFR §§ 230.501-230.508), as promulgated by the United States Securities and Exchange Commission;
4. At least 10 business days prior to the initial solicitation of interest under this section, the offeror files with the State Corporation Commission a Solicitation of Interest Form along with any other materials to be used to conduct solicitations of interest, including, but not limited to, the script of any broadcast to be made and a copy of any notice to be published;
5. At least five business days prior to usage, the offeror files with the State Corporation Commission any amendments to the materials specified in subdivision 4, above, or additional materials to be used to conduct solicitations of interest, except for materials provided to a particular offeree pursuant to a request by that offeree, which materials shall be filed with the Commission no later than five business days after usage;
6. No Solicitation of Interest form, script, advertisement or other material which the offeror has been notified by the State Corporation Commission not to distribute is used to solicit indications of interest;
7. Except for scripted broadcasts and except to the extent necessary to obtain information needed to provide a Solicitation of Interest form, the offeror does not communicate with an offeree about the contemplated offering unless the offeree is provided with the most current Solicitation of Interest form at or before the time of the communication or within five calendar days after the communication;
8. During the solicitation of interest period, the offeror does not solicit or accept money or a commitment to purchase securities;
9. No sale is made until at least seven calendar days after delivery to the purchaser of a prospectus which is part of a registration statement declared effective under § 13.1-508 or § 13.1-510 of the Act;
10. No sale of the security is consummated by any person who is not registered under or exempted from registration by the Act as a broker-dealer or an agent;
11. The offeror does not know, and in the exercise of reasonable care, could not know that any of the issuer's officers, directors, agents, 10% shareholders or promoters:
a. Has filed a registration statement which is the subject of a currently effective registration stop order entered pursuant to a federal or state securities law within five years prior to the filing of the Solicitation of Interest form;
b. Has been convicted within five years prior to the filing of the Solicitation of Interest form of a felony or misdemeanor in connection with the offer, purchase or sale of a security or a felony involving fraud or deceit, including but not limited to forgery, embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud;
c. Is currently subject to a federal or state administrative enforcement order or judgment entered by any state securities administrator or the United States Securities and Exchange Commission within five years prior to the filing of the Solicitation of Interest form or is subject to a federal or state administrative enforcement order or judgment entered within five years prior to the filing of the Solicitation of Interest form in which fraud or deceit, including, but not limited to, making untrue statements of material facts and omitting to state material facts, was found;
d. Is subject to a federal or state administrative enforcement order or judgment which prohibits, denies, or revokes the use of an exemption from registration in connection with the offer, purchase or sale of securities; or
e. Is currently 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, permanently restraining or enjoining, the party 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 the state entered within five years prior to the filing of the Solicitation of Interest form.
The prohibitions listed above shall not apply if 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 if the broker-dealer employing the party is licensed or registered in this state and the Form B-D filed with this Commonwealth discloses the order, conviction, judgment or decree relating to the person. No person disqualified under this subdivision 11 shall act in a capacity other than that for which the person is licensed or registered. A disqualification caused by this subdivision 11 is automatically waived if the agency 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.
B. A failure to comply with a term, condition or requirement of subdivisions 1 through 11 of subsection A of this section will not result in the loss of the exemption from the securities registration requirements of the Act for an offer to a particular individual or entity if the offeror shows:
1. The failure to comply did not pertain to a term, condition or requirement directly intended to protect that particular individual or entity;
2. The failure to comply was insignificant with respect to the offering as a whole; and
3. A good faith and reasonable attempt was made to comply with all applicable terms, conditions and requirements of subdivisions A 1 through 11 of subsection A.
Where an exemption is established only through reliance upon this subsection B, the failure to comply shall nonetheless be actionable by the State Corporation Commission as a violation of the Act, and shall be grounds for denying or revoking the exemption as to a specific security or transaction.
C. The offeror shall comply with the requirements set forth in subdivisions 1 and 2 below. Failure to comply will not result in the loss of the exemption from the securities registration requirements of the Act, but shall be a violation of the Act, actionable by the State Corporation Commission, and grounds for denying or revoking the exemption as to a specific security or transaction.
1. Any published notice or script for broadcast and any printed material delivered apart from the Solicitation of Interest Form shall contain at least the identity of the chief executive officer of the issuer, a brief and general description of its business and products, and the following legends:
a. NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED AND NONE WILL BE ACCEPTED;
b. NO SALES OF THE SECURITIES WILL BE MADE OR COMMITMENT TO PURCHASE ACCEPTED UNTIL DELIVERY OF AN OFFERING CIRCULAR THAT INCLUDES COMPLETE INFORMATION ABOUT THE ISSUER AND THE OFFERING;
c. AN INDICATION OF INTEREST MADE BY A PROSPECTIVE INVESTOR INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND;
d. THIS OFFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE FEDERAL AND STATE SECURITIES LAWS. NO SALE MAY BE MADE UNTIL THE OFFERING STATEMENT IS QUALIFIED BY THE SECURITIES AND EXCHANGE COMMISSION AND THE SECURITIES ARE REGISTERED IN THIS STATE; and
e. REGISTRATION OF THE SECURITIES FOR SALE IN THIS STATE IS DEPENDENT ON COMPLIANCE WITH THE SECURITIES LAWS OF VIRGINIA. THEREFORE, THERE CAN BE NO ASSURANCE THAT THE SECURITIES WILL BE REGISTERED FOR SALE IN VIRGINIA.
This requirement shall not apply to the delivery of printed material to a person who has already received a Solicitation of Interest Form with the legends correctly included.
2. All communications with offerees made in reliance on this section shall cease after a registration statement is filed in this state, and no sale may be made until at least 20 calendar days after the last communication made in reliance on this section.
D. Other than the requirements of subdivision 10 of subsection A above, the State Corporation Commission may waive any condition of this exemption in writing, upon application by the offeror and good cause having been shown. Neither compliance nor attempted compliance with this section, nor the absence of an objection or order by the State Corporation Commission with respect to an offer of securities undertaken pursuant to this section, shall be deemed to be a waiver of a condition of the section or deemed to be a confirmation by the State Corporation Commission of the availability of this section.
E. Offers made in reliance on this section will not result in a violation of § 13.1-507 of the Act by virtue of being integrated with subsequent offers or sales of securities unless the subsequent offers and sales would be integrated under federal securities laws.
F. Issuers on whose behalf indications of interest are solicited under this section may not make offers or sales in reliance on subdivision B 7 or B 13 of § 13.1-514 of the Act until six months after the last communication with an offeree made pursuant to this section.
COMMENTS:
1. All communications made in reliance on this section are subject to the anti-fraud provisions of the Act.
2. Persons who deliver a prospectus in connection with an offering for which indications of interest have been solicited under this section must be registered under the Act as a broker-dealer or as an agent.
3. The Commission may or may not review the materials filed pursuant to this section. Materials filed, if reviewed, will be judged under anti-fraud principles. Any discussion in the offering documents of the potential rewards of the investment must be balanced by a discussion of possible risks.
4. With respect to subdivisions 4 and 5 of subsection A, the offeror may begin to conduct solicitations of interest once the prefiling requirements have been satisfied, unless notified otherwise by the State Corporation Commission. The State Corporation Commission may at any time notify the offeror not to distribute a Solicitation of Interest form, script, advertisement or other material which the Commission believes is in violation of the Act's anti-fraud provisions.
5. An offer effected in violation of this section may constitute an unlawful offer of an unregistered security for which civil liability attaches under § 13.1-522 of the Act. Likewise, a misrepresentation or omission may give rise to civil liability.
6. Issuers should note that under certain conditions the State Corporation Commission may refuse to grant effectiveness to a registration statement filed under § 13.1-508 or § 13.1-510 of the Act. In that event, sales to prospective Virginia investors solicited under this section may not be consummated. Please refer to § 13.1-513 of the Act, 21VAC5-70-10, and 21VAC5-30-40.
NOTE TO USERS: The following form sets forth the minimum informational requirements for soliciting indications of interest under federal and state securities laws. You may include additional information if you think it necessary or desirable. Remember that a discussion in this document is subject to the anti-fraud provisions of the federal and state securities laws and must thereby be complete. Also, a discussion of potential rewards of the proposed investment must be balanced by a discussion of possible risks. You may alter the graphic presentation of the form in any way as long as the minimum information is clearly presented.
SOLICITATION OF INTEREST FORM
NAME OF COMPANY
Street Address of Principal Office:
Company Telephone Number:
Date of Organization:
Amount of the Proposed Offering:
Name of the Chief Executive Officer:
THIS IS A SOLICITATION OF INTEREST ONLY. NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED AND NONE WILL BE ACCEPTED.
NO SALES OF THE SECURITIES WILL BE MADE OR COMMITMENT TO PURCHASE ACCEPTED UNTIL THE DELIVERY OF A FINAL OFFERING CIRCULAR THAT INCLUDES COMPLETE INFORMATION ABOUT THE COMPANY AND THE OFFERING.
AN INDICATION OF INTEREST MADE BY A PROSPECTIVE INVESTOR INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND.
THIS OFFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE FEDERAL AND STATE SECURITIES LAWS. NO SALE MAY BE MADE UNTIL THE OFFERING STATEMENT IS QUALIFIED BY THE SECURITIES AND EXCHANGE COMMISSION AND THE SECURITIES ARE REGISTERED IN THIS STATE.
REGISTRATION OF THE SECURITIES FOR SALE IN THIS STATE IS DEPENDENT ON COMPLIANCE WITH THE SECURITIES LAWS OF VIRGINIA. THEREFORE, THERE CAN BE NO ASSURANCE THAT THE SECURITIES WILL BE REGISTERED FOR SALE IN VIRGINIA.
This Company:
( ) Has never conducted business operations.
( ) Is in the development stage.
( ) Is currently conducting operations.
( ) Has shown a profit for the last fiscal year.
( ) Other (Specify) __________.
BUSINESS:
1. Describe in general what business the company does or proposes to do, including what products or goods are or will be produced or services that are or will be rendered.
2. Describe in general how these products or services are to be produced or rendered and how and when the company intends to carry out its activities.
OFFERING PROCEEDS:
3. Describe in general how the company intends to use the proceeds of the proposed offering.
KEY PERSONNEL OF THE COMPANY:
4. Provide the following information for all officers and directors or persons occupying similar positions:
Name, title, office street address, telephone number, employment history (employers, titles and dates of positions held during the past five years), and education (degrees, schools and dates).
(end of form)
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Rule 507, Case No. SEC940048, eff. August 1, 1994; amended, Virginia Register Volume 11, Issue 21, eff. July 1, 1995.
21VAC5-40-80. (Repealed.)
Historical Notes
Derived from Case No. SEC950021 § 9, eff. July 1, 1995; repealed, Virginia Register Volume 29, Issue 20, eff. June 3, 2013.
21VAC5-40-90. (Repealed.)
Historical Notes
Derived from Case No. SEC950021 § 10, eff. July 1, 1995; repealed, Virginia Register Volume 29, Issue 20, eff. June 3, 2013.
21VAC5-40-100. Domestic issuer limited transactional exemption.
A. In accordance with § 13.1-514 B 7 b of the Act, an offer or sale by the issuer of any of the following securities issued by a corporation, partnership, limited liability company, or real estate investment trust, as the case may be: note, stock, bond, debenture, evidence of indebtedness, partnership interest, share of beneficial interest in a real estate investment trust, a warrant or right to purchase or subscribe to any of the foregoing or a security convertible into any of the foregoing, shall be exempt from the securities, broker-dealer and agent registration requirements of the Act, provided the following conditions are met:
1. In connection with an offering pursuant to this section, there shall be no more than 35 purchasers in this Commonwealth during any period of 12 consecutive months;
2. In connection with an offering pursuant to this section, the issuer shall:
a. Deliver Form VA-1 and in certain prescribed circumstances, Part 2 of Form VA-1 or a disclosure document containing the information required by Form VA-1 and Part 2, if required, to each prospective purchaser prior to a sale to a purchaser; and
b. Sell securities only to purchasers, each of which the issuer shall, after reasonable inquiry, believe either:
(1) Has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, and is able to bear the economic risks of the prospective investment; or
(2) Together with a purchaser representative or representatives, has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, and that the purchaser is able to bear the economic risks of the prospective investment; and
3. No commission or similar remuneration is paid or given, directly or indirectly, for soliciting a prospective purchaser, or in connection with sales of securities in reliance on this section, unless paid to a broker-dealer and its agent who are registered under the Act and the securities are offered only to persons whose investing history demonstrates an ability to evaluate the merits and risks of the investment and who are capable of bearing the economic risks of the investment.
B. This exemption is not available with respect to an offering:
1. Pursuant to a registration statement or Regulation A (17 CFR 230.251-230.263) notification which has been filed under the Securities Act of 1933;
2. Pursuant to an exemption under Regulation D (17 CFR 230.505), which offering may be exempted in Virginia only by 21VAC5-40-30, Uniform Limited Offering Exemption;
3. If the amount of money to be raised from the offering exceeds $2,000,000;
4. If the issuer has offered for sale or sold its securities which are of the same or a similar class as that to be offered for sale or sold under this section within 180 days prior to this offering or if the issuer offers for sale or sells its securities that are of the same or a similar class as those offered and sold under this section within 180 days after this offering; or
5. If the issuer does not have its principal place of business in this Commonwealth.
C. An exemption under this section is not available if the issuer, its directors, officers, partners, members, trustees or beneficial owners of 10% or more of a class of its voting securities, or its promoters or agents connected with it or a person offering or selling the securities for or on behalf of the issuer:
1. Has been convicted (or has pleaded nolo contendere) within five years prior to reliance on this section of a felony or a misdemeanor in connection with the purchase or sale of a security, or in connection with making a false filing with the SEC or a state securities administrator or of a felony involving fraud or deceit, including but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, conspiracy to defraud, or theft;
2. Is subject to an order, judgment or decree of a court of competent jurisdiction that temporarily or preliminarily restrains or enjoins, or is subject to an order, judgment or decree of a court of competent jurisdiction, entered within five years prior to reliance on this section, which permanently restrains or enjoins a person from engaging in or continuing a practice or conduct in connection with the purchase or sale of a security, or involving the making of a false filling with the SEC or a state securities administrator;
3. Is subject to a United States Postal Service false representation order entered within five years prior to reliance on this section; or
4. Is subject to a state administrative order entered within five years prior to reliance on this section by a state securities administrator in which fraud or deceit was found.
D. The issuer shall file with the commission 15 days prior to the first sale in this Commonwealth in reliance on this section:
1. A copy of Form VA-1, including Part 2, if applicable or a disclosure document containing the information required by the Form;
2. An executed Consent to Service of Process (Form U2) appointing the Clerk of the commission as its agent for service of process;
3. An undertaking to promptly provide to the commission, upon request, additional information as the commission may require; and
4. A nonrefundable filing fee of $250 payable to the Treasurer of Virginia.
E. The issuer shall, within 30 days after the completion of the offering, file with the commission a report of sales indicating the number of purchasers in this Commonwealth, a description of the securities sold to such purchasers, and the total dollar amount raised.
F. This section does not exempt persons or transactions from the anti-fraud provisions of the Act.
G. The commission may deny the exemption if it determines that a particular transaction or offering is not in the public interest.
H. For purposes of this section and § 13.1-514 B 7 b of the Act, the following shall apply:
1. Neither the issuer nor persons acting on its behalf shall offer or sell the securities by form of general solicitation or advertising, including but not limited to, the following:
a. "Cold calls" by telephone or other means, advertising, article, notice, or other communication published in a newspaper, newsletter, magazine, mass mailing, electronic media, or similar media or broadcast over television or radio; or
b. Seminars or meetings whose attendees have been invited by general solicitation or general advertising.
2. Securities acquired in a transaction under this section shall not be resold without registration under or exemption from the Act. The issuer or a person acting on its behalf shall exercise reasonable care to assure that the purchasers of the securities in an offering under this section are purchasing for investment and not with a view to distribution of the securities. Reasonable care shall include, but not be limited to, the following:
a. Reasonable inquiry to determine whether the purchaser is acquiring the securities for himself or for other persons;
b. Placement of a restrictive legend on the certificate or other document evidencing the securities. The legend shall be in the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE (OR OTHER DOCUMENT) HAVE BEEN ISSUED PURSUANT TO A CLAIM OF EXEMPTION FROM THE REGISTRATION OR QUALIFICATION PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS AND SHALL NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM;
c. Issuance of stop-transfer instructions to the issuer's transfer agent with respect to the securities, or, if the issuer transfers its own securities, notation in the appropriate records of the issuer; and
d. Obtaining from the purchaser a signed agreement that the securities will not be sold unless they are registered under the Act or exempted from registration.
3. All sales that are part of the same offering under this section shall meet all the conditions of this section. Offers and sales that are made more than six months before the commencement of an offering under this section or are made more than six months after completion of an offering under this section will not be considered part of that offering, so long as during those six-month periods there are no offers or sales of securities by or on behalf of the issuer that are of the same or a similar class as those offered or sold under this section. If securities of the same or a similar class as those offered pursuant to this section are offered or sold less than six months before or after an offer or sale pursuant to this section, those offers to sell or sales, will be deemed to be "integrated" with the offering.
I. In proceedings involving this section, the burden of proving the exemption or an exception from a definition or condition is upon the person claiming it.
J. The exemption authorized by this section shall be known and may be cited as the "Domestic Issuer Limited Transactional Exemption."
Statutory Authority
§§ 12.1-13 and 13.1-523.1 of the Code of Virginia.
Historical Notes
Derived from Case No. SEC950021 § 11, eff. July 1, 1995; amended, Virginia Register Volume 12, Issue 3, eff. October 2, 1995; Volume 14, Issue 22, eff. July 1, 1998; Volume 15, Issue 22, eff. July 1, 1999; Volume 19, Issue 23, eff. July 1, 2003.
21VAC5-40-110. Internet offer transactional exemption.
In accordance with § 13.1-514 B 18 of the Act, an offer of a security communicated on the Internet, World Wide Web or similar proprietary or common carrier system (hereinafter "Internet Offer") is exempted from the securities, broker-dealer and agent registration requirements of the Act if all of the following conditions are satisfied:
1. The Internet Offer is communicated by or on behalf of the issuer of the security.
2. The Internet Offer indicates, directly or indirectly, that it is not directed specifically to this Commonwealth.
3. An offer is not otherwise directed specifically to this Commonwealth by or on behalf of the issuer of the security.
4. Any order or offer to buy or subscription for the security received from a person in this Commonwealth pursuant to the Internet Offer is rejected.
5. No sale pursuant to the Internet Offer is made in this Commonwealth until the security is registered under the Act, or the security or transaction is exempted by the Act or is otherwise not subject to registration under this Act.
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 13, Issue 25, eff. September 1, 1997.
21VAC5-40-120. (Repealed.)
Historical Notes
Derived from Virginia Register Volume 13, Issue 25, eff. September 1, 1997; amended, Virginia Register Volume 14, Issue 22, eff. July 1, 1998; repealed, Virginia Register Volume 19, Issue 23, eff. July 1, 2003.
21VAC5-40-130. Calculation of the number of purchasers under § 13.1-514 B 7 b.
A. For the purpose of calculating the number of purchasers in the Commonwealth under § 13.1-514 B 7 b of the Act, the following persons are excluded:
1. A relative, spouse, or relative of the spouse of a purchaser, who has the same principal residence as the purchaser;
2. A trust or estate in which a purchaser and any of the persons related to the purchaser as specified in subdivision 1 or 3 of this subsection collectively are beneficial owners of more than 50% of the interests, excluding contingent interests;
3. A corporation, limited liability company, partnership, or other entity of which a purchaser and any of the persons related to the purchaser as specified in subdivision 1 or 2 of this subsection collectively are beneficial owners of more than 50% of the equity interests (excluding directors' qualifying shares); and
4. A person who comes within one of the categories of an "accredited investor" in Rule 501(a) of Regulation D (17 CFR 230.501-230.508) adopted by the SEC under the Securities Act of 1933.
B. A corporation, partnership, limited liability company, unincorporated association or trust is considered one purchaser unless it was organized to raise capital for the issuer.
C. If a purchaser that is a corporation, partnership, limited liability company, unincorporated association or trust was organized to raise capital for the issuer and is not an "accredited investor" under Rule 501(a)(8) of Regulation D (17 CFR 230.501 through 230.508), then each beneficial owner of an equity interest in the corporation, partnership, limited liability company, unincorporated association or trust is considered a separate purchaser.
D. A noncontributory employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 is considered one purchaser if the plan's trustee makes all investment decisions for the plan.
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 15, Issue 22, eff. July 1, 1999.
21VAC5-40-140. Accredited investor exemption.
A. In accordance with § 13.1-514 B 19 of the Act, any offer or sale of a security by an issuer in a transaction that meets the requirements of this section is exempt from the securities, broker-dealer and agent registration requirements of the Act.
B. Sales of securities shall be made only to persons who are or the issuer reasonably believes are "accredited investors," as that term is defined in 17 CFR 230.501(a), and
1. Have sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, and are able to bear the economic risks of the prospective investment; or
2. Together with a purchaser representative or representatives, have sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, and are able to bear the economic risks of the prospective investment.
C. The exemption is not available to an issuer that is in the development stage that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person.
D. The issuer reasonably believes that all purchasers are purchasing for investment and not with the view to or for sale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within 12 months of sale shall be presumed to be with a view to distribution and not for investment, except a resale pursuant to a registration statement effective under §§ 13.1-508 through 13.1-510 of the Act or to an accredited investor pursuant to an exemption available under the Act.
E. 1. The exemption is not available to an issuer if the issuer, any of the issuer's predecessors, any affiliated issuer, any of the issuer's directors, officers, general partners, beneficial owners of 10% or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director or officer of such underwriter:
a. Within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the SEC;
b. Within the last five years, has been convicted of any criminal offense in connection with the offer, purchase or sale of any security, or involving fraud or deceit;
c. Is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or
d. Is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminarily or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
2. Subdivision 1 of this subsection shall not apply if:
a. The party subject to the disqualification is licensed or registered to conduct securities related business in the state in which the order, judgment or decree creating the disqualification was entered against such party;
b. Before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification; or
c. The issuer establishes that it did not know and in the exercise of reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this section.
F. A general announcement of the proposed offering may be made by any means. The general announcement shall include only the following information, unless additional information is specifically permitted by the commission:
1. The name, address and telephone number of the issuer of the securities;
2. The name, a brief description and price (if known) of any security to be issued;
3. A description of the business of the issuer in 25 words or less;
4. The type, number and aggregate amount of securities being offered;
5. The name, address and telephone number of the person to contact for additional information; and
6. A statement that:
a. Sales will only be made to accredited investors;
b. No money or other consideration is being solicited or will be accepted by way of this general announcement; and
c. The securities have not been registered with or approved by any state securities agency or the SEC and are being offered and sold pursuant to an exemption from registration.
G. The issuer, in connection with an offer, may provide information in addition to the general announcement under subsection F of this section, if such information:
1. Is delivered through an electronic database that is restricted to persons who have been pre-qualified as accredited investors; or
2. Is delivered if the issuer reasonably believes that the prospective purchaser is an accredited investor.
H. No telephone solicitation shall be permitted unless prior to placing the call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor.
I. Dissemination of the general announcement of the proposed offering to persons who are not accredited investors shall not disqualify the issuer from claiming the exemption under this section.
J. The issuer shall file with the commission no later than 15 days after the first sale in this Commonwealth from an offering being made in reliance upon this exemption:
1. A notice on the Model Accredited Investor Exemption Uniform Notice of Transaction form.
2. An executed consent of service of process (Form U-2) appointing the Clerk of the commission as its agent for purpose of service of process, unless a currently effective consent to service of process is on file with the commission.
3. A copy of the general announcement.
4. A nonrefundable filing fee of $250 payable to the Treasurer of Virginia.
Statutory Authority
§§ 12.1-13 and 13.1-523.1 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 15, Issue 22, eff. July 1, 1999; amended, Virginia Register Volume 19, Issue 23, eff. July 1, 2003.
21VAC5-40-150. Employee benefit plans; eligible participants.
The term "employee" as referred to in § 13.1-514 A 10 of the Act shall include all directors of the issuer regardless of whether the director is employed by the issuer. The term "employee" shall also include all consultants and advisors under compensatory arrangements as defined by SEC Rule 701 under the Securities Exchange Act (17 CFR 230.701). This exemption shall not apply to transfers of securities to individuals who are appointed directors, consultants, or advisors for the purpose of avoiding registration under the Act.
Statutory Authority
§§ 12.1-13 and 13.1-523.1 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 15, Issue 22, eff. July 1, 1999; amended, Virginia Register Volume 19, Issue 23, eff. July 1, 2003.
21VAC5-40-160. Canadian securities.
In accordance with § 13.1-514 A 13 of the Act, an offer or sale of a security issued by an issuer organized under the laws of Canada or any Canadian province or territory and effected by a Canadian broker-dealer registered pursuant to 21VAC5-20-85 and its agent registered pursuant to 21VAC5-20-155 are exempted from the securities registration requirements of the Act.
Statutory Authority
§§ 12.1-13 and 13.1-523.1 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 19, Issue 23, eff. July 1, 2003.
21VAC5-40-170. Offerings conducted pursuant to § 13.1-514 B 7 a; broker-dealer participation and solicitation.
In accordance with § 13.1-514 B 7 a of the Act, an offer or sale by an issuer through a registered broker-dealer and its registered agents is deemed not to be made to the general public by advertisement or solicitation if the offerees are existing customers of the participating registered broker-dealer or its registered agent whose accounts have been in existence for an amount of time sufficient to evidence the customers' suitability for the investment. For purposes of this section, "solicitation" is defined in 21VAC5-10-40.
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 26, Issue 22, eff. July 1, 2010.
21VAC5-40-180. Certain options, warrants, and rights.
In accordance with § 13.1-514 A 12 of the Act, the following securities are exempt from the securities registration requirements of the Act:
1. A put or a call option contract, a warrant, or a subscription right on or with respect to a federal covered security so specified in § 18 (b)(1) of the Securities Act of 1933 (15 USC § 77r(b)(1)) or by rule adopted under that provision;
2. An option or similar derivative security on a security or index of securities or foreign currencies issued by a clearing agency registered under the Securities Act of 1934 and listed or designated for trading on a national securities exchange, a facility of a national securities exchange, or a facility of a national securities association registered under the Securities Exchange Act of 1934 or an offer or sale of the underlying security in connection with the offer, sale, or exercise of an option or other security that was exempt when the option or other security was written or issued; or
3. An option or a derivative security designated by the SEC under § 9 (b) of the Securities Act of 1934 (15 USC § 78i(b)).
Statutory Authority
§ 13.1-514 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 29, Issue 20, June 3, 2013.
21VAC5-40-190. Intrastate crowdfunding exemption.
A. In accordance with § 13.1-514 B 21 of the Act, an offer or sale of a security by an issuer is exempt from the securities, broker-dealer and agent registration requirements of the Act if the offer or sale meets all of the following requirements:
1. The issuer of the security is a business entity:
a. Formed under the laws of the Commonwealth; however, if conducting an offering in accordance with SEC Rule 147A, the issuer may be formed and organized outside the Commonwealth provided the issuer meets one of the requirements as stated in subdivision 3 of this subsection;
b. Authorized to do business in the Commonwealth; and
c. That has its principal place of business in the Commonwealth.
2. The offering is sold only to residents of the Commonwealth in compliance with the requirements for the federal exemption for intrastate offerings under § 3(a)(11) of the Securities Act of 1933, 15 USC 77c(a)(11), and SEC Rule 147, 17 CFR 230.147 or SEC Rule 147A. If an offering is conducted by an issuer using SEC Rule 147A the offering may be made available to residents outside the Commonwealth as long as the sale of the security is made to residents of the Commonwealth.
3. Issuers utilizing SEC Rule 147A that are not formed under the laws of the Commonwealth must meet one of the following requirements of conducting business in the Commonwealth:
a. The issuer derived at least 80% of its consolidated gross revenues from the operation of a business or of real property located in the Commonwealth or from the rendering of services in the Commonwealth.
b. The issuer had at least 80% of its consolidated assets located in the Commonwealth.
c. The issuer intends to use and uses at least 80% of the net proceeds from the offering toward the operation of a business or of real property in the Commonwealth, the purchase of real property located in the Commonwealth, or the rendering of services in the Commonwealth.
d. A majority of the issuer's employees are based in the Commonwealth.
4. The sum of all cash and other consideration to be received for all sales of the securities in reliance on this exemption does not exceed $2 million, less the aggregate amount received for all sales of securities by the issuer within 12 months before the first offer or sale made in reliance upon this exemption, and if the offering is:
a. $500,000 or less, if the issuer has financial statements prepared the previous year that have been certified by the principal executive officer of the issuer to be true and complete in all material respects;
b. More than $500,000 but less than $1 million, if the issuer has undergone a financial review of the financial statements of its most recently completed fiscal year, conducted by an independent certified public accountant in accordance with generally accepted accounting principles; or
c. $1 million or more, if the issuer has undergone an audit of the financial statements of its most recently completed fiscal year, conducted by an independent certified public accountant in accordance with generally accepted accounting principles.
5. The issuer has not accepted more than $10,000 from any single purchaser unless the purchaser is an accredited investor as defined by Rule 501 of SEC Regulation D, 17 CFR 230.501.
6. At least 20 days before an offer of securities is made in reliance on this exemption or the use of any publicly available Internet website in connection with an offering of securities in reliance on this exemption, the issuer files with the commission in writing or in electronic form, all of the following:
a. A notice of claim of exemption from registration on Form ICE specifying that the issuer intends to conduct an offering in reliance on this exemption, accompanied by a nonrefundable filing fee of $250 payable to the Treasurer of Virginia.
b. A copy of the disclosure statement or Form ICE to be provided to prospective investors in connection with the offering. The disclosure statement or Form ICE shall contain all of the following:
(1) A description of the issuer, including type of entity, the address and telephone number of its principal office, its formation history, and its business plan;
(2) A description of the intended use of the offering proceeds, including any amounts to be paid, as compensation or otherwise, to any owner, executive officer, director, managing member, or other person occupying a similar status or performing similar functions on behalf of the issuer;
(3) The identity of each person that owns more than 10% of the ownership interests of any class of securities of the issuer and the amount of said securities held by such person;
(4) The identity of the executive officers, directors, or managing members of the issuer and any other individuals who occupy similar status or perform similar functions in the name of and on behalf of the issuer, including their titles and their prior business experience;
(5) The terms and conditions of the securities being offered including:
(a) The type and amounts of any outstanding securities of the issuer;
(b) The minimum and maximum amount of securities being offered, if any;
(c) Either the percentage ownership of the issuer represented by the offered securities or the valuation of the issuer implied by the price of the offered securities;
(d) The price per share, unit, or interest of the securities being offered;
(e) Any restrictions on transfer of the securities being offered; and
(f) A disclosure of any anticipated future issuance of securities that might dilute the value of the securities being offered;
(6) The identity of any person that the issuer has or intends to retain to assist the issuer in conducting the offer and sale of the securities, including the owner of any websites, if known, but excluding any person acting solely as an accountant or attorney and any employees whose primary job responsibilities involve the operating business of the issuer rather than assisting the issuer in raising capital;
(7) For each person identified as required in subdivision 6 b (6) of this subsection, a description of the consideration being paid to the person for such assistance;
(8) A description of any litigation or legal proceedings involving the issuer or any executive officer, director, or managing member or other person occupying a similar status or performing similar functions on behalf of the issuer;
(9) The issuer's financial statements for the three most recent fiscal years or for as much time as the issuer has been in existence, if less than three years;
(10) The name and address, including the uniform resource locator, of each Internet website that will be used by the issuer to offer or sell securities under an exemption under this section; and
(11) Any additional information material to the offering, including, if appropriate, a discussion of significant risk factors that make the offering speculative or risky. This discussion shall be concise and organized logically and may not be limited to risks that could apply to any issuer or any offering.
c. An escrow agreement with a bank or other depository institution located in this Commonwealth, in which the purchaser funds will be deposited. At a minimum the escrow agreement shall provide that all offering proceeds will be released to the issuer only when the aggregate capital raised from all purchasers is equal to or greater than the minimum target offering amount specified in the disclosure statement as necessary to implement the business plan and all purchasers will receive a return of their subscription funds if that target offering amount is not raised by the time stated in the disclosure statement. The depository institution may contract with the issuer to collect reasonable fees for its escrow services regardless of whether the target offering amount is reached; however such fees shall not be deducted from purchaser funds if the target offering amount is not raised by the time stated in the disclosure statement. The issuer shall disclose in its disclosure statement or Form ICE whether any interest earned on escrowed purchaser funds will be paid to purchasers on a pro rata basis if the minimum target amount, as described above, is not raised.
7. The issuer is not, either before or as a result of the offering:
a. A company that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, including an investment company as defined by 15 USC § 80a-3, or a hedge fund, commodity pool, or similar investment vehicle;
b. Subject to the reporting requirements of § 13 or 15(d) of the Securities Exchange Act of 1934, 15 USC 78m and 78o(d);
c. A company that has not yet defined its business operations, has no business plan, has no stated investment goal for the funds being raised, or that plans to engage in a merger with or acquisition of an unspecified business entity or entities, or without an allocation of proceeds to sufficiently identifiable properties or objectives; or
d. A company that is engaged in or proposes to engage in petroleum exploration or production, mining, or other extractive industries.
8. The issuer informs each prospective purchaser that the securities are not registered under federal or state securities laws and that the securities are subject to limitations on transfer or resale and displays the following legend conspicuously on the cover page of the disclosure statement:
THESE SECURITIES ARE BEING SOLD IN RELIANCE ON AN EXEMPTION TO THE FEDERAL SECURITIES REGISTRATION REQUIREMENTS UNDER SECTION 3(a)(11) OF THE SECURITIES ACT OF 1933 OR SEC RULE 147A AND UNDER SECTION 13.1-514 OF THE VIRGINIA SECURITIES ACT. THESE SECURITIES CAN ONLY BE SOLD TO RESIDENTS OF VIRGINIA AND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AS CONTAINED IN SUBSECTIONS (e) AND (f) OF SEC RULE 147, 17 CFR 230.147 AND SUBSECTIONS (e) AND (f) OF SEC RULE 147A. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME AND THAT THEY MAY LOSE ALL OF THE INVESTMENT AND CAN AFFORD THE LOSS OF THE INVESTMENT.
IN MAKING AN INVESTMENT DECISION, INVESTORS SHOULD RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS REVEALED IN THESE OFFERING DOCUMENTS, INCLUDING THE MERITS AND RISKS INVOLVED.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE AUTHORITY OR REGULATORY COMMISSION NOR HAVE THESE ENTITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
9. If the offer and sale of securities under this section is made through the Internet, all of the following requirements are met:
a. Any person acting as the Internet website operator shall be an issuer, a registered broker-dealer, or a funding portal that is in compliance with all commission, SEC, and FINRA requirements, including, if it is a funding portal, making any required notice filings with the commission;
b. Internet website operators shall comply with all commission, SEC, and FINRA requirements applicable to intrastate offerings through the Internet;
c. Internet website operators shall maintain records of all offers and sales of securities effected through its Internet website for five years from the close of the offering; and
d. The issuer and the Internet website operator shall keep and maintain records of the offers and sales of securities made through the Internet website for five years from the close of the offering. The issuer and the Internet website operator shall promptly provide ready access to the records to the commission on request. The commission may access, inspect, and review any Internet website described in this subdivision 9 and its records.
10. All payments for the purchase of securities are directed to and held by the depository institution subject to the provisions of subdivision 6 c of this subsection.
11. The issuer does not pay, directly or indirectly, any commission or remuneration to an executive officer, director, managing member, or other individual who has a similar status or performs similar functions in the name of and on behalf of the issuer for offering or selling the securities unless he is registered as a broker-dealer agent under the Act. An executive officer, director, managing member, or other individual who has a similar status or performs similar functions in the name of and on behalf of the issuer is exempt from the agent registration requirements of the Act if he does not receive, directly or indirectly, any commission or remuneration for offering or selling securities of the issuer that are exempt from registration under this section.
12. The issuer provides a copy of Form ICE or the disclosure statement provided to the commission under subdivision 6 b of this subsection to each prospective purchaser at the time the offer of securities is made to the prospective purchaser.
13. The term of the offering does not exceed 12 months after the date of the first offer.
B. The issuer shall provide an annual report to the issuer's purchasers for each of the issuer's next three fiscal years, the first of which being that fiscal year that ends following the commencement of the offering. All of the following apply to the annual report described in this subsection:
1. The issuer shall provide the report free of charge to the purchasers;
2. An issuer may satisfy the report requirement under this subsection by making the information available on an Internet website if the information is made available within 45 days after the end of each fiscal year and remains available until the next annual report is issued;
3. The issuer shall file each report with the commission and shall provide a written copy of the report to any purchaser on request; and
4. The report shall include all of the following:
a. The compensation received by each director and executive officer of the issuer, including cash compensation earned since the previous report and on an annual basis and any bonuses, stock options, other rights to receive securities of the issuer or any affiliate of the issuer, or other compensation received; and
b. An analysis by management of the issuer's business operations and financial condition.
C. The exemption provided in this section shall not be used in conjunction with any other exemption under the Act, except offers and sales to control persons shall not count toward the limitation in subdivision A 4 of this section.
D. The exemption described in this section shall not be available to the issuer if the issuer, any of the issuer's predecessors, any affiliate of the issuer, or any control person of the issuer:
1. Within the past 10 years, has filed a registration statement that is the subject of a currently effective registration stop order entered by any state securities administrator or the SEC;
2. Within the past 10 years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;
3. Is currently subject to any state or federal administrative enforcement order or judgment, entered within the past 10 years, finding fraud or deceit in connection with the purchase or sale of any security; or
4. Is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the past 10 years, that temporarily, preliminarily, or permanently restrains or enjoins the party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
E. Subsection D of this section shall not apply if:
1. The party subject to the disqualification is licensed or registered to conduct securities-related business in the state in which the order, judgment, or decree creating the disqualification was entered against such party;
2. Before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment, or decree, waives the disqualification; or
3. The issuer establishes it did not know and exercising reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this subsection.
F. An Internet website through which an offer or sale of securities under this section is made is not subject to the broker-dealer or agent registration requirements of the Act if the Internet website meets all of the following conditions:
1. It does not offer investment advice or recommendations;
2. It does not solicit purchases, sales, or offers to buy the securities offered or displayed on the Internet website;
3. It does not compensate employees, agents, or other persons for the solicitation or based on the sale of securities displayed or referenced on the Internet website; and
4. It does not hold, manage, possess, or otherwise handle purchaser funds or securities.
G. As used in this section, "financial review" means a limited inquiry and analytical procedure of much narrower scope than an audit, undertaken by a certified public accountant for the purpose of expressing limited assurance that financial statements are presented in accordance with generally accepted accounting principles.
H. As used in this section, "control person" means (i) an officer, director, partner, managing member, trustee, or other person having the power, directly or indirectly, to direct the management or policies of the issuer, whether by contract or otherwise; or (ii) a person that owns 10% or more of any class of the outstanding securities of the issuer.
I. As used in this section, "funding portal" means any person acting as an intermediary in a transaction involving the offer or sale of securities for the account of others, solely pursuant to § 4(6) of the Securities Act of 1933 that does not:
1. Offer investment advice or recommendations;
2. Solicit purchases, sales, or offers to buy the securities offered or displayed on its Internet website or portal;
3. Compensate employees, agents, or other persons for such solicitation or based on the sales of securities displayed or referenced on its Internet website or portal;
4. Hold, manage, possess, or otherwise handle investor funds or securities; or
5. Engage in such other activities as the SEC, by rule, determines inappropriate.
J. The issuer or other designated person shall be notified by letter or electronic communication when the exemption filing is effective. If, however, on or before the initial commencement date of the offering, and after timely filing the materials required by subdivision A 6 of this section with the commission, the issuer has not been notified that any one or more of the filed materials fails to conform to the requirements of this section, the proposed offering shall be deemed effective.
K. Upon completion of an offering made in reliance on this exemption, the issuer shall file a final sales report with the commission, by letter or electronic communication, no later than 30 days after the last sale in the offering that includes the following information:
1. The time period in which the offering was open;
2. The number of investors that purchased shares or units in the offering;
3. The dollar amount sold in the offering; and
4. The dollar amount, if any, returned to investors, purchasers, or subscribers.
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 31, Issue 25, eff. July 31, 2015; amended, Virginia Register Volume 31, Issue 25, eff. July 31, 2015; Volume 36, Issue 24, eff. July 1, 2020.
21VAC5-40-200. Nonissuer distribution.
In accordance with § 13.1-514 B 23 of the Act, an offer or sale of a security by an issuer is exempt from the securities registration requirements of the Act if the offer or sale meets all of the following requirements:
1. Securities involved in these transactions are for nonissuer distribution only; and
2. Securities in these transactions are to be limited to the OTCQX Market Tier of the OTC Market.
Statutory Authority
§§ 12.1-13 and 13.1-523 of the Code of Virginia.
Historical Notes
Derived from Virginia Register Volume 36, Issue 24, eff. July 1, 2020.
Forms (21VAC5-40)
Intrastate Crowdfunding Exemption, Form ICE (eff. 7/2015)
Notice of Limited Offering of Securities, Form VA-1, Parts 1 and 2 (rev. 11/1996)
Model Accredited Investor Exemption Uniform Notice of Transaction Form (undated, filed 10/2017)