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Regulations amending Chapter 517 of the Florida Securities and Investor Protection Act (FSIPA)1 took effect Oct. 1, 2024 (the Regulations). While the Regulations revise certain existing securities and transactional exemptions from registration, one amendment imposes the bad actor disqualification provisions in Rule 506(d) of Regulation D under the Securities Act of 1933, as amended (the Securities Act),2 on certain private placement exemptions under the FSIPA.3 This GT Alert focuses on the changes to the transactional exemptions involving private placements, particularly the unavailability of certain exemptions from registration under the FSIPA to issuers that would be disqualified under the “bad actor” provisions contained in Rule 506(d).4
Sections Regulating Private Placement of Securities in Florida Specially Impacted by the Regulations
- Disqualification: New Sec. 517.0616 provides that a registration exemption for private offerings of securities under Sections 517.061(9), (10), and (11), Section 517.0611, or Section 517.0612 under the FSIPA is not available to an issuer that would be disqualified under Rule 506(d)5 “at the time the issuer makes an offer for the sale of a security.”6
- The disqualification provisions in New Sec. 517.0616 apply to issuers and all “covered persons”7 in the following five (5) exemptions:
| – | Institutional Investor Exemption (Section 517.061(9)): Section 517.061(9) exempts the offer or sale of securities to a bank, trust company, savings institution, insurance company, dealer, investment company as defined in the Investment Company Act of 1940, 15 U.S.C. s. 80a-3, as amended, pension or profit-sharing trust, or qualified institutional buyer, whether any of such entities is acting in its individual or fiduciary capacity.
Temporary Relief: On Oct. 27, 2024, by order of declaring a state of emergency for several counties in Florida due to widespread destruction caused by recent Hurricanes Helene and Milton,8 and its authority to thereby suspend provisions of any regulatory statute with which strict compliance would create an undue hardship on the financial markets, the Commissioner of the Florida Office of Financial Regulation issued a “Proclamation (Securities Industry)” OFR 2024-654 (PROC), authorizing the “Suspension of the disqualification provisions of section 517.0616, Florida Statutes, to transactions described in section 517.061(9), Florida Statutes, until the expiration or rescission of Executive Orders 24-208 and 24-214, as amended, or further order, whichever is earlier.” (the Suspension). However, the temporary relief under the Suspension was not afforded to the other registration exemptions impacted by Section 517.0616. Executive Order 24-208 expires 60 days from Sept. 23, 2024, unless extended, and Executive Order 24-214 expires 60 days from Oct. 5, 2024, unless extended. While the Suspension relaxed the disqualification provisions imposed on issuers offering or selling securities to certain institutional investors, it remains unclear whether the disqualification provisions apply as well to certain non-issuer or secondary transactions for resales to institutional investors. |
| – | Private Limited Offering Exemption (Section 517.061(10)/Rule 69W-500.001/Rule 69W-500.005): Section 517.061(10) exempts from registration the offer or sale, by or on behalf of an issuer, of its own securities if the offer or sale is part of an offering with all of the following conditions: (i) sales to not more than 35 purchasers in Florida in any consecutive 12-month period; (ii) prohibits any form of general solicitation or advertising; (iii) before the sale, the issuer provides (or gives access) to each purchaser or purchaser representative full and fair disclosure of all material information – including the purchaser’s right to void the sale; and (iv) a statement or legend that the purchaser can void the sale “within 3 days after the first tender of consideration is made by such purchaser to the issuer by notifying the issuer that the purchaser expressly voids the purchase. The purchaser's notice to the issuer must be sent by e-mail to the issuer's e-mail address set forth in the disclosure document provided to the purchaser or purchaser's representative or by hand delivery, courier service, or other method by which written proof of delivery to the issuer of the purchaser's election to rescind the purchase is evidenced; …”
Legend: The legend regarding voidability has been revised and (i) there is no longer a five person/buyer carveout, and (ii) there is no longer an “earlier of” construct in the required notification to the issuer that the purchaser expressly voids the purchase. |
| – | Accredited Investor Exemption (Section 517.061(11)): Section 517.061(11) exempts from registration offers or sales of an issuer’s securities in a transaction that meets all of the following conditions (in addition to certain announcement restrictions prior to the offering): (i) offers or sales of securities only to accredited investors; (ii) the issuer is not a business entity9 that has an undefined business operation, lacks a business plan, lacks a stated investment goal for the funds being raised, or plans to engage in a merger or acquisition with an unspecified business entity; (ii) all purchasers are purchasing for investment and not with the view to or for sale in connection with a distribution of the security;10 and (iv) the issuer must electronically file a notice of transaction, a consent to service of process, and a copy of the general announcement within 15 days after the first sale is made in the state. |
| – | Florida Limited Offering Exemption (formerly the Florida Intrastate Crowdfunding Exemption) (Section 517.0611): Section 517.0611 exempts the offer or sale of securities conducted according to the requirements of the federal exemption for intrastate offerings in Section 3(a)(11) of the Securities Act, Rule 147, or Rule 147A. The issuer must be a for-profit business entity that maintains its principal place of business and derives its revenues primarily from operations in Florida. |
| – | New Florida Invest Local Exemption (Section 517.0612): Section 517.0612 exempts the offer or sale of securities conducted according to the requirements of the federal exemption for intrastate offerings in Section 3(a)(11) of the Securities Act, Rule 147, or Rule 147A. The issuer must be a for-profit business entity registered with the Florida Department of State which has its principal place of business in Florida. |
Takeaways
While the Suspension remains in place it may alleviate immediate concerns regarding the potential impact of the Regulations on Rule 144A transactions. However, because the Suspension applies only to the exemption provided by Section 517.061(9), any offering in Florida that would otherwise rely on the other enumerated Sections of FSIPA impacted by the new the Regulations (including Section 4(a)(2) offerings and offerings to accredited investors) must be conducted so as to not be disqualified under Rule 506(d).
The Regulations reenforce the critical importance of evaluating securities registration exemptions at the outset of any capital raising transaction, and to conduct the proper analysis of both the federal and state securities laws to ensure compliance with applicable exemptions from securities registration.
