Washington State Department of Financial Institutions

Frequently Asked Questions

Securities Registrations, Notifications, and Exemptions

  1. What are the filing requirements for an offering exempt under federal Rule 506?
  2. What are the filing requirements for an offering of securities that are listed on the NYSE, AMEX, or NASDAQ NMS?
  3. What are the filing requirements for municipal bonds exempt under 3(a)(2) of the Securities Act of 1933?
  4. Is Washington a "merit" state?
  5. What exemptions under RCW 21.20.310 and RCW 21.20.320 require some type of filing with the Division?
  6. We are doing a Reg. D (or another private offering) in several states, but we only have one prospective Washington investor. Can we rely on the isolated transaction exemption contained in RCW 21.20.320(1)?
  7. I'm having a problem with my 401k plan. Is there any government agency that can help me?
  8. Under RCW 21.20.310(8), what qualifies as a pension plan or institutional buyer?
  9. How do I request a no-action or interpretive letter?
  10. The issuer would like to post its offering on the Internet. Is that allowable?
  11. What are the filing requirements for registration by coordination (including Regulation A filings)?
  12. My company brokers real estate paper, but we would like to be able to sell interests in loans secured by real estate to more than one investor. What is the process for registering under WAC 460-33A?

What are the filing requirements for an offering exempt under federal Rule 506?

The filing requirements for an offering exempt under federal Rule 506 are a copy of the Form D filed electronically with the SEC, check for $300 made payable to the Washington State Treasurer, and an indication of the date of first sale in Washington or that sales have yet to occur in Washington (which may be included in a cover letter). These items are due within 15 days after the first sale in Washington in accordance with WAC 460-44A-503(1)(a)(i)(A).

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What are the filing requirements for an offering of securities that are listed on the NYSE, AMEX, or NASDAQ NMS?

These securities are exempt from registration pursuant to WAC 460-42A-081 and there is no filing requirement for securities listed on these exchanges. However, if the securities will not be offered through a registered broker-dealer, then an agent of the issuer must be registered due to the lack of an exception under the definition of salesperson in RCW 21.20.005(2).

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What are the filing requirements for municipal bonds exempt under 3(a)(2) of the Securities Act of 1933?

Washington law contains an exemption from securities registration for certain municipal bonds. See RCW 21.20.310(1), WAC 460-42A-020, and WAC 460-42A-030. If the securities offering does not qualify for the exemption but the securities offered are covered securities pursuant to Section 18(b)(4)(C) of the Securities Act of 1933, then a notification filing is required and consists of a Municipal Security Notice Filing form (PDF)*, a Form U-2 (PDF)* and the filing fee (check payable to the Washington State Treasurer based on the amount to be offered in Washington: $100 for the first $100,000, and 1/20 of 1% for any amount above that). See WAC 460-18A-100.

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Is Washington a "merit" state?

Yes. The rules which regulate registered offerings are for the most part found in WAC 460-16A. The Division has also adopted a number of the NASAA guidelines, which are listed in WAC 460-16A-205.

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What exemptions under RCW 21.20.310 and RCW 21.20.320 require some type of filing with the Division?

The exemptions listed below require a filing - all other exemptions are self-executing (and therefore do not require the filing of a consent to service of process):

RCW 21.20.310(1): Offerings by Washington issuers which don't qualify for the exemption under the statute or under WAC 460-42A-030 must either register or request that the Securities Administrator consider issuing a discretionary order of exemption. A request for an order should be submitted by sending: (1) a cover letter requesting the discretionary order under the exemption, stating the reasons why registration of the offering is not necessary to protect investors, (2) a Form U-2, and (3) a copy of the official statement or preliminary official statement. Municipal securities offerings by issuers from other states that are covered by Section 18(b)(4)(C) of the Securities Act of 1933 must complete a notification filing by filing the Notice form (PDF)*, Form U-2 (PDF)*, and paying the fee set forth in RCW 21.20.340(1)(b).

RCW 21.20.310(10): If the employee benefit plan is not qualified under Sections 401, 422, or 423 of the Internal Revenue Code, then a filing must be made. The filing consists of a cover letter claiming the exemption, a copy of the plan, and a Form U-2. There is no fee. See also Securities Act Interpretive Statement-06 for further information on this exemption.

RCW 21.20.310(11): Nonprofit organizations selling securities to members, contributors or participants in the organization, may claim the exemption by filing the Notification of Claim of Exemption (PDF)*, Form U-2 (PDF)*, a copy of their (or parent organization's) tax exempt status letter issued by the IRS, and a check for $50 payable to the "Washington State Treasurer." See also Securities Act Interpretive Statement-07 for further information on this exemption.

RCW 21.20.320(1): This provision contains language for three different exemptions. The first two "isolated transaction" and "sales not involving a public offering" are self-executing. These exemptions, and who is entitled to claim them, are discussed more fully in WAC 460-44A-050. The Securities Division has not adopted an exemption under the enabling language contained at the end of RCW 21.20.320(1), "... any transaction effected in accordance with any rule by the director...."

RCW 21.20.320(9): "Any transaction effected in accordance with the terms and conditions of any rule by the Director if the aggregate offering amount does not exceed five million dollars..." The rule adopted by the Division under this statute is WAC 460-44A-504. Our version of Reg. D 504 is different from the federal version in several important respects, so please review our Reg. D rules carefully. In terms of a filing, you will need to file a copy of the Form D filed electronically with the SEC, a check for $300 made payable to the “Washington State Treasurer” and an indication that no sales have occurred in Washington prior to filing. If you will be relying on the intrastate offering exemption in Rule 147 federally, you will instead need to file our Notification of Claim of Exemption form (PDF)*, a Form U-2 (PDF)*, and an indication that sales have not occurred in Washington prior to filing, and a check for $50 payable to the “Washington State Treasurer.” The filing must be made 10 business days prior to receipt of consideration or a signed subscription agreement, although the Division routinely accelerates the effective date to the date we issue the exemption acknowledgment letter, which is generally within one to two days of receipt of the filing, depending on workload. The Small Business Assistance Program Section has further information Reg. D 504.

RCW 21.20.320(11)(b): This statute provides for a filing in order to claim the exemption for offers or sales to existing security holders if the offering involves commissions. Please note that no filing is necessary if commissions or other remuneration will not be paid in connection with solicitations in this state. The Division has not adopted any particular notification form. Please submit a cover letter claiming the exemption which includes a short description of the offering and who the offerees are in Washington, and enclose any offering documents. There is no filing fee. You will be issued an exemption acknowledgment letter unless the Division issues an order disallowing the exemption.

RCW 21.20.320(16): In order to claim the exemption, please submit the form for Cooperative/Mutual Associations Notification of Claim of Exemption (PDF)* at least 10 business days prior to any solicitation in Washington. There is no filing fee.

RCW 21.20.320(17): This is the enabling language for the adoption in Washington of the Uniform Limited Offering Exemption (ULOE) designed to coordinate with Reg. D Rule 505 (see WAC 460-44A-505) as well as for the adoption of the Model Accredited Investor Exemption (MAIE) (see WAC 460-44A-300).

To claim the ULOE exemption, file a copy of the Form D filed electronically with the SEC, an indication of the date of first sale in Washington (which may be include in a cover letter), and a check for $300 payable to the “Washington State Treasurer” no later than 15 days after the first sale in Washington.

To claim the MAIE, file the MAIE form (PDF)*; a copy of the general announcement, Form U-2 (PDF)*; and $300 filing fee (checks made payable to the “Washington State Treasurer”) within 15 days of the first sale in Washington.

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We are doing a Reg. D (or another private offering) in several states, but we only have one prospective Washington investor. Can we rely on the isolated transaction exemption contained in RCW 21.20.320(1)?

Probably not. The Division has adopted WAC 460-44A-050(1) in which the Division has interpreted "isolated transaction" for an issuer offering to be not more than three sales nationwide in a 24 month period. Generally, you will need to determine what exemption you will be relying on federally and then determine if there is a corresponding Washington exemption available. If you are going to be relying on the 4(2) non-public offering exemption under the 1933 Act, then Washington has a corresponding exemption under RCW 21.20.320(1) and WAC 460-44A-050(2).

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I'm having a problem with my 401k plan. Is there any government agency that can help me?

Most pension plans are subject to ERISA, a federal statute over which the Employee Benefits Security Administration of the federal Department of Labor has jurisdiction. The agency's home page has information on how to obtain information and protect your pension. The agency also has a district office in Seattle, which can be reached at (206) 553-4244.

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Under RCW 21.20.310(8), what qualifies as a pension plan or institutional buyer?

See Securities Act Interpretive Statement-10 and Securities Act Interpretive Statement-11 for the Division's interpretation of these terms.

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How do I request a no-action or interpretive letter?

See WAC 460-16A-020 for instructions regarding the procedure to be followed.

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The issuer would like to post its offering on the Internet. Is that allowable?

Generally no, unless the offering is currently registered in Washington or is not being offered in Washington and the website contains certain disclosures. See Securities Act Policy Statement-16 for the Division's position regarding Internet offerings.

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What are the filing requirements for registration by coordination (including Regulation A filings)?

Forms U-1 (PDF)*, U-2 and U-2a (PDF)*

One copy of the Registration Statement and Exhibits (if underwriters' warrants will be issued, make sure a copy of the underwriter's warrant is included as we will want to review it)

Filing Fee: Check payable to the “Washington State Treasurer” for the amount to be offered in Washington (the minimum fee of $100 registers the first $100,000, then 1/40th of 1% for any amount over that - equals $25 for each additional $100,000)

Offerings in excess of $1 million must include audited financial statements of the issuer

One copy of any red herring prospectus to be used

One marked copy of any pre- and post-effective amendments to the registration statement

One copy of the final prospectus

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My company brokers real estate paper, but we would like to be able to sell interests in loans secured by real estate to more than one investor. What is the process for registering under WAC 460-33A?

Materials specific to WAC 460-33A registration:

Forms:

As of the end of 2010, Washington had 4 companies which had registered under WAC 460-33A. This allows a company to sell multiple participation interests in a loan, and also allows the company to do a public solicitation for investors. The borrowers on these loans usually cannot qualify for conventional financing, either because of past credit problems, or the property is of a type that financial institutions generally do not lend on, e.g., multi-year loans on raw land. The loans made are usually business purpose loans in order to avoid both the interest rate limitations of state usury law and the application of the federal Truth in Lending Act (Regulation Z), as well as other federal statutes applicable to consumer lending.

Under WAC 460-33A you register what in effect is a generic securities offering. This involves drafting standard documents such as a promissory note, deed of trust, loan application, escrow agreement, participation investment agreement (any provisions for loan servicing may be included in this agreement or put in a separate document) to be signed by the investor and an investor suitability questionnaire. You will also need to draft a "general offering circular", which includes a section on risk factors, descriptions of the history of the company and the backgrounds of management and key personnel, discussion regarding the loan process and procedures, sections on Washington real estate law, including the foreclosure process, and copies of the company's financial statements, among other sections in the circular. You will also need to obtain and submit one or more opinions of counsel from your attorney. Under WAC 460-33A-040 you will be required to meet a minimum net worth requirement, or else obtain a surety bond of at least $100,000.

After you have become registered, for each loan offered to investors you will put together a "specific offering circular" to be given to each prospective investor which provides information on the proposed loan (see Sample Specific Offering Circular).

The materials to be filed with the Division include the following, and are set forth in WAC 460-33A-020:

  1. Application to Register (PDF)*
  2. Form U-2 Consent to Service of Process (PDF)*
  3. Articles of incorporation and by-laws
  4. General Offering Circular
  5. Financial statements of the company (audited statements are usually required)
  6. Loan documents: e.g., loan application, note, deed of trust or other security agreement, affidavit of business purpose (or if a consumer loan, documents necessary to comply with federal law)
  7. Investor documents: e.g., escrow agreement, participation investment agreement, loan servicing agreement, investor suitability questionnaire
  8. Opinions of Counsel
  9. Surety bond (or evidence of meeting the net worth requirement)
  10. Any proposed advertising or other materials that will be used to solicit prospective investors
  11. Filing Fee: The filing fee is based on the dollar amount of loans you wish to sell. The minimum fee is $100 to register $100,000 worth of loans for sale. Above that, the fee is 1/20th of 1%, which works out to $50 per each additional $100,000. You can amend your offering over time to increase the amount registered as you sell more loans. The fee should be paid via a check payable to the State Treasurer

In addition to registering the securities for sale, the company will need to register as a broker-dealer, and those persons who will be dealing with investors and answering their questions regarding prospective investments in the loans will have to register as securities salespersons.

Broker-Dealer licensing is accomplished by filing Form BD (and complying with other requirements listed in the Broker-Dealer Checksheet) and a check for $150 payable to the “Washington State Treasurer.” Salesperson licensing is accomplished by passing the Financial Industry Regulatory Authority (FINRA) Series 63 examination, and filing a Form U-4 salesperson application with the Division, along with a check for $40 payable to the “Washington State Treasurer.”

After you have registered, the Division will require you to file at least the first ten specific offering circulars you prepare for loans and receive authorization from us prior to sending them out to investors. You will also be required to file quarterly reports showing the amount of securities you have sold under your permit and include current unaudited financial statements for the company.

You can obtain copies of a registrant's documents by submitting a public disclosure request form and paying a nominal copying fee.

For further information on this type of registration, please contact Faith Anderson at Faith.Anderson@dfi.wa.gov 360-725-7825.

If you have questions regarding the broker-dealer or salesperson application process, please contact Bruce Johnson at Bruce.Johnson@dfi.wa.gov or call 360-902-8760.

The information contained above is only a summary of the mortgage paper securities registration requirements, and is not meant to list all items that may be required. Depending on the type of lending you propose to do, you may want to be, or may be required to be, licensed under RCW 31.04, the Consumer Loan Act, and/or RCW 19.146, the Mortgage Broker Practices Act. A license as a Consumer Loan Company allows you to make consumer loans at interest rates above the state usury ceiling. A license is required under the Mortgage Broker Practices Act if you make residential mortgage loans or assist a person in obtaining a residential mortgage loan. If you have any questions regarding licensing under these Acts, please contact Cindy Fazio at Cindy.Fazio@dfi.wa.gov of the Department of Financial Institutions Division of Consumer Services or call (360) 902-8703, FAX (360) 664-2258.

If your question has not been answered here, there are also Frequently Asked Questions in the Small Business Assistance Program Section which are targeted to smaller issuers.

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