New Hampshire has adopted a new securities law, known as the New Hampshire Uniform Securities Act, which will become effective on January 1, 2016 (see http://sos.nh.gov/SecLaws.aspx).  It is modeled on the Uniform Securities Act (2002) (“USA 2002”), which has been adopted in 18 other states.  The new NH law tracks the uniform act closely, so the new adoption is unremarkable except in one important respect, as discussed below.  But, first the good news.

Legend Requirement.  Under the existing law, if one was offering other than a federal covered security, one had to comply with the requirement of § 421-B:20 to include a legend in the offering document which either, in the case of a private offering, tracked the language in the NH statute regarding unlawful representations concerning registration or exemption, or, in the case of a public offering, the Item 501(b)(7) legend of Regulation S-K.  Although the prohibition regarding unlawful representations is contained in the new NH law (§ 421-B:5-506), as it also is in USA 2002, the legend requirement is not carried forward from the existing law.  Thus, in the future, there will be no NH legend to deal with.

“Bad Actor” Disqualification.  Curiously, a section has been inserted into the new NH law which is not part of USA 2002.  Entitled “Implementing Provisions,” it is made up of three parts.  The first sets forth principles that shall be used in calculating the number of purchasers of an issuer’s securities in certain transactions.  The second sets forth rules on integration of offerings.  The third requires that disclosure shall be made in the offering documents of any “bad actor” disqualifications, as enumerated, in the offer and sale of any exempt securities or in an exempt transaction other than federal covered securities.  Thus, for example, a non-reporting issuer engaged in a Rule 144A transaction would come within the section’s ambit.  So, too, would a Rule 701 compensatory benefit plan offering.  Furthermore, the statute is unclear as to whether it applies only to representatives of the issuer or anyone who is associated with the offering.

These bad actor disqualifications appear to be loosely based on the disqualification provisions included in Rule 506(d) under the Securities Act of 1933.  However, they are narrower, in some respects, and broader, in others, than the Rule 506(d) disqualification provisions.

  • The NH law allows for discretion on the part of the administrator to require additional disclosure, denial of an exemption or the imposition of additional conditions to qualify for the exemption if a bad actor disqualification has been triggered.
    • Under the Rule 506 disqualifications, an issuer, distributor or other covered person would be prohibited from using Rule 506 if a disqualification applied;
    • Additional disclosure would only be required in the case of an issuer, distributor or other covered person that was subject to what would have been a disqualification except that the disqualification occurred prior to September 23, 2013.
  • The disqualification due to a stop order under any state securities laws for a registration statement is somewhat narrower than Rule 506(d)(1)(vii);
  • The disqualification due to a conviction for a felony or misdemeanor in connection with the purchase, offer or sale of a security is slightly broader than Rule 506(d)(1)(i)(A), but does not cover the making of any false filing with the SEC (which, one would assume for these purposes, would be with a state securities commission) covered by Rule 506(d)(1)(i)(B);
    • The NH law has a 5-year lookback, while Rule 506(d) (1)(i)(B) has a 10-year lookback.
  • The disqualification due to a conviction for a felony involving fraud or deceit, including forgery, embezzlement, obtaining money under false pretenses, larceny or conspiracy to defraud is not limited to matters involving the sale of securities and is much broader then any of the Rule 506(d) disqualification provisions;
  • The disqualification due to an order or judgment of a state securities administrator relating to fraud or deceit is similar to Rule 506(d)(1)((iii)(B), but has a 5-year lookback as opposed to the 10-year lookback of Rule 506(d);
  • The disqualification due to an administrative order or judgment prohibiting the use of any exemption has no exact analog in Rule 506(d); and
  • The disqualification due to an order, judgment or decree of any court of competent jurisdiction restraining or enjoining a person from engaging or continuing in any practice in connection with the purchase or sale of any security or involving the making of any false filing closely tracks Rule 506(d)(1)(ii)(A) and (B).

There are other disqualifications in Rule 506(d) that are not found in the new NH law.

The NH Bureau of Securities Regulation has indicated that the apparent deficiencies in the statute noted above regarding disclosure of bad actor disqualifications may be addressed administratively in the near future.