State Securities Law: California Registration Requirements: California Exemption: Section 25102(f)

Late Filing of Notice under 25102(f)

Section 25102(f) of the Corporations Code sets forth an exemption from the qualification requirement for transactions where (1) the sale is to 35 or fewer persons, (2) each purchaser has a preexisting relationship with the securities issuer or business or financial experience to protect his or her own interests, (3) each purchaser represents the purchase is for that person’s own account, (4) the offer or sale is not accomplished through advertising, and (5) the issuer files a notice with the Department of Corporations (“Department”) within the time specified by the rule of the Commissioner.

In 2004, the California Department of Corporations amended the rules about the filing fee for missing the 15-day deadline for filing a 25102(f) notice. At the time of adopting the amendment, the Department of Corporations explained:

"Rule 260.102.14 provides instructions on the filing of the notice, requires the notice to be filed no later than 15 calendar days after the first sale of a security in the transaction in this state, and sets forth a form for the notice. Section 25102(f) of the Corporations Code provides that the exemption is not lost by the failure to file the notice as set forth by rule of the Commissioner, but upon demand by the Commissioner for the notice an issuer must file the notice and pay an alternative fee within 15 business days. The alternative fee is the fee required for the qualification of a security offering (Corporations Code Section 25608(e)).

"In response to the prevalent disregard of the obligation to file the notice and the ambiguity of the requirement to file after the initial 15 calendar days but before demand by the Commissioner, AB 1031 (Chap. 473, Stats. 2003) amended Section 25102(f) to clarify that an issuer must file the form and pay the alternative fee upon discovery of the failure to file the notice as set forth by rule of the Commissioner.

"Pursuant to the Commissioner’s authority under Section 25102(f) to set forth by rule the time period for the filing of the notice, this regulation provides that a notice filed before demand by the Commissioner shall be deemed filed as provided by rule of the Commissioner, provided that the obligation to file within 15 calendar days of the first sale of a security in the transaction in this state has not been intentionally disregarded. Thus, for purposes of determining the filing fee applicable to the filing of the notice, the alternative fee would be applicable where a filer intentionally disregards the obligation to file the notice within 15 calendar days of the first sale of a security in a transaction in this state.

"The purpose of this change is to implement a time period for the filing of the notice that adequately addresses the variance in the sophistication of the issuers that rely on the exemption, and to avoid financially penalizing small businesses. By recognizing the distinction between unintentional late filers and intentional late filers, the amendment avoids the imposition of a higher filing fee on unintentional late filers.

"The amendments to Rule 260.102.14 provide that the notice required under Section 25102(f) will be deemed filed within 15 calendar days after the sale of a security in this state, provided that the obligation to file the notice within 15 calendar days of the sale of a security has not been intentionally disregarded."

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