What it means
In the United States, securities are regulated by both the federal government and individual states. Federal law, however, limits the power of states to review some offerings, such as those of certain mutual funds and private placements, and instead lets states require a notice filing and a fee.
The state is told the offering exists and can still take action against fraud. A common example is an issuer using an exemption for a private placement (selling securities to selected investors without a full public registration).
The issuer files its federal notice, then files a notice with each state where it sells to investors, often with copies of the same form and a state fee. The state is not approving the investment.
Investment advisers have a similar process. Advisers registered with the federal regulator typically make a notice filing in each state where they have a place of business or a number of clients above a set threshold.
The details differ by state, so firms usually track them through a central electronic filing system. For finance and compliance teams, the practical issue is the calendar.
Notice filings often carry deadlines, such as within fifteen days of the first sale in a state, and renewals each year, with fees that scale with the amount raised or assets managed. Missing a filing can lead to fines, rescission rights for investors or an enforcement letter.
A notice filing is also different from a registration. Registration involves review and approval, often with disclosure comments, whereas a notice filing is generally accepted on submission.
The state keeps its anti-fraud authority either way. It helps to keep a simple register of every notice filing.
For each state, record the form used, the date filed, the fee paid, the renewal date and the person responsible, so that nothing depends on one employee's memory.
In practice
Real-world examples.
Example
A fund manager in New York raises $20,000,000 from accredited investors across six states using a private placement exemption. The manager's compliance officer files a notice in each state shortly after the first sale there and pays each state's fee, which is based on the amount sold.
Example
A federally registered investment adviser in Denver opens a satellite office in Arizona. The firm files a notice with the Arizona regulator, pays the notice fee and updates its registration records so the new location is covered.
Example
A technology company sells $4,000,000 of preferred shares to angel investors in three states under a federal exemption. Its lawyer prepares notice filings for each state, diarises the deadlines and renews the filings where required.
Case study
Seen in the real world.
Northgate Capital is a fictional fund manager that began raising money for a new real estate fund. The firm filed its federal paperwork on time but overlooked the notice filings in two states where a few investors lived, assuming the federal filing covered everything. A routine regulator review found the gap about eight months later.
In this illustrative case the firm paid late fees, filed the missing notices and had to disclose the lapse to its investors. The partners then added a compliance calendar listing every state, every deadline and every renewal date, with a named person responsible for each. The cost of fixing the process was small compared with the damage to its reputation.
The firm also reviewed its offering documents to see whether any other state-level steps had been missed. In this illustrative case the review found none, but the exercise took two weeks of staff time and an hourly fee from outside counsel, which the partners agreed was an avoidable cost. Several months later the partners used the episode when training new analysts. They explained that a notice filing looks like paperwork, but the deadlines, fees and renewal dates all have consequences if they are missed, and that the register is only useful if someone checks it every month.
Watch out
Common mistakes.
- Assuming the federal filing covers every state. Many states require their own notice and fee even when the offering is exempt from full state registration.
- Treating a notice filing as an approval. The state has not reviewed the merits of the investment and can still pursue fraud.
- Missing the renewal date. Many notice filings must be renewed annually, and a lapse can lead to fines or restrictions on doing business.
Questions
People also ask.
Who files a notice filing?
The issuer of the securities or the registered investment adviser files, usually through its compliance team or a securities lawyer.
What does a notice filing cost?
Fees vary by state and are often based on the size of the offering or the amount of assets managed.
Where are notice filings made?
Many are submitted through a central electronic system, although some states still accept paper filings or use their own portal.
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