Coordinated Review – Direct Participation Program Offerings
Coordinated Review – Direct Participation Programs (CR-DPP) provides a uniform state registration procedure that coordinates the blue-sky registration process in all of the states in which a company plans to sell its direct participation program securities. Direct participation program securities include securities issued by real estate investment trusts, business development companies, equipment leasing programs, and oil and gas programs. In addition to uniform review standards, coordinated review is designed to expedite the registration process through defined review and comment periods, saving the issuer time and money. CR-DPP targets offerings of securities that are not “covered securities” as defined in Section 18(b)(1) of the Securities Act of 1933.
CR-DPP offers issuers registration efficiencies by applying uniform review standards from the NASAA guidelines for the types of programs that may use coordinated review. This provides a predictable standard of review for issuers with respect to so-called merit or substantive issues. Review of an offering for disclosure issues is contingent on the nature of each individual offering although many of the NASAA guidelines contain disclosure requirements.
Additionally, CR-DPP simplifies the blue-sky registration process for issuers by streamlining the process for resolution of comments. Under CR-DPP, a lead disclosure state and a lead merit state are designated from among the jurisdictions in which registration is sought, assuming registration is sought in both merit and disclosure jurisdictions. The lead disclosure jurisdiction coordinates all disclosure comments and the lead merit state coordinates all merit comments. Working together, the two lead jurisdictions generate one comment letter on behalf of all jurisdictions in which coordinated review is sought. The letter will include merit comments, disclosure comments, and state specific comments. Except for state specific comments, the issuer negotiates resolution of comments with the two lead jurisdictions. Once the lead disclosure jurisdiction agrees to clear the offering, all participating disclosure jurisdictions agree to clear it simultaneously. The same is true with respect to the merit jurisdictions. In this way, CR-DPP simplifies the overall blue-sky registration process and places a significant portion of the coordination effort on the states.
Finally, CR-DPP offers issuers a predictable review timeline. Under CR-DPP, all participating jurisdictions agree to an immediate review of the application. The CR-DPP Program Protocol establishes compulsory time periods for review and generation of comments. The time to clear an offering through CR-DPP remains contingent on the response time of the issuer, but the state response time is established and predictable. Because of the time and effort necessary to coordinate multiple jurisdictions, issuers should plan on the CR-DPP process taking a minimum of 60 business days. Please consider this time frame when requesting registration under CR-DPP.
Candidates for CR-DPP
CR-DPP generally is intended only for initial public offerings of limited partnership and other equity interests in Equipment Leasing Programs, Mortgage Pool Programs, Oil and Gas Programs, Real Estate Programs, Real Estate Investment Trusts, and interests appropriate for review under the Omnibus Guidelines. Such offerings also must be registered, or seeking registration, under Section 5 of the Securities Act of 1933. CR-DPP is not available for SEC Regulation A offerings. CR-DPP is not available for issuers of blank check offerings. Issuers should note that CR-DPP may not be available to certain offerings even if the offering fits within the initial screening criteria.
The issuer should submit directly to each state in which it seeks to sell, those documents otherwise required by each state to apply for registration as well as the application for coordinated review. These documents include:
- Registration Statement and marked copies of any amendments to the Registration Statement
- Form U-1 (Uniform Application to Register Securities)
- Form U-2 (Consent to Service of Process)
- Form U-2A (Form of Corporate Resolution)
- Form CR-DPP-1 (Application for Coordinated State Review). It is on this form that the issuer indicates all jurisdictions in which it seeks to register under the CR-DPP Program.
- Cross Reference Sheet to the applicable NASAA Guidelines
The issuer is required to remit the fee required by each jurisdiction in which it seeks to sell its securities. Such fee shall be submitted directly to that jurisdiction along with other required documentation. There are no additional fees to utilize coordinated review.
Maryland’s Role as Coordinating State
The state of Maryland acts as the Program Administrator for CR-DPP. The Program Administrator designates the lead merit and disclosure jurisdictions, communicates with issuer’s counsel and the participating jurisdictions, and otherwise facilitates each specific application.
Selection of the Lead Jurisdictions
As the Program Administrator, the state of Maryland is responsible for selecting the two “lead” jurisdictions from the jurisdictions checked by the issuer on the Form CR-DPP-1. The issuer does not have the option of requesting specific lead jurisdictions. The state of Maryland will select the lead jurisdictions based on a number of factors, including the jurisdiction’s resources and experience in reviewing CR-DPP applications. There may be no correlation between the lead jurisdictions and the issuer’s home jurisdiction.
Timing of the CR-DPP Process
Within three full business days of receipt of the issuer’s Form CR-DPP-1 by the state of Maryland, the Program Administrator will designate the two lead jurisdictions. All participating jurisdictions have 20 business days to comment on the issuer’s application and forward those comments to the lead jurisdictions. Within another 20 business days, the lead jurisdictions collect and consolidate all comments and send one coordinated comment letter to the issuer. The lead jurisdictions will reply to the issuer’s response to the comment letter no later than 10 business days after receipt of the issuer’s response. The lead jurisdictions then resolve outstanding comments with the issuer’s legal counsel. Once the lead jurisdictions clear the application, all participating jurisdictions agree to clear it simultaneously. The issuer should anticipate that the CR-DPP process will take a minimum of 60 business days. For greater detail on the timing of the CR-DPP process, please refer to the CR-DPP Program Protocol.
Adding Jurisdictions to the Form CR-DPP-1
After the CR-DPP process has begun, the issuer has a limited ability to add jurisdictions. The issuer may add as many jurisdictions as it desires so long as such additions occur within the initial 20 business day comment period. Following that period, the issuer may not be permitted to add jurisdictions, and thus, may be required to seek independent registration in each additional jurisdiction subject to that jurisdiction’s standards of review for non-CR-DPP registrations. For more information, please refer to the CR-DPP Program Protocol.
The Comment Letter
The comment letter will be divided into various sections, covering disclosure comments, merit comments and any state specific comments.
Merit or Substantive Issues: Merit comments are based only on the NASAA Guidelines. All merit comments will be resolved through the lead merit state.
Disclosure Issues: Disclosure comments may be based on the NASAA Guidelines and/or be generated independently by the various examiners. Comments of this type will be submitted by both disclosure and merit examiners. All disclosure comments will be resolved through the lead disclosure jurisdiction.
State Specific Comments: As the CR-DPP process does not encompass all areas of regulatory oversight, the examiners may make state-specific comments. The state-specific comments may include issuer dealer/agent registration, appropriate fees/documents, compliance with certain internet offering requirements, suitability, advertising, etc. The issuer may respond to these comments in its response letter to the merit and disclosure comments, but the resolution of those comments must ultimately be made with that particular jurisdiction.
Applicable NASAA Guidelines
CR-DPP utilizes the following NASAA guidelines in the review of CR-DPP applications:
- Equipment Leasing, 1601
- Mortgage Pool, 701
- Oil & Gas, 2621
- Omnibus Guidelines, 2321
- Real Estate, 3601
- Real Estate Investment Trust, 3401
Overview of the Lead State Responsibilities
The lead states are responsible for the following:
- Collecting comments from participating jurisdictions;
- Drafting comment letters including disclosure, merit, and state specific comments;
- Forwarding copies of comment letters to the issuer and the participating jurisdictions;
- Forwarding copies of the issuer’s response letters to the participating jurisdictions;
- Negotiating resolutions to comments with the participating jurisdictions;
- Negotiating resolution of comments with the issuer;
- Making all final decisions regarding the resolution of comments;
- Recommending registration or denial of the issuer’s offering; and
- Forwarding that recommendation to all participating jurisdictions.
Overview of the Issuer’s Responsibilities
The Issuer is responsible for the following:
- Submitting a completed Form CR-DPP-1 to Maryland as the Program Administrator, regardless of its intent to sell securities in that state;
- Filing the Form CR-DPP-1 and all other appropriate documents and fees in each participating jurisdiction in which it seeks to register securities;
- Filing a Cross Reference Sheet to the applicable NASAA guidelines;
- Filing with the participating jurisdictions marked copies of all amendments that reflect changes from previously filed documents;
- Communicating with the lead disclosure and lead merit examiners to resolve comments;
- Negotiating resolution of state specific comments with the participating jurisdictions; and
- Forwarding notice to all participating jurisdictions that the Securities and Exchange Commission has cleared the issuer’s offering.
States currently participating in CR-DPP include: Alabama, Alaska, Arizona, Arkansas, Delaware, District of Columbia, Idaho, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, New Hampshire, New Jersey, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin.
Jurisdictions Offering Automatic Effectiveness
Because the states of Colorado, Florida, Georgia, Hawaii, Illinois, Louisiana, New York, and Wyoming do not require a state-level substantive review of this type of filing and instead provide for automatic effectiveness upon clearance by the Securities and Exchange Commission, they are not included in CR-DPP.