Legal Memorandum: Securities Exempt from Registration in SD

Issue: Is the sale of a company’s debenture bonds exempt from registration requirements under South Dakota’s blue sky law?

South Dakota’s Uniform Securities Act of 2002 provides in pertinent part that it is unlawful to sell, or to offer to sell, a security in South Dakota unless:

(1) The security is a federal covered security;

(2) The security, transaction, or offer is exempted from registration under §§ 47-31B-201 through 47-31B-203; or

(3) The security is registered under this chapter.

S.D. Codified Laws § 47-31B-301.  A “federal covered security” is defined as “a security that is, or upon completion of a transaction will be, a covered security under Section 18(b) of the Securities Act of 1933 (15 U.S.C. § 77r(b)) or rules or regulations adopted pursuant to that provision.”  S.D. Codified Laws § 47-31B-102(7).  Section 18(b) of the federal Securities Act of 1933 exempts certain securities offers and sales from state regulation and provides, in pertinent part:

1.         A security is a covered security if such security is—

A.       listed, or authorized for listing, on the New York Stock Exchange or the American Stock Exchange, or listed, or authorized for listing, on the National Market System of the Nasdaq Stock Market (or any successor to such entities);

B.        listed, or authorized for listing, on a national securities exchange (or tier or segment thereof) that has listing standards that the Commission determines by rule (on its own initiative or on the basis of a […]