Regulation S has been available for two decades. The rule establishes nonexclusive safe harbors for offers, sales and resales of securities outside the United States. Over the years, many foreign and domestic issuers have relied upon the rule to conduct offshore offerings without complying with the registration and prospectus delivery requirements of the Securities Act of 1933. As servicable as Regulation S is, however, it is limited in one key respect. It is a federal rule. It, therefore, does not eliminate the need to comply with applicable state laws. (For those who doubt this last assertion, see the fourth Preliminary Statement to the Regulation S).
California has no analog to Regulation S (alas, there is no “S” in California). This should not be a surprise because the jurisdicitional underpinnings of the Securities Act and the Corporate Securities Law are conceptually different. Section 5 of the Securities Act is based on “interstate commerce” as defined in Section 2(7) of the Securities Act. In contrast, the application of California’s Corporate Securities Law depends on whether an offer or sale is made “in this state”. This concept is defined in tortuous detail in Corporations Code Section 25008. Reading Section 25008 is like hitting yourself in the head with a hammer, it feels good when you stop.
The key take-away from today’s posting is that issuers conducting an offshore offering in reliance on Regulation S should understand that the offering may still be subject to qualification in California. For more information, see my article, California’s Blue Sky Law Problems for Foreign Issues and Foreign Issuers, 23 Insights 28 (July 2009).