Use the links below to view the specific sections.

Article 1. General Provisions

Article 2. Exemptions from Registration of Securities

Article 3. Registration of Securities and Notice Filing of Federal Covered Securities

Article 4. Broker-Dealers, Agents, Investment Advisers, Investment Adviser Representatives and Federal Covered Investment Advisers

Article 5. Fraud and Liabilities

Article 6. Administration and Judicial Review

Article 7. Transition

Use the links below to view the Protecting Vulnerable Adults from Financial Exploitation act and rules.

Protecting Vulnerable Adults from Financial Exploitation Act

Protecting Vulnerable Adults from Financial Exploitation Rules

 

May 16, 2016

VIA ELECTRONIC MAIL ONLY

Jay B. Cassidy

Jay, LLC

cassidy1025@hotmail.com

RE: No-Action Letter Request for New Line Capital, LLC and David Nagler

 

Dear Ms. Cassidy:

 

The New Mexico Securities Division (the “Division”) is in receipt of your request and all supplemental documentation, made on behalf of David Nagler (CRD #1190128) and New Line Capital, LLC (CRD #143677) (“New Line”), Mr. Nagler being the principal of New Line (collectively, “Mr. Nagler” or “New Line”). Your letter requests that the Division take no action against Nagler for potential violations of laws and rules enumerated under the New Mexico Uniform Securities Act (the “Act”), referenced below. Specifically, you request the Division take no action against Mr. Nagler for failing to register as an investment advisor as required in NMSA 1978, Section 58-13C-403, between 2012 and 2014. The Division renders its opinion after careful consideration of documents obtained through its own research and documents obtained during the examination(s) made of New Line, LLC, as they pertain to the relevant time period.

 

For the relevant time period, Mr. Nagler operated primarily out of Santa Fe, New Mexicc, with a physical address of 64 County Road 67-F, Santa Fe, NM 87505. Mr. Nagler was under the misapprehension that he qualified as a federally covered investment advisor under NMSA 1978, Section 58-13C-405C. Due to that misapprehension, Mr. Nagler merely provided notice filings to the Division, as required by NMAC Rule 12.11.5.11 for those qualified. It has been discovered and confirmed, however, that Mr. Nagler did not qualify for any exemption to the registration requirements that are enumerated in NMSA 1978, Section 58-13C403B. Thus, the notice filings submitted by Mr. Nagler for the pertinent time period were insufficient. Based on all documents and records being considered by the Division, we have concluded that Mr. Nagler’s registration with the SEC was inappropriate. For that time period, Mr. Nagler must’ve been registered in New Mexico. It is for Mr. Nagler’s failure to appropriately register as a local investment advisor that you request no action be taken.

 

Since the relevant time period, Mr. Nagler has maintained proper registration with the Division as a New Mexico investment advisor. Giving consideration to the aforementioned circumstances and all other documents referenced in this letter, and considering that a repayment was duly tendered to the Division for each year of the relevant time period, the Division will not pursue an enforcement action against Mr. Nagler or New Line.

 

Therefore, pursuant to NMSA 1978, Section 58-13C-605D, of the Act, the Division will take no enforcement action against Mr. Nagler for failing to properly register as a New Mexico investment advisor. This decision is made in consideration of the information contained or referenced in this letter and the adoption of the facts and analysis contained in the referenced documents, only. This decision does not reflect a legal conclusion regarding the outlined conduct of the Mr. Nagler or New Line. Moreover, this decision should not be construed as setting forth any position the Division would take regarding the anti-fraud provisions of the Act, as they would apply to the conduct discussed above. Different facts and circumstances may cause the Division to reach a different conclusion. The relief in this letter strictly applies only to the parties identified and the circumstances described in this letter.

 

Sincerely,

 

Alexis Lotero, Deputy Director
New Mexico Securities Division

 

View a PDF of the signed opinion letter dated May 16, 2016.

May 10, 2016

 

VIA ELECTRONIC MAIL ONLY

 

James T. Taylor, III

SVP, General Counsel and Secretary

c/o Keith Petersen (keith@gimbal.com)

Gimbal, Inc.

11010 Roselle St, Ste. 150

San Diego, CA 92121

 

RE: No-Action Letter Request for Gimbal, Inc.

Dear Mr. Taylor:

 

The New Mexico Securities Division (the “Division”) is in receipt of your request and all supplemental documentation, made on behalf of Gimbal, Inc. (the “Issuer”), which requests that the Division take no action against the Issuer for potential violations of laws and rules enumerated under the New Mexico Uniform Securities Act (the “Act”), referenced below. Specifically, you request the Division take no action against the Issuer for failing to comply with filing requirements enumerated in NMSA 1978, Section 58-13C-202N (“202N”) and Rule 12.11.12.14 of the New Mexico Administrative Code (the “Rule”).

 

According to your letter and other documents provided in support of your letter, the Issuer is a Delaware corporation with its primary office in San Diego, California. In 2015, the Issuer made a private placement of its stock in consideration of the acquisition of Phigital, Inc. to twenty-eight (28) investors. Stemming from that private placement, on September 30, 2015, the Issuer sold shares from that offering to a single New Mexico investor.

 

Generally speaking, under 202N, a transaction can qualify for an exemption from the registration requirements of the Act if there are less than ten New Mexico investors, if there is no general solicitation, if there were no commissions or other remunerations paid in relation to the sales made in the offering, and if the issuer believes the New Mexico investors are purchasing for investment purposes. Under the Rule, it is specifically required that a “completed form 202N must be filed with the director no less than five business days before the first sale of securities in this state.”

 

According to your letter and supplemental information, the Issuer wishes to qualify for the 202N exemption for its private placement offering surrounding the Phigital, Inc. acquisition, described above. For that transaction, the Issuer has now filed with the Division a Form 202N, as required under the Rule. That form was filed on February 16, 2016. According to your letter and all other information being considered, the first sale under that transaction was made to a New Mexico resident on September 30, 2015, which means the Form 202N must have been received by the Division by September 23, 2015 in order for that transaction to be compliant with New Mexico law. It is for this specific infraction that you ask for no action to be taken. The Division has considered and reviewed all pertinent paperwork and filings from the Issuer and we hereby provide a statement of No-Action for the Issuer.

 

Therefore, pursuant to NMSA 1978, Section 58-13C-605D, of the Act, the Division will take no enforcement action against the Issuer for transacting in the sale of securities in the limited context described herein without filing the proper and necessary paperwork in a timely manner. This decision is made only in consideration of the information contained or referenced in this letter and the adoption of the facts and analysis contained in the referenced documents, only. This decision does not reflect a legal conclusion regarding the outlined conduct of the Issuer. Moreover, this decision should not be construed as setting forth any position the Division would take regarding the anti-fraud provisions of the Act, as they would apply to the transactions discussed above. Different facts and circumstances may cause the Division to reach a different conclusion. The relief in this letter applies only to the parties identified and the circumstances described in this letter.

 

Sincerely,

 

Alexis Lotero, Deputy Director
New Mexico Securities Division

 

View a PDF of the signed opinion letter dated May 10, 2016.

May 4, 2016

 

VIA ELECTRONIC MAIL ONLY

 

Candice L. Owens

The Owens Law Finn PC

1801-B Rio Grande Blvd NW

Albuquerque, NM 87104

505.983.0121

candice@theowenslawfinnpc.com

RE: No-Action/ Opinion Letter Request for Cinnafilm, Inc.

Dear Ms. Owens:

 

The New Mexico Securities Division (the “Division”) is in receipt of your request and all supplemental documentation, made on behalf of Cinnafilm, Inc., (the “Company”), which requests that the Division take no action against the Company for potential violations of laws and rules enumerated under the New Mexico Uniform Securities Act (the “Act”) and its predecessor, the New Mexico Securities Act of 1986 (the “Old Act”) (repealed) referenced below. Specifically, you request the Division take no action against the Company for failing to comply with the certain described filing requirements for the exemptions relied upon by the Company for offerings it has made since 2007, where applicable. In addition, you are requesting the Division provide an opinion that the Company did comply with the Act, and the Old Act, with respect to certain transactions as described herein.

 

According to your letter and other documents provided in support of your letter, the Company underwent reorganization in 2007, pursuant to which it authorized 3,000,000 shares of common stock. At the time of the reorganization, there was an offering of a portion of those shares. Since its reorganization, there have been several additional offerings (“Events”), all of which utilize a different combination of exemptions, and all of which were for common stock of the Company. We will address the reorganization and each of these events individually. The Company has not amended its Certificate of Incorporation since 2007.

 

I. Reorganization
For this offering, the Company identified 35 securities holders who obtained the common stock issued as a result of reorganization, 30 of whom were residents of New Mexico at the time of the offering. You claim that this transaction is exempt from registration under the controlling, now-repealed Old Act, under section 58-13B-27Q (“27Q”). Given the facts and circumstances as you’ve laid them out in your correspondence with the Division, it has been determined that this transaction is, in fact, exempt from registration. Under the Old Act, however, notice of the transaction was required to be provided to the Division at least ten days prior to consummation of the transaction. The Company never provided timely notice to the Division, and it is the late filing for which you’re asking the Division take no action. You have also provided the Division with a letter to satisfy the notice filing requirements for this offering under subsection 27Q. Given the facts and circumstances surrounding the offering for the reorganization, no action will be taken against the Company for failing to file a timely notice.

 

II. Event A
Event A took place on or around June 1, 2007. The offering was made to a total of seven investors, five of which were new investors, and two of which were existing shareholders. Under Section 58-13B-27N (”27N”) of the Old Act, a self-executing exemption is available to any offering made to existing shareholders as long as certain other requirements are met. The transaction from Event A involving the two existing shareholders satisfies all requirements under section 27N and no paperwork or filing was required to be provided to the Division.

 

With respect to the five new investors in Event A, Section 58-13B-27U (“27U”) of the Old Act provides for an exemption if an offering is made to less than ten investors in a 12 month period. This exemption can appropriately be applied to the five new investors in Event A. Rule 12.11.12.16, NMAC (repealed), applicable to the 27U exemption, however, required the Company to file certain paperwork with the Division no less than five business days before the first sale of securities in New Mexico. As of this writing, the Company completed and filed Form 27U and the Division has accepted such filing. Although the filing did not occur timely, given all facts and circumstances surrounding the offering from Event A, no action will be taken against the Company for its late filing of the Form 27U.

 

III. Event B
Event B took place between November 2008 and March 2009. That offering was made to a total of five investors, all but one of which was a new investor. The exemption found in section 27N exempts the transaction for the single, existing shareholder involved in Event B.

 

All five investors from Event B were either employees or contractors (which the Division finds to be employees) of the Company who received the right to purchase shares of the Company’s stock in lieu of compensation. Section 58-13B-26K (“26K”) of the Old Act exempts securities from registration if they are offered, “in connection with an employees’ stock purchase, savings, option profit-sharing, pension or similar employees’ benefit plan,” among other requirements. Since the 26K exemption utilized by the Company in Event B does not require a filing, no paperwork or filing was needed to be provided to the Division. Although the Division is of the opinion that the entire offering qualified for an exemption under Section 26K, the Company tendered a Form 27U to the Division, in the alternative, for the transactions involving the four new investors in the offering from Event B. Given the efforts taken by the Company and the circumstances surrounding Event B, the Division finds no violation to have occurred in Event B, and therefore no action will be taken against the Company.

 

IV. Event B2
Event B2 took place on March 2, 2009. Event B2 was an offering made to a total of four investors, only one of which was a new investor. Since the offering was made to less than a total of ten investors (only one investor in this case), section 270 would apply to the offering made to that single new investor. Given that the other four investors from this offering were existing shareholders, the transaction is exempt from registration under section 27N. Furthermore, the securities offered in Event B2 could alternatively be exempt from registration pursuant to section 26K, since each investor was a current employee or board member (which the Division considers to be employees) of the Company, receiving the stock in lieu of compensation. No paperwork is required to be filed when an offering consists of securities exempt under Section 26K. Notwithstanding that fact, the Company provided a Form 270 for the single new investor in Event B2 who was not an existing shareholder. Given these facts and considering all circumstances, the Division does not find any violation to have occurred in Event B2 and no action will be taken against the Company.

 

V. Event C
Event C took place roughly between October 2009 and mid-2013. Event C was an offering made to a total of seven investors, only one of which was a new investor. Only one transaction under Event C was affected in 2009. That transaction involved an investor who was an existing shareholder, making that transaction exempt from registration under section 27N. The remaining six purchases were all made after 20 l 0. Of those six investors, five of them were existing shareholders and one was a new investor.

 

Section 58-l 3C-202O (“202O”) of the Act carves out a self-executing exemption from registration for the issuance of securities made to existing shareholders. The sales made to the five existing shareholders would squarely align this portion of the offering with the requirements of 202O. Since any exemption granted under 2020 is self-executing, the Company would not have been required to provide the Division with any notice or paperwork for that portion of the offering.

 

Section 58-13C-202N (“202N”) of the Act allows for securities offered to fewer than ten investors located in New Mexico in a 12 month period to be exempt from registration. Given the nature of the offering, the remaining single investor from the offering in Event C would permit the Company to utilize the 202N exemption for this portion of the offering. 202N, however, requires that a filing be made with the Division at least five days prior to the first sale of the offering. The Company never tendered such a filing, as required, and it is this infraction for which you are requesting no action be taken. The Company has since filed the required form, as required. No action will be taken against the Company with specific regard to the late filing of the 202N paperwork, as required for that portion of the offering from Event C, described above.

 

VI. Event D
Event D took place from 2010 to 2014 and included six total investors. All investors were employees of the Company who received stock in lieu of compensation. Five of those six investors were existing shareholders. For the five investors who were existing shareholders, the offering would be considered exempt under the self-executing exemption provided in section 202O of the Act. The entire offering, however, is exempt from the registration requirements by section 202U: Each of the investors from the offering in Event D were employees who were receiving the Company’s/issuer’s securities in connection with the employees’ stock purchase, savings, option, profit-sharing, pension or similar employees’ benefit plan, including any securities, plan interests and guarantees issued pursuant to ta compensatory benefit plan or compensation contract, contained in a record established by the issuer.

 

VII. June 2015
An additional offering was made by the Company, which is still outstanding and may not qualify as an “Event,” in the same respect as the Events described above. This offering relates to the Equity Incentive Plan adopted by the Company for the benefit of employees. Given the structure of this offering, it appears to be wholly within the confines of the exemption carved out in section 202U of the Act, which is self-executing.

 

In summary, the Company made three offerings that required filings to be provided to the Division: The first was the 2007 offering, which was part of the Company’s reorganization. A letter to satisfy the requirements under 27Q should have accompanied that filing. The second was the offering in Event A involving the five new investors. Form 27U should have been filed with the Division at the time of the sale of the securities in Event A to the five new investors. Finally, the third offering occurred in 2010 under Event C. The transactions described in Event C should have been accompanied by filing a form 202N for the single new investor.

 

The modern analog of the 27Q exemption, section 58-13C-202R, is self-executing, which indicates the intent to have these types of offerings occur without the Division’s involvement at their inception. For that, and considering the fact that the Company has provided the Division with the requisite paperwork, and the generally innocuous circumstances surrounding that offering, the Division will not take action against the Company for failing to provide notice to the Division for its offering tied to its reorganization. The exemption available under Section 27U is similar to the current 202N exemption. The Company relied upon Section 27U for the transactions described in Event A and provided Form 27U to the Division. The 2010 offering utilizing the 202N exemption involved only a single investor, and the Company has now provided the Division with all necessary paperwork for that offering. Considering that the Company has provided the Division with the requisite notices and filings for the offerings described above, and in consideration of all other facts and circumstances, the Division will not take any action against the Company infractions involving late filings. As stated above, the other offerings described in this letter were either self-executing or otherwise did not require any filings with the Division for the respective offerings.

 

Therefore, pursuant to NMSA 1978, Section 58-13C-605D, of the Act, the Division will take no enforcement action against the Company for issuing securities in the limited context described herein without proper registration or notice. This decision is made only in consideration of the information contained or referenced in this letter and the adoption of the facts and analysis contained in the referenced documents. This decision does not reflect a legal conclusion regarding the outlined conduct of the Company. Moreover, this decision should not be construed as setting forth any position the Division would take regarding the anti-fraud provisions of the Act, as they would apply to the transactions discussed above. Different facts and circumstances may cause the Division to reach a different conclusion. The relief in this letter applies only to the parties identified and the circumstances described in this letter.

 

Sincerely,

 

Alexis Lotero, Deputy Director
New Mexico Securities Division

 

View a PDF of the signed opinion letter dated May 4, 2016.

January 15, 2015

 

VIA ELECTRONIC MAIL ONLY

Ellen M. Creede

Latham & Watkins, LLP

885 Third Avenue

New York, NY 10022-4634

Emailed to: ellen.creede@lw.com

Re: REBBL, Inc. ‘s Notice of Claim of Exemption – Form 202N

Dear Ms. Ellen M. Creede,

 

The New Mexico Securities Division is in receipt of the letter written to Nona S. Lane on January 9, 2015, which was delivered via FedEx on January 12, 2015. I am writing in response to that letter.

 

Your letter lays out the facts and circumstances surrounding your client’s, REBBL, Inc., securities offering, and identifies the deficiencies present for qualification under either a 202Y or a 202N filing exemption. Due to those deficiencies, you are requesting a waiver of those respective requirements, or, alternatively. you request no-action on part of the Division. The Division will not grant a waiver in either case. However, a statement of no action could be issued under the right circumstances.

 

Regarding the deficiencies of the 202Y exemption, the Division is not inclined, and will not waive the strict statutory limit of 25 investors. Additionally, since there are typically other safeguards and exemptions available to promoters who exceed 25 investors, a statement of no-action will not be granted regarding 202Ys. Taking no action or waiving such a firm and obvious requirement of the exemption would be counter to the intent and purpose of the exemption.

 

If you’d like to request a statement of no-action pertaining to the late filing of a 202N exemption, however, the Division would entertain such a request upon receipt of$300 payment and a formal request specifically outlining justification therefore. We originally received the 202N filing on November 5, 2014. The first sale under the offering was made on August 19, 2014. The Division, which should have received the 202N filing five (5) days before the first sale was made, received the 202N filing seventy-eight (78) days
after the first sale. If you make a formal request for no-action which outlines the infraction and the reason no action should be taken, the Division will consider it.

 

Please do not hesitate to contact me directly if you have any questions.

 

Very truly yours,

 

Brandon R. Toensing

 

View a PDF of the signed opinion letter dated January 15, 2015.

December 4, 2013

 

Via Email 

 

David Gutierrez

Dona Ana County Treasurer

845 N. Motel Blvd.

Las Cruces, NM 88007

dgutierrez@donaanacounty.org

RE: Brokered CDs Are Not Subject to §6-10-36(c)

Dear Treasurer Gutierrez:

 

This letter responds to your request for our opinion on whether brokered certificate of deposits (“brokered CDs”) are subject to the geographic restrictions of §6-10-36(c) NMSA 1978. We understand that this issue has become a concern due to a reference in a recent audit of the investment practices of the Bernalillo County Treasurer. We further understand that your office, and possibly other county and municipal treasuries, may engage in a significant sell-off of a substantial portion of public funds portfolios if they are restricted per §6-10-36(c), in an attempt to bring their investment practices into compliance.

 

We have discussed this matter with the State Auditor’s staff and are sending a copy of this letter to that office for consideration. We share a common decision to make the treatment of this issue uniform among all state agencies.

 

For the reasons that follow, we consider brokered CDs to be interest bearing securities and therefore not subject to the geographic limitations of §6-l-36(c).

 

Brokered CDs are purchased on the secondary market through an intermediary. Brokered CDs are identified by CUSIP number, which is a code assigned to a security for the clearing and settlement of trades. Brokered CDs are issued by an FDIC registered bank, then sold through a broker, for a profit, to purchasers who may make further profit by subsequent sale. In many instances, the broker may create a secondary market for the subsequent sale of the CD. In short, brokered CDs are bought and sold with a profit motive, on recognized markets. As such, they are different from depository CDs purchased directly from banks and credit unions.

 

New Mexico law draws a distinction between public money that is used for investment and public money that is deposited for liquidity. §6-l0-36(c) restricts the deposit of public money to banks within the geographic limits of a treasurer’s governmental unit. §6-10-l0(a), which deals with the investment of public money, contains no geographic restriction.

 

The two statutory sections follow the mandate of Art. VIII, §4 of the New Mexico Constitution, which geographically restricts the deposit of public money to banks in the state only if such funds are not invested in interest bearing securities.

 

§6-10-lO(a) provides in relevant part: “county … treasurers who have on hand any public money by virtue of their offices shall make deposit of that money in banks … whose deposits are insured by an agency of the United States.” For its purposes only, §6-10-10(e) defines deposit to include investment. This definition is unique to this section, and cannot be disregarded. This is complex way of saying that county treasurers may invest public money in brokered CDs issued by FDIC registered banks.

 

The statutory structure protects public funds by enabling you, and other treasurers, to spread your invested money around several issuing banks, thus insuring that all amounts are secured by the coverage of the FDIC insurance. Otherwise, depositing large amounts in the few institutions within a county or municipality would leave much of the deposited amount in excess of the $250,000.00 insurance limit, and thus unprotected. Allowing county treasurers to invest in brokered CDs issued by out-of-state FDIC registered banks protects public money by limiting risk.

 

Please feel free to contact us if you have further questions.

 

Sincerely,

 

Alan R. Wilson, Director
Securities Division

 

Cc: Hector H. Balderas, State Auditor
Office of the State Auditor

 

View a PDF of the signed opinion letter dated December 4, 2013.

December 17, 2010

 

Mr. Terry D. Nelson

Foley & Lardner LLP

Verex Plaza

150 East Gilman Street

Madison, WI 53703-1481

 

Issuance of Surplus notes by the Segregated Account of Ambac Assurance Corporation; Request for Exemption Confirmation and/or No Action relief

 

Dear Mr. Nelson:

On behalf of your client, the Segregated Account of Ambac Assurance Corporation, by letter dated October 29, 2010 and subsequent supplemental letters dated November 9 and November 12, 20 l 0, you requested an interpretive opinion or no-action position from the staff of the New Mexico Securities Division with respect to compliance with the securities registration and broker-dealer and/or agent licensing or registration provisions of the New Mexico Uniform Securities Act, 1978 Comp, Sections 58-l3C-l O 1 through 70 I(2009) (“the New Mexico Act”) in connection with the issuance of certain notes (“Surplus Notes”) by the Segregated Account as described in the above referenced letters.

 

We understand from your November 12, 2010 letter to this Division and enclosures that your firm also applied for confirmation from the Division of Corporation Finance of the Securities and Exchange Commission, that SEC staff would not recommend enforcement action based on issuance of the Surplus Notes on the terms set forth in your letter to SEC staff.

Your October 29, 2010 letter to the division and your November 11, 2010 letter to the SEC advise, among other things, the following:

a) Ambac Assurance Corporation (“Ambac Assurance”) is a Wisconsin corporation and the principal operating insurance company of Ambac Financial Group;

b) Ambac Assurance is a Wisconsin domiciled insurer authorized in Wisconsin to transact surety and financial guaranty insurance;

c) due to the deterioration of Ambac Assurance’s financial condition, the Office of the Commissioner of Insurance of the State of Wisconsin (“Wisconsin OCI”) increased oversight of Ambac Assurance;

d) Ambac Assurance established the Segregated Account as a separate insurer pursuant to the request of the Wisconsin OCI:

e) on March 24, 2010 the Wisconsin OCI filed a petition in the Dane County Circuit Court of the State of Wisconsin in order to permit the OCI to facilitate an orderly runoff and/or settlement of the liabilities allocated to the Segregated Account pursuant to the provisions of the Wisconsin Insurers Rehabilitation and Liquidation Act and the Court subsequently appointed the Wisconsin Commissioner of Insurance as the Rehabilitator;

f) the Rehabilitator filed a Plan of Rehabilitation for approval by the Wisconsin Court Rehabilitator; on October 8, 2010 (“the Plan of Rehabilitation”) and a Disclosure Statement that summarizes certain key components of the Plan of rehabilitation and made these documents available to the public online on a website identified in your correspondence;

g) the Plan of Rehabilitation provides, among other things, that the holders of Claims (i.e. the prospective recipients of the Surplus Notes) shall receive a combination of (i) cash and (ii) Surplus Notes in satisfaction of such Claims

h) under the Plan of Rehabilitation, only holders of “Policy Claims” (as that term is defined in the Plan of Rehabilitation) will be issued Surplus Notes in full or partial satisfaction of their Policy Claim;

i) the Wisconsin Court will approve the fairness of the terms and conditions of the Plan of Rehabilitation, including the issuance of the Surplus Notes to the holders of Claims, (i.e. the prospective recipients of the Surplus Notes) before the Segregated Account issues Surplus Notes pursuant to the Plan of Rehabilitation.

We understand that the Surplus Notes contemplated by the Plan of Rehabilitation to be issued by the Segregated Account, as described in more detail in your October 29, 2010 letter to this Division and in your November 11, 2010 letter to the SEC, are the subject of your request to this Division.

 

Your November 11, 2010 letter to the SEC relies on Section 3(a)(l0) of the Securities Act of 1933 which provides that the following securities are exempt from the registration requirements of Section 5 of the Act:

 

Except with respect to a security exchanged in a case under title 11 of the United States Code, any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval.

Your firm obtained confirmation from SEC staff by letter dated November 12, 2010 (“SEC No Action Letter”) that SEC staff will not recommend enforcement action if pursuant to the Plan of Rehabilitation as approved by the Court, the Segregated Account issues to holders of certain rights to payment from the Segregated Account (each, a “Claim”) surplus notes (“Surplus Notes”) in partial satisfaction of such Claims, without registration of the Surplus Notes under the Securities Act of 1933.

The SEC No Action Letter relies on facts recited in your November 11, 2010 letter to the SEC and your firm’s opinion as counsel for the Segregated Account that the exemption under Section 3(a)(10) of the Securities Act of l933 is available if the Segregated Account issues Surplus Notes to holders of Claims pursuant to the Plan of Rehabilitation without registration under the Securities Act of 1933.

 

In connection with your request to this Division, your October 29, 2010 letter to this Division addresses Section 202V.(2) of the New Mexico Act. Section 202V.(2) includes among transactions exempt from registration under the New Mexico Act “an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding securities, claims, or property interests, or partly in such exchange and partly for cash; . . . .”

 

Your October 29, 2010 letter observes among other things that the Segregated Account was established with the approval of a governmental agency, the Wisconsin OCI, that the Plan of Rehabilitation must be approved by the Wisconsin Court and only after a hearing is conducted at which all persons exchanging Claims for Surplus Notes have the right to appear and that in order for the Plan of rehabilitation to become effective, the Court must find that the terms and conditions of issuance of the Surplus Notes are procedurally and substantively fair. Your October 29, 2010 letter opines that it appears that the issuance of the Surplus Notes by the Segregated Account would be “an act incident to a judicially approved reorganization. . . . “

 

Based upon the representations recited herein and those contained in your letters of October 29, 2010 and November 9 and 12, 2010, and enclosures including your November 11 ,2010 letter to the SEC, as a matter of enforcement policy, the New Mexico Securities Division staff would not recommend enforcement action for violation of the securities or broker-dealer or agent registration provisions of the New Mexico Act if, pursuant to the Plan of Rehabilitation after approval by the Wisconsin Court, the Segregated Account issues to holders of certain rights to payment from the Segregated Account (each a “Claim”) surplus notes (“Surplus Notes”) in partial satisfaction of such Claims, without registration of the Surplus Notes or registration or licensing of the Segregated Account or any of its “agents” as a broker-dealer or agents, respectively.

 

Because our position is based on the representations made to the Division in your letters and enclosures, different facts or conditions might require a different conclusion. Moreover, our response reflects only the staffs position on enforcement action and does not purport to express any legal conclusion on the question presented. We also direct your attention to the anti-fraud provisions of the New Mexico Uniform Securities Act and note that responsibility for compliance with these and other applicable provisions of the New Mexico Act rests with the Segregated Account and its agents.

 

Sincerely,

 

Marianne Woodard
Senior Regulatory Attorney
Securities Division

 

View a PDF of the signed opinion letter dated December 17, 2010.

August 25, 2010

 

Mr. Herbert J. Short

Sutherland Asbill & Brennan LLP

999 Peachtree Street NE

Atlanta, Georgia 30309

Offer and Sale of Oglethorpe Power Corporation bonds;
Request for No Action: Your June 28, 2010 letter

 

Dear Mr. Short:

 

On behalf of your client Oglethorpe Power Corporation (“Oglethorpe Power”), by letter dated June 28, 2010, you requested an interpretive opinion or no-action position from the staff of the New Mexico Securities Division with respect to the applicability of Section 201(E) (the 11 public utility exemption”) of the New Mexico Uniform Securities Act (“the New Mexico Act”) to the proposed offer and sale by Oglethorpe Power, including through one or more broker-dealers, of investment grade first mortgage bonds registered on a Form S-3 registration statement with the Securities and Exchange Commission.

 

We understand from your letter that Oglethorpe Power is a Georgia electric membership corporation that was incorporated in 1972 under Title 46 -Public Utilities and Public Transportation of the Georgia Code (See Ga. Code Ann§ 46-3-200), that Oglethorpe Power’s principal business is providing wholesale electric power to its members, that Oglethorpe Power operates on a not-for-profit basis and that Oglethorpe Power is owned by 39 retail electric distribution cooperative members.

 

We further understand from your June 28, 2010 letter that Oglethorpe Power is subject to reporting requirements under the Securities Exchange Act of 1934 and has filed reports thereunder since 1986. Your letter states that on May 27, 2010, Oglethorpe Power files a registration statement on form S-3 (File No 333-167135) with the SEC in connection with its proposed offer and sale from time to time of investment grade first mortgage bonds in one or more transactions up to an aggregate principal amount of $1 billion. The first mortgage bonds will be secured equally and ratably under Oglethorpe Power’s mortgage indenture by a lien on substantially all of its tangible and some of its intangible assets, including those it acquires in the future.

 

Your June 28, 2010 letter to our office encloses a copy of a June 7, 2010 letter from the SEC staff that, among other things, states that the SEC staff has not and will not review Oglethorpe Power’s registration statement, reminds the company that Oglethorpe Power and its management are responsible for the accuracy and adequacy of the disclosures in the registration statement and advises Oglethorpe Power that the SEC staff will consider a written request for acceleration of the effective date of the registration statement.

 

Your June 28, 2010 letter acknowledges that, because the offer and sale of the first mortgage bonds by Oglethorpe Power does not fall within the definition of a “covered security” under Section 18 of the Securities Act of 1933, Oglethorpe Power will need to register the offer and sale of the first mortgage bonds in New Mexico or avail itself of an exemption from the requirement of registration under the New Mexico Act.

 

Under Section 58-13C-201(E) of the New Mexico Act, securities exempt from the requirement of registration include:

A security issued or guaranteed by a railroad, other common carrier, public utility or public utility holding company that is:
(l) regulated in respect to its rates and charges by the United States or a state:

(2) regulated in respect to the issuance or guarantee of the security by the United States, a state, Canada, or a Canadian province or territory; or

(3) a public utility registered pursuant to the federal Public Utility Holding Company Act of 1935 or a subsidiary of such a registered holding company within the meaning of that act; …

 

From your June 28, 2010 letter, your associate Darryl Smith’s letter to me dated July 12, 2010 responding to my telephone inquiry and Oglethorpe Power’s Form 10-K for the fiscal year ended December 31, 2009, our understanding of the form of the regulation of Oglethorpe Power’s rates is that changes to Oglethorpe Power’s rate schedule under the wholesale power contracts that Oglethorpe Power has with its members are generally subject to federal Rural Utilities Service approval pursuant to Oglethorpe Power’s loan agreement with the Rural Utilities Service. We also understand that adjustments to Oglethorpe Power’s rates to reflect changes in its budgets (“inputs” to rate formula) are generally not subject to Rural Utilities Service approval. We further understand that Oglethorpe Power’s rates are not subject to the approval of any other federal or state agency or authority, including the Georgia Public Service Commission.

 

Your June 28, 2010 letter observes, among other things, that (1) the rate regulation of Power is able to repay loans made to it by the Rural Utilities Service to fund electricity service projects, (2) the rate schedule set forth in the wholesale power contracts is intended to ensure that Oglethorpe Power collects rates from its members in amounts sufficient for it, to, among other things, pay the principal and interest on its indebtedness, including any bonds sold in New Mexico, and (3), as a result, rate regulation by the Rural Utilities Service of Oglethorpe will inure to the benefit of the purchasers of the bonds (as opposed to the more conventional notion of rate regulation which is intended to protect the consumers of the public utility).

 

You conclude that Oglethorpe Power should be able to rely on Section 58-13C-20I(E) of the New Mexico Act to exempt the offer and sale of its first mortgage bonds in New Mexico as a public utility “regulated in respect to its rates and charges by the United States . . . “

 

Based upon the representations recited herein and those contained in your letter of June 28, 2010 and enclosures, as a matter of enforcement policy, the Division staff would not recommend enforcement action for violation of the registration provisions of the New Mexico Act if Oglethorpe Power were to offer and sell the investment grade first mortgage bonds, as described above, without first registering the bonds pursuant to the New Mexico Act.

 

Because our position is based on the representations made to the Division in your letter and enclosures, it should be noted that different facts or conditions might require a different conclusion. Moreover, our response reflects only the staffs position on enforcement action and does not purport to express any legal conclusion on the question presented. We also direct your attention to the anti-fraud provisions of the New Mexico Uniform Securities Act and note that responsibility for compliance with these and other applicable provisions of the New Mexico Act rests with Oglethorpe Power and any registered broker-dealers who may offer or sell bonds on Oglethorpe Power’s behalf.

 

Sincerely,

 

Marianne Woodard
Senior Regulatory Attorney
Securities Division

 

View a PDF of the signed opinion letter dated August 25, 2010.