ADISA Career Center

ADISA Submits Comment Letter to NASAA Regarding Proposed SOP on the Use of Electronic Offering Documents and Electronic Signatures

Nov 03, 2016

ADISA has submitted a comment letter to NASAA regarding its recent proposed Statement of Policy regarding the use of electronic offering documents and electronic signatures (“Statement of Policy” or “SOP”) dated Oct. 3, 2016. ADISA previously submitted comments on NASAA’s so-named Electronic Initiatives proposal from May 2016.

The SOP incorporates a number of changes that ADISA, along with others, recommended in the prior comment letter. However, the proposed SOP introduces several new provisions and approaches.

“ADISA is pleased that NASAA has incorporated changes that our association recommended to them this past Summer, such as permitting the use of a multiple offering subscription document,” said John Grady, ADISA president-elect and chairman of its Legislative and Regulatory Committee. “However, the newly proposed statement of policy regarding electronic initiatives incorporates some new, significant changes that we find somewhat problematic.”

The major elements of the SOP that ADISA views as presenting issues or difficulties include:

A. Review of Documents with the Prospective Investor – the SOP would require that the issuer review “all documentation” with the prospective investor, discuss investment options “dependent upon suitability,” and review the documents and instructions for completing the relevant subscription documents. ADISA believe this element would not advance investor understanding or education about the offering, but only serve as a trap for the unwary.

B. Security Breach – as drafted, the SOP would effectively impose a requirement on issuers and their agents to build and maintain a full-scale cybersecurity monitoring and reporting protocol simply in order to be allowed to transmit documents via the Internet or other electronic means, which is above and beyond what most businesses are required to do to conduct business over the Internet.  One important phrase used in the proposed SOP – “confidential personal information” – is not defined, and could be interpreted to mean any information that might tie to an investor’s identity.

C. Informed Consent – by creating a concept of consent that is particular to real estate investment trusts and (potentially) other direct participation programs, NASAA runs the risk of creating inconsistencies with the otherwise applicable federal and state regime that will only trip up ADISA members and increase complexity for investors for no discernible benefit.  

The full letter, signed by ADISA President Mike Bendix, DFPG Investments, and drafted by John Grady, DLA Piper, with assistance from Deborah Froling, Kutak Rock, delves further in-depth on each of these issues.