SEC Proposed Definition of Qualified Purchaser

Important Change for NSMIA Pre-emption

By Richard I. Alvarez, Esq.

This is the first in a series of periodic bulletins covering new developments in state securities, or Blue Sky, laws which may be of special interest.

Topics will range from notice of new rule proposals from the various state securities administrators, to particular state legislative initiatives and SEC actions and proposals impacting existing Blue Sky provisions, and other Blue Sky developments of relevance to the securities law practitioner and other interested parties. I hope you find these bulletins timely and informative.

This report covers a recent SEC action approving a proposal to amend Rule 146 under the ’33 Act to define the term “qualified purchaser” under the National Securities Market Improvement Act of 1996 (“NSMIA”). The adoption of a definition for “qualified purchaser” under the ’33 Act would mean that securities offered and sold to such an investor would be preempted from state securities registration requirements. Presently, Section 18(b)(3) of the ’33 Act creates a category of covered securities for offers and sales of securities made to qualified purchasers, as that term may be defined by the SEC by rule. Until now, however, the SEC has not defined the term “qualified purchaser” under the ’33 Act, the effect of which is that the benefit of preemption of state securities registration requirements afforded by Section 18(b)(3) for sales of securities to “qualified purchasers” is not available. With the adoption, under the ’33 Act, of a definition for “qualified purchaser”, the SEC will have effectively created another category of transactions which will have the benefit of federal preemption of state securities registration requirements.

The significance of this development cannot be understated. By defining “qualified purchaser”, the SEC will make available another category of “covered securities”, as defined under NSMIA, thus giving issuers and broker-dealers another way to sell securities without having to comply with particular state securities registration requirements. Equally as important, however, sales of securities to “qualified purchasers” may also relieve an issuer from state notice filing requirements applicable to other categories of covered securities. For example, if an issuer engages in transactions in existing covered securities that would trigger a state notice filing, selling to a qualified purchaser may allow the issuer to avoid having to make the otherwise required notice filing, in the absence of a notice filing provision adopted particularly with respect to Section 18(b)(3) covered securities. Of course, state law requirements covering issuer-dealer and agent registration requirements must still be considered as NSMIA did not affect such state law provisions.

As proposed, the SEC would define “qualified purchaser” to mirror the current definition of “accredited investor” found in Rule 501 under SEC Regulation D. We understand that the proposal to define “qualified purchaser” in this manner was made in an effort to encourage comments on the proposed amendment. It is likely, however, that the final definition will be closer to the existing definition of qualified purchaser under Section 2(a)(51) of the ’40 Act or the definition of QIB found in Rule 144A under the ’33 Act. The proposed amendment has been published in the Federal Register [Volume 66, No. 248, Thursday, December 27, 2001] and comments may be submitted until February 25, 2002 (60 days from date of publication in the Federal Register). The SEC’s proposal can be viewed at .


Copyright 2002, Richard I. Alvarez. All Rights Reserved. Richard I. Alvarez, Esq. is of counsel to the law firm of Beam & Astarita, LLC, and represents broker-dealers and issuers in regulatory, compliance and blue sky matters. Mr. Alvarez can be reached at (212) 509-6544 or by e-mail at

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

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