# Blue Sky Laws

Blue sky laws are state-level securities regulations. Even though Palace Fund relies on federal Regulation D for its private placement exemption, most states require notice filings after the fund sells securities to residents of that state.

## Federal Preemption Under NSMIA

The National Securities Markets Improvement Act of 1996 (NSMIA) preempts states from imposing substantive registration requirements on "covered securities." Reg D Rule 506 offerings qualify as covered securities under Section 18 of the Securities Act.

This means states **cannot** block or condition the offering. However, states **can** require:
- Notice filings
- Filing fees
- Copies of the Form D filed with the SEC

## Form D and State Notice Filing

When Palace Fund files Form D with the SEC (required within 15 days of the first sale), it must also make notice filings in each state where it sells fund interests.

### States Where Filing Is Required

File in every state where a **purchaser** resides. The manager's state (California) also requires a notice filing. States where the fund merely solicits but makes no sales generally do not require a filing, but practices vary.

### California Notice Filing

Since Palace Fund is a California LLC:
- File Form D with the California Department of Financial Protection and Innovation (DFPI)
- Fee: $300 for offerings up to $500,000; additional $150 per $500,000 increment, capped at $2,250
- Filing deadline: 15 calendar days after the first sale in California
- File electronically through the DFPI eFiling portal

### Korean Investor Considerations

Palace Fund's investors are primarily Korean nationals. The relevant question is where they reside at the time of purchase:
- If the Korean investor is a **US resident** (e.g., living in California), file in their state of residence
- If the Korean investor is **outside the US** at the time of purchase, no state notice filing is required for that investor (the transaction occurs offshore)
- Regulation S may apply to offshore sales, which is a separate federal analysis

## Common State Filing Requirements

| State | Filing | Fee | Deadline |
|---|---|---|---|
| California | Form D + state form | $300-$2,250 | 15 days after first sale |
| New York | Form D + Form 99 | $1,200 | 15 days after first sale |
| Texas | Form D + Form 133.29 | $500 | 15 days after first sale |
| Florida | Form D only | $200 | 15 days after first sale |
| Illinois | Form D + Form D-IL | $100 | 15 days after first sale |

Most states accept electronic filing. Some still require paper submissions.

## Ongoing Obligations

- **Amendments**: If Form D is amended with the SEC (e.g., to report additional sales), amend the state filings too
- **Annual renewals**: A few states require annual notice renewals for ongoing offerings. Most do not for Rule 506 offerings.
- **State anti-fraud**: Even with federal preemption, states retain authority to enforce anti-fraud provisions. Misrepresentations to investors can trigger state enforcement regardless of federal compliance.

## Bad Actor Disqualification

States may also enforce the "bad actor" disqualification provisions independently. Ensure no covered person (manager, officers, 20%+ equity holders, promoters) has a disqualifying event under Rule 506(d) and check state-specific lists.

## Practical Approach for Palace Fund

Since the fund's investors are primarily Korean nationals:

1. **If investors purchase from within the US**: Identify their state of residence and file in each applicable state
2. **If investors purchase from Korea**: No state filing required, but document the offshore nature of the transaction
3. **Always file in California**: As the fund's home state, California requires a notice filing regardless

## Action Items

1. File Form D with the SEC within 15 days of first sale
2. Simultaneously file California notice with DFPI
3. Determine each investor's state of residence at time of purchase
4. File in each applicable state within the state's deadline (typically 15 days)
5. Track which states have been filed in; set reminders for any renewal requirements
6. Budget $300-$2,250 for California plus fees for any other applicable states
7. Document offshore purchase circumstances for Korean investors buying from Korea