To simplify the burden of complying with 50 different sets of state laws in a Tier 1 offering, the North American Securities Administrators Association (NASAA) created the Coordinated Review program.
Instead of hiring 50 different legal teams, you use one centralized process.
How the NASAA Coordinated Review Works
The process is designed to mimic the SEC’s federal review, making the state-level approval happen simultaneously with your SEC qualification.
- The Application: You file Form CR-3(b) via email to the State of Washington (the lead administrator for the program). You include your SEC Form 1-A and all exhibits.
- The Lead Examiners: Two “lead states” are appointed:
- Disclosure Lead: Focuses on whether your paperwork is clear and accurate.
- Merit Lead: Focuses on whether the deal is “fair” (e.g., checking that the founders aren’t getting too much cheap stock compared to the public).
- The Comment Letter: Instead of getting letters from 50 states, the lead examiners compile all state concerns into one single comment letter.
- The Timeline: The lead examiners typically send the initial comment letter within 21 business days.
- The Approval: Once the lead states are satisfied, all other participating states generally agree to clear your offering as well.
Critical Differences in State Standards
When you use Coordinated Review, you need to be aware that states fall into two categories:
- Disclosure States: They only care if you tell the truth. If your business is risky, you just have to explain why it’s risky.
- Merit States: These are tougher. They can actually block your offering if they think the price is too high, the management’s pay is excessive, or the company’s capital structure is “unfair” to new investors.
Tier 1 Checklist: What you still have to do
Even with Coordinated Review, Tier 1 requires “boots on the ground” effort:
- Filing Fees: You must still pay the individual filing fee for every state where you intend to sell. These can range from $100 to over $1,000 per state.
- Agent Registration: Some states require the person selling the shares (the “issuer agent”) to register or even pass a basic exam (like the Series 63).
- No CPA Audit (Usually): While the SEC doesn’t require an audit for Tier 1, some Merit States might still ask for one during the review process if they feel the financials are unclear.