|
|||||
|
|
|
||||
|
PERMISSIBLE
OWNERSHIP INTEREST IN A RISK RETENTION GROUP Section 5 of the Act exempts
ownership interests of RRGs from federal securities registration requirements
and all state blue sky laws. See 15
U.S.C. §3904. There is no exemption,
however, from the federal anti-fraud provisions. The broad exemption from federal and state
securities registration is a significant advantage for RRGs, as the
evaluation of compliance with securities law and the identification of
applicable exemptions can be a daunting and expensive undertaking. The solicitation of investments in RRGs may
be conducted without concern for these often thorny issues. Compliance with the anti-fraud
provisions is best achieved when prospective RRG members are fully informed
of the proposed activities of the company through the use of an information
circular. This document – an integral
part of organizational and ongoing solicitation efforts – ideally provides
full disclosure about the company’s operations and associated risks. Offering materials also generally include the group’s charger documents,
pro-forma financial statements, business plan, policy forms, identity of
directors and officers, identity of key service providers, and other
pertinent information regarding the group’s activities. This approach, coupled with a subscription
agreement in which each member acknowledges receipt of the documents and an
opportunity to ask questions, serves to protect the RRG against future
allegations of fraud or misrepresentation. Some have questioned whether the
LRRA’s securities laws exemptions apply to initial solicitation for
participation in an RRG, prior to the group’s licensure and recognition as an
RRG. They do, provided any amounts
received from prospective insured’s are escrowed, and later returned should the
group not achieve RRG status. |
|||||
|
|
|
BACK – USE ARROW TO PRINT USE PRINT PREVIEW |
|||
