What are “Blue Sky Laws”?
So-called “blue sky laws” are laws that protect investors and regulate the sale of securities on a state level. Cornell Law School’s Legal Information Institute defines a blue sky law as a “state law that imposes standards for offering and selling securities. Such laws aim to protect individuals from fraudulent or overly speculative investments.”
Who enforces blue sky laws? State securities regulators are responsible for enforcing blue sky laws. These regulators are members of the North American Securities Administrators Association (NASAA). Founded in 1919, NASAA, according to its website, is “a voluntary association whose membership consists of 67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.” While this wide variety of territories and states means that blue sky laws will naturally vary from region to region, according to the Securities and Exchange Commission (SEC), blue sky laws generally aim to protect investors in two ways:
- by requiring all securities sold in a state to be registered in the state (unless they meet a specific exemption, and
- by requiring brokers, broker-dealers, and investment advisors selling securities in a state to be registered in the state.
Why were blue sky laws developed originally? In the years before the Great Depression, investors were losing money to predatory investment schemes. In response, individual states began to regulate the sale of securities. The move was controversial, and the matter went to the Supreme Court, which is where the name “blue sky law” comes from. In the 1917 Supreme Court decision Hall v. Geiger-Jones Co., which determined that individual states can regulate the offer, sale, and purchase of securities products, Justice Joseph McKenna wrote of “speculative schemes which have no more basis than so many feet of ‘blue sky’.”
These state-specific laws were enacted before federal securities laws (specifically, the Securities Act of 1933 and the Securities Exchange Act of 1934). Today, there is often some overlap between blue sky laws and federal securities laws. But the Uniform Securities Act of 1956 (updated in 2005) outlines the authority of state and federal regulators to ensure enforcement goes as smoothly as possible. The Act is not binding, however, and states must adopt laws in their legislation to regulate securities on the state level. Today, state blue sky laws are patterned after the Uniform Securities Act of 1956. According to the Securities Law Research Guide provided by the Georgetown Law Library, D.C. and 39 states have enacted versions of the Uniform Securities Act. For example, Chapter 110A of the General Laws of Massachusetts contains the Uniform Securities Act, which outlines:
- what constitutes the fraudulent sale of securities
- the requirements for registering securities in Massachusetts
- filing procedures for securities
- federal covered securities
- definitions of relevant terms
- exemptions to the registration of securities
Blue sky laws are designed to protect investors at the state level. If you suspect that your broker may have violated your state’s version of the Uniform Securities Act, it is important to retain the counsel of a securities attorney. Call (877) 238-4175 or email firstname.lastname@example.org for your free consultation with the securities attorneys of Fitapelli Kurta.