- Blue sky law
A blue sky law is a state law in the
United Statesthat regulates the offering and sale of securities to protect the public from fraud. Though the specific provisions of these laws vary among states, they all require the registration of all securities offerings and sales, as well as of stock brokers and brokerage firms. Each state's blue sky law is administered by its appropriate regulatory agency, and most also provide private causes of action for private investors who have been injured by securities fraud.
The first blue sky law was enacted in
Kansasin 1911 at the urging of its banking commissioner, Joseph Norman Dolley, and served as a model for similar statutes in other states. Between 1911 and 1933, 47 states adopted blue-sky statutes (Nevada was the lone holdout). Today, the blue sky laws of 40 of the 50 states are patterned after the Uniform Securities Actof 1956. Historically, the federal securities laws and the state blue sky laws complemented and often duplicated one another. Much of the duplication, especially with regards to registration of securities and the regulation of brokers and advisors, was largely preempted by the SEC with the National Securities Markets Improvement Act of 1996(NSMIA). This act, however, left some regulation of investment advisors and much of the fraud litigation under state jurisdiction. In 1998, state law securities fraud claims were expressly preempted by the Securities Litigation Uniform Standards Actfrom being raised in lawsuits that were effectively class actions by investors, even if not filed as class actions.
Origin of the term "Blue Sky" in a securities context
The origin of the term "blue sky" as applied to securities fraud requires further research. Its earliest cited use by the
United States Supreme Courtwas in an opinion by U.S. Supreme CourtJustice Joseph McKennain " Hall v. Geiger-Jones Co.", 242 U.S. 539 (1917), a case that addressed the constitutionality of state securities laws. Oddly, McKenna is frequently (and erroneously) given credit for inventing the term, even though: (a) J.N. Dolley used the term when pushing for passage of the Kansas statute in 1910, and(b) McKenna's own opinion in "Hall" itself attributes the term to an unnamed, earlier source:
:The name that is given to the law indicates the evil at which it is aimed, that is, to use the language of a cited case, "speculative schemes which have no more basis than so many feet of 'blue sky'"; or, as stated by counsel in another case, "to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines and other like fraudulent exploitations." Even if the descriptions be regarded as rhetorical, the existence of evil is indicated, and a belief of its detriment; and we shall not pause to do more than state that the prevention of deception is within the competency of government and that the appreciation of the consequences of it is not open for our review.
Kansas banking commissioner Dolley, railing against "blue sky merchants" when pushing for passage of the Kansas statute in 1910, observed that certain fraudulent investments were backed by nothing but the blue skies of Kansas. The
Oxford English Dictionaryhas a cited use dating to 1906. Also, The New York Times (and other newspapers around the country) frequently reported on the blue sky laws as various states began to enact them between 1911 and 1916. The newspapers expressly used the term "blue sky" to describe the laws.
* [http://www.seclaw.com/stcomm.htm List of State Securities Administrators]
* Mark J. Astarita, "Introduction to Blue Sky Laws" (SECLaw.com, 2001 - [http://www.seclaw.com/bluesky.htm www.seclaw.com/bluesky.htm] )
* [http://www.blueskylinks.com/ BlueSkyLinks - Links to Blue Sky laws, rules, forms and other resources for all 50 states]
*Lawrence R. Gelber, the "GelberLaw Glossary", - detailed citations to origins (back to 1890s) of securities term "blue sky",http://www.GelberLaw.net
Securities regulation in the United States
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