A blue sky law is a

state State most commonly refers to: * State (polity), a centralized political organization that regulates law and society within a territory **Sovereign state, a sovereign polity in international law, commonly referred to as a country **Nation state, a ...

law in the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

that regulates the offering and sale of

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

to protect the public from

fraud In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...

. 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

stockbroker A stockbroker is an individual or company that buys and sells stocks and other investments for a financial market participant in return for a commission, markup, or fee. In most countries they are regulated as a broker or broker-dealer and ...

s and

brokerage firm A broker is a person or entity that arranges transactions between a Purchasing, buyer and a sales, seller. This may be done for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller or as a buyer b ...

s. Each state's blue sky law is administered by its appropriate regulatory agency, and most also provide private

causes of action A cause of action or right of action, in law, is a set of facts sufficient to justify suing to obtain money or property, or to justify the enforcement of a legal right against another party. The term also refers to the legal theory upon which a p ...

for private investors who have been injured by

securities fraud Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information.Kansas Kansas ( ) is a landlocked U.S. state, state in the Midwestern United States, Midwestern region of the United States. It borders Nebraska to the north; Missouri to the east; Oklahoma to the south; and Colorado to the west. Kansas is named a ...

in 1911 at the urging of its banking commissioner,

Joseph Norman Dolley Joseph Norman Dolley (1860–1940) was the bank commissioner of State of Kansas who pushed for the passage of the first state securities laws, known as the blue-sky laws. J.N. Dolley, as he was known, was born in Boston, Massachusetts, a so ...

, 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 Act The Uniform Securities Act (USA) is a model statute designed to guide each state in drafting its state securities law. It was created by the National Conference of Commissioners on Uniform State Laws (NCCUSL). The purpose of the Uniform Securit ...

of 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

Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...

with the

National Securities Markets Improvement Act of 1996 The National Securities Markets Improvement Act of 1996 is an amendment to Securities regulation in the United States, United States federal securities laws in with the aim of promote efficiency and capital formation in the financial markets, and to ...

(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 Act The Securities Litigation Uniform Standards Act of 1998 (SLUSA), {{uspl, 105, 353, 112 Stat. 3227, is a federal legislative act in the United States regarding private class action lawsuits for securities fraud. SLUSA amended portions of the Securi ...

from being raised in lawsuits that were effectively

class action A class action is a form of lawsuit. Class Action may also refer to: * ''Class Action'' (film), 1991, starring Gene Hackman and Mary Elizabeth Mastrantonio * Class Action (band), a garage house band * "Class Action" (''Teenage Robot''), a 2002 e ...

s by investors, even if not filed as class actions.

Origin of term in securities context

Its earliest cited use by the

US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all Federal tribunals in the United States, U.S. federal court cases, and over Stat ...

was in an opinion by Justice

Joseph McKenna Joseph McKenna (August 10, 1843 – November 21, 1926) was an American politician who served in all three branches of the Government of the United States, U.S. federal government as a member of the U.S. House of Representatives, as U.S. Attorne ...

in '' 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 J. N. Dolley used the term when he was plumping for passage of the Kansas statute in 1910, and McKenna's own opinion in ''Hall'' itself attributes the term to an unnamed earlier source: Kansas Banking Commissioner Dolley, railing against "blue sky merchants" while he pushed 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 Dictionary The ''Oxford English Dictionary'' (''OED'') is the principal historical dictionary of the English language, published by Oxford University Press (OUP), a University of Oxford publishing house. The dictionary, which published its first editio ...

'' has a cited use dating to 1906. Also, ''

The New York Times ''The New York Times'' (''NYT'') is an American daily newspaper based in New York City. ''The New York Times'' covers domestic, national, and international news, and publishes opinion pieces, investigative reports, and reviews. As one of ...

'' (and other national newspapers) 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 such laws.

Notes

References

List of State Securities Administrators
* *{{cite web , first=Lawrence R. , last=Gelber , website=The GelberLaw Glossary , title=detailed citations to origins (back to 1890s) of securities term ''blue sky'' , url=http://www.gelberlaw.net/Glossary.html State law in the United States United States securities law

Origin of term in securities context

See also

Notes

References