A blue sky law is a

state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our S ...

law in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

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. 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 stockbrokers and

brokerage firm A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...

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, frequently resulting in lo ...

. The first blue sky law was enacted in

Kansas Kansas () is a state in the Midwestern United States. Its capital is Topeka, and its largest city is Wichita. Kansas is a landlocked state bordered by Nebraska to the north; Missouri to the east; Oklahoma to the south; and Colorado to th ...

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 Securitie ...

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 with the

National Securities Markets Improvement Act of 1996 The National Securities Markets Improvement Act of 1996 is an amendment to United States federal securities laws in order to promote efficiency and capital formation in the financial markets, and to amend the Investment Company Act of 1940 to promo ...

(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, also known as a class-action lawsuit, class suit, or representative action, is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member or members of that group. The class actio ...

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 U.S. federal court cases, and over state court cases that involve a point of ...

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 U.S. federal government, as a member of the U.S. House of Representatives, as U.S. Attorney General and as an Associate J ...

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 first and foundational historical dictionary of the English language, published by Oxford University Press (OUP). It traces the historical development of the English language, providing a co ...

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

The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid d ...

'' (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