Blue Sky Laws

Definition:

US state securities laws that regulate the offering and sale of securities to protect in-state investors from fraud. Most states’ Blue Sky Laws provide private causes of action for private investors who have suffered loss due to securities fraud.

Specific provisions of Blue Sky Laws vary among states, but almost all require the registration of securities offerings and sales in certain circumstances, as well as the registration of stockbrokers and brokerage firms. Most states also require issuers to consent to in-state service of process. Each state’s Blue Sky Laws are administered by its respective regulatory agency, which reviews selling documents for accuracy and completeness.

New York’s Blue Sky Laws are among the oldest and are unusual in that they require the registration of the issuer rather than the subject transaction.

The National Securities Markets Improvement Act of 1996 (NSMIA) pre-empts state registration and review of seven classes of securities offerings, although it preserves the states’ right to investigate and prosecute fraud. All Rule 506 offerings are pre­empted from the requirement of state registration. States can still require an issuer to file a Form D with the state regulatory agency. The applicability of NSMIA in Section 4(a)(2) offerings and Rule 144A Offering may be limited. In addition, NSMIA only pre-empts registration requirements, and not state laws, with respect to the registration of stockbrokers and brokerage firms.

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