Blue Sky Laws

Blue Sky Laws are state-level securities fraud laws, that are generally analogous to the Securities Act of 1933 and the Securities Exchange Act of 1934

Every state has a Blue Sky Law. Under the respective Blue Sky laws, each state generally requires issuers to register the securities and disclose details of the offerings at issue. There is a State Securities Administrator who is typically appointed to investigate all securities violations or complaints. The Administrator has the authority to order a cease and desist (for both current and completed investigations) and can publish their findings if an issuer is found to be in violation.

No, state regulators only have jurisdiction over you in the state they operate in, unless you are dealing with people in their state.

State securities laws mandate registration or the availability of an exemption for the offer or sale of securities. Additionally, state securities laws provide certain statutory exemptions from registration. Most state securities laws are modeled after the Uniform Securities Act of 1956 (USA). The USA was established to create a uniform standard on the state level. However, the ultimate focus under the state statutes may differ amongst states. Therefore, it is imperative that your brokerage firm and lawyer review the relevant state’s statutes and regulations to ensure they are compliant with such rules.

As mentioned, Blue Sky laws are generally similar to federal securities laws but may vary from state to state. Some notable differences to look out for include the following: notice and filing requirements; standards of merit review; duration of comment periods; suitability standard; notice requirements for exempt offerings; the requirement of legends on offering materials; and disclosure requirements. Most states have strong civil remedies and penalties, except New York, which has no private right of action for violations of its Blue Sky laws, meaning you cannot bring a Blue Sky law claim in New York. But likely have many other causes of action for damages.

The Martin Act is essentially the anti-fraud statute in New York State. That said, the legislators in New York enacted the act to prevent fraud in the purchase and sale of securities, commodities, and certain offerings. Under the Martin Act, the New York Attorney General has the power to investigate, enjoin, and/or prosecute prohibited conduct. The Attorney General has discretion as to whether they wish to keep the investigation confidential or not. Moreover, the Attorney General may use subpoena power to conduct Martin Act Hearings, which is the compulsion of non-public appearance of witnesses for questioning. Lastly, the Attorney General may obtain data and information by issuing subpoenas requesting sworn affidavits. Under a public investigation, the Attorney General may compel public testimony and production of relevant documents. To conduct a public investigation, the Attorney General must obtain an ex parte order from the court, which compels individuals to appear in court to testify or produce records.