Blue Sky Agreement Meaning

Posted: December 4, 2020 in Uncategorized

Although there were laws on blue skies at that time – Kansas did the first thing in 1911 – they tended to be weakly formulated and enforced, and the unscrupulous could easily avoid them by doing business in another state. After the stock market crash and the onset of the Great Depression, Congress passed several securities acts to regulate the stock market and the financial industry at the federal level and establish the SEC. In 1956, the uniformity of the Securities Act was passed, a model law that provides a framework that guides states in the development of their own securities laws. It now forms the basis of 40 laws out of 50 of the state and is itself often referred to as the blue sky law. Subsequent laws, such as the National Securities Markets Improvement Act of 1996, prefer blue-sky laws when they duplicate federal laws. Although blue sky laws vary from state to state, they are all designed to protect individuals from excessive fraudulent or speculative investments. The term “blue-sky law” originated in the early 1900s and was widely circulated when a Kansas Supreme Court justice ruled that he wanted to protect investors from speculative companies that “had no more foundation than so many feet of blue skies.” The first Blue Sky Act was enacted in Kansas in 1911, at the request of Joseph Norman Dolley, Commissioner of Banks, and served as a model for similar laws in other states. Between 1911 and 1933, 47 states adopted blue sky statutes (Nevada was the solitary holdout). Today, blue-sky laws are inspired by 40 of the 50 states under the Securities Act of 1956. Historically, federal securities laws and blue-sky government laws complement each other and have often duplicated each other.

Much of the duplication, particularly in securities registration and regulation of brokers and consultants, was widely anticipated by the Securities and Exchange Commission with the National Securities Improvement Act of 1996 (NSMIA). However, this law has left some regulation of investment advisors and a large part of fraud disputes under the jurisdiction of the state. In 1998, the Securities Litigation Uniform Standards Act expressly excluded claims for state securities fraud as a result of actions that were in effect class actions brought by investors, even though they were not brought as a class action. The commissioner of the Kansas Banking Dolley bank, who opposed the “Blue Merchants” when he insisted in 1910 that Kansas` status be adopted, noted that some fraudulent investments were supported by nothing but the blue skies of Kansas. The Oxford English Dictionary has a cited use from 1906. Similarly, the New York Times (and other national newspapers) frequently covered the laws of the blue sky when different states began to enact them between 1911 and 1916. Newspapers explicitly used the term blue sky to describe such laws. A Blue Sky Act is a state law in the United States that governs the supply and sale of securities, supposedly to protect the public from fraud.

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