State Securities Laws (Blue Sky Laws)
While it is the SEC’s responsibility to regulate and enforce federal securities laws, each individual state has its own securities laws and rules. These state laws are what are commonly known as Blue Sky Laws, the provisions of these laws vary from state to state but all of them require the registration of securities offerings, and the registration of brokers and brokerage firms, these is done so that offerings and sales of securities can be regulated to protect the public from fraud.
To this day, the Blue Sky Laws of 40 out of the 50 states in the US are all patterned after the Uniformed Securities Act of 1956, and between 1911 to 1933 there have already been 47 states that have adopted blue sky statutes.
Blue Sky Laws require private investment funds to be registered not only in their home state, but also in all states where they wish to do business in. Issuers of securities from blues sky states must reveal the terms of their offerings, they must also disclose material information that may affect the security. The nature of these state-based laws imply that each jurisdiction can include varying filing requirements for all registered offerings. This process includes a merit review by state agents that determine whether an offering is fair and balanced for all buyers.
The provisions of Blue Sky Laws also create liability against fraudulent statements or failure to disclose information, thus allowing lawful suits and legal actions to be taken against issuers. However, there are also exceptions under these state laws with regard to the type of offerings that must be registered. These includes securities listed on national stock exchanges, this is in part with the effort of federal regulators to streamline oversight processes wherever possible. These exempted offerings fall under Rule 506 of Regulation D of the Securities Act of 1933, and they qualify as “covered securities”.