What are Blue sky laws?

In addition to federal securities laws, every state has its own securities laws, commonly known as Blue sky laws that are designed to protect investors from fraudulent and overly speculative investments. While these laws vary from state to state but they are modeled after Uniform Securities Act of 1956 which provides guidance for the states in making their own securities legislation. Most state laws require from companies that offers securities to register the offering before they can be sold unless there is exemption.

Each state has the regulatory agency that administers its blue sky law and most of them ensure private cause of action for private investors harmed by securities fraud. Issuers of securities must reveal terms of the offering where they fully and fairly disclose all material facts related to the offering. Because they differ among states it means that each jurisdiction can have different filing requirements.State law also cover merit review that regulates substantive merits and fairness of the securities offering to investors.

The laws' provisions also create liability for fraudulent statement or failure to disclose information justifying legal actions against issuers. Purpose of such law is to discourage taking advantage of investors who lack experience and knowledge and mandate that a company discloses accurate and current information when offering securities with the goal of helping investors make more informed investment decisions.

Some offerings are exempt from registration due to their limited size or relationship between issuer and investors. Some exemptions are securities listed on national securities exchanges, offerings under Rule 506 of Regulation D and Regulation A Tier 2 offerings.

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