Blue Sky Laws
Report on State Merit Regulation of Securities Offerings
Ad Hoc Subcommittee on Merit Regulation of the State Regulation of Securities committee, 41(3): 785—852 (May 1986)
State blue sky regulation is currently a subject of intense public debate. This Report attempts to clarify the terms of that debate by providing a systematic analysis of this regulatory system's underlying premises, its institutional contexts, and its variations. After examining the arguments for and against merit regulation, the Report concludes with an agenda for reform.
The Securities Litigation Uniform Standards Act of 1998: The Sun Sets on California's Blue Sky Laws
David M. Levine and Adam C. Pritchard, 54(1): 1—54 (Nov. 1998)
This Article discusses the developments that led to the Securities Litigation Uniform Standards Act of 1998 and provides a summary and analysis of the Uniform Act. It also discusses recent developments in securities fraud class actions governed by the Private Securities Litigation Reform Act of 1995 and how the new national standard created by the Uniform Act is likely to affect federal securities class actions.
No Registration Opinions Special Report
Subcommittee on Securities Law Opinions, committee on Federal Regulation of Securities, ABA Section of Business Law, 63(1): 187–194 (November 2007)
Testing the Limits of NSMIA Preemption: State Authority to Determine the Validity of Covered Securities and to Regulate Disclosure
Robert N. Rapp and Fritz E. Berckmueller, 63(3): 809–854 (May 2008)
The National Securities Market Improvements Act of 1996 ("NSMIA") significantly limited the scope of state securities regulation under blue sky laws. NSMIA preempted state authority over the registration and qualification of securities offerings deemed "national" in character and established categories of "covered securities" for the purpose of setting those limits. NSMIA includes among "covered securities" those securities offered and sold pursuant to Rule 506 of Regulation D under the Securities Act of 1933. Recent state and federal courts have determined that the issuer must show the actual validity of, and not mere reliance on, the exemption and, just as important, have recognized that states may determine whether the exemption applies and exercise registration–related enforcement authority where the exemption is ruled invalid.
At the same time, NSMIA expressly preserves general state antifraud enforcement authority. Some courts have upheld the state's exercise of antifraud enforcement authority to prohibit specific fraudulent issuer disclosure documents within the state in an offering of NSMIA "covered securities."
These two sets of cases set up a confrontation between the historic mission of blue sky laws and the intended scope of NSMIA preemption that opens the door to reconsideration of the purpose of NSMIA. We call for a balance of federal and state regulatory authority that is consistent with the actual realignment of roles that NSMIA was designed to accomplish.
The Unreasonable Burden of Proving the Reasonable Care Defense Under the Uniform Securities Act
Mark B. Barnes and Matthew R. St. Louis, 63(4): 1223#151;1242 (August 2008)
Under the Uniform Securities Act (a version of which has been enacted by most states), an entity that sells securities in violation of the Act is potentially liable to investors under the Act's civil remedy provisions. Directors, officers, partners, controlling persons, and others associated with the entity at the time of the sale are also potentially liable, jointly and severally with each other and the entity, solely on account of their affiliation with the entity. While the Act entitles these "derivative liability" defendants to assert an affirmative defense of reasonable care, the affirmative defense is narrowly drafted, and courts have interpreted the defense strictly. This Article examines the decisions in which courts have interpreted the "reasonable care" defense, in particular the November 2007 opinion of the Indiana Supreme Court in Lean v. Reed, and ends by recommending securities law compliance policies and procedures that entities selling securities in Uniform Securities Act states might consider adopting to assist their associated and affiliated persons in managing the risk of potential personal liability.