Blue sky law deals with

Your Survival Guide to State Regulation Laws Prior to , securities regulations largely consisted of a patchwork of state laws. The introduction of federal law, however, in many ways only made matters worse, with federal and state regulations often overlapping in ways that proved a headache for regulators to deal with. The patchwork nature of blue sky laws posed a significant problem that was at least partially addressed by the federal Uniform Securities Act of This piece of federal legislation was then used by a majority of states when crafting their own securities regulation, which in turn led to far greater uniformity across the country.

While discrepancies between state laws still exist, current blue sky laws tend to make it much easier for investors to verify whether a potential investment is trustworthy. Blue sky laws are a bit of a funny name for what is actually a very serious issue. Enter your email address to stay current on legal news and receive special offers. Thank you for joining our mailing list! However, they are still required to register offers and sales. Also, the parties themselves are still required to register and can be held accountable under state fraud laws for any individual wrongdoing.

Blue sky law doesn't apply when securities offered are considered " covered securities " under Section 18 b 4 of the National Securities Markets Improvement Act.

This states that any securities offered under Rule of Regulation D qualify, thereby allowing them an exemption from the registration requirements of blue sky laws. Do note that states can still ask issuers to notice the filings and pay filing fees with respect to Rule private placements if the investors are residents of their state.

Other states require more documentation.

The broad reach of the federal securities laws

This includes New York, which has a laundry list of compliance requirements. An example of when an issuing entity is exempt from the blue sky law is when the security is listed on a national stock exchange, like the NASDAQ. Businesses listed in this manner can ask for a " manual exemption ," which ironically is an automatic exemption that allows them to sell securities within the state.

Where it gets a little fuzzy is with securities that are available only in the over the counter OTC market. If a securities issuer registers with one of the credit rating agencies and maintains the renewal each year, many states allow a registration exemption.

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Some states still require direct registration. These include:. Because blue sky laws are designed to protect investors, the cost and possible delays of complying with these provisions can be off-putting for small companies or those just starting to grow their business. Registering your securities in various states may be both time consuming and expensive, especially if you have a securities attorney handling all the tasks like research and filing.

This allows issuers to file Form D and applicable fees to various states at one time. The public can also view the filings by any issuer in the states who participate in the EFD.

Definition of Blue Sky Laws

Issuers get electronic receipts as proof of compliance, allowing them to monitor the progress of each state's review. The only downside is not all states and territories participate in the EFD. As of January , EFD is not available in:. Use the EFD filing website to keep up to date on which states require it, allow it, or don't participate. Some states may ask for additional documentation, like a consent to service of process or copy the offering memo. This may need to be sent separately.

There is a fee for using the system as well for each offering. This covers the issuer's initial Form D filing plus all amendments and renewal filings made through the EFD. The penalties imposed by the Uniform Securities Act of help keep most dealers honest since those provisions may require them to purchase back the investment. This could bankrupt a dealer depending on how much the security went down in value.

If a dealer sells a security that doesn't conform to the local blue sky law, then section a of the Act applies:. Some people want to know whether the fund or the management company is the one ultimately responsible for paying the filing fees. The general consensus is that fees are an expense of the fund. Even if it's specifically named as a fund expense, most funds have a general catch-all for expenses like filing fees.

What is Blue Sky Law?

A blue sky law is a state law in the United States that regulates the offering and sale of securities ostensibly to protect the public from fraud. Though the specific. Blue sky laws are state anti-fraud regulations that require issuers of and provide financial details of the deal and the entities involved.

It will depend on the specific state. Some states require a one-time filing fee while others require it to be paid annually. However, OTC listed securities are typically not exempt.

What it is:

As discussed previously here, businesses listed under NASDAQ and the like are given a "manual exemption," which is an automatic approval to sell securities within the state's borders. It's divided into two tiers:. The securities issued under both are unrestricted and transferable, allowing for secondary trading.

However, you'll want to do ample research to determine the exemptions and potential blue sky law compliance. The securities may be subject to blue sky laws once they've passed into secondary trading territory. When you're getting ready to file your securities offerings, register brokers, etc. To recap, every offer, or sale, of a security must be registered, or be exempt, under the blue sky laws of the state where it is offered in sold -- before it is offered for sale.

Every brokerage firm and every individual broker or representative must also be registered in said state, or be otherwise exempt from the registration requirements.

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Blue sky laws can still vary widely and may not be very uniform. Start by reviewing each of the state's statutes and regulations before starting any securities sales activities. Don't forget that while some states have identical statutory language, precedent can be very different. Don't hesitate to ask the state Securities Commission Staff if you have questions.

blue sky law | Definition, Securities, & Requirements |

Just remember that even when some states may not require registration, they may still require filings or place additional conditions on exemptions. Covered securities include:. Hedge fund administrators will need to make a blue sky filing in each state where one of its investors resides.

It should be made within 15 days of the date of the investment into the hedge fund. Please take note that New York is completely different and you'll need a manager to file before the initial investment takes place. The fee is also approximately four times the cost of other states. Once the attorney obtains this information, he or she will need to complete a Form D and Form U-2, which help the filing process with the state administrator.

If you need help with blue sky laws, you can post your question or concern on UpCounsel's marketplace.

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UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb. Blue Sky Law: Everything You Need to Know Blue sky law is a state law to protect investors from securities fraud, ensuring licensing of brokerage firms, individual stockbrokers, and their offerings.