The Blue Sky Law is different for each state, though they are designed to protect people from security fraud. Though slightly different language may be used, they all make sure that brokerage firms and individual stockbrokers are licensed. In most cases, public mergers must also have Blue Sky compliance.
While no one knows for sure why the laws were called that, it is believed to be from a Supreme Court decision in Hall v. Geiger-Jones because that cause also dealt with security regulations and constitutionality. Regardless of why they were named that way, the Blue Sky laws were created following the Great Depression because many money schemes promised higher returns and were later found to be fraudulent. States had to enact these laws that required new securities to be registered with appropriate state authorities so that the public knew which funds were legitimate and had access to information.
Why They are Essential
The laws are essential because they help investors make decisions based on trustworthy information. Again, they do vary but have similarities that help the public and support them.
Blue Sky compliance means that you do what is required by your state. Therefore, you need to research your state’s compliance laws and make sure that you adhere to them. Some laws can include that the business is not bankrupt or a shell company. There must be a reason you exist. Another is that the price of the security is reasonable compared to others in the market. That way, you cannot price gouge the public.
When it Doesn’t Apply
Blue Sky compliance isn’t required for some scenarios. For example, if your security is considered a covered security under the National Securities Market Improvement Act, you do not have to deal with the Blue Sky law. However, you may still be required to file fees and notice the filings appropriately. For more information visit Colonial Stock Transfer.