How to Use - Blue Sky Law Reporter

How to Use

Blue Sky Law Reporter

How to Use Blue Sky Law Reporter

The Blue Sky Law Reporter provides

timely information for the Blue Sky

practitioner entrusted with the task of

determining where and how to qualify

securities issues. The Blue Sky Law

Reporter brings together, for convenient

reference, laws and regulations for all

50 states plus the District of Columbia,

Guam, Puerto Rico and the U.S. Virgin

Islands. The Blue Sky Law Reporter also

contains selected policy statements,

interpretive opinions, administrative

orders and no-action letters that further

explain the laws and regulations. Lastly,

the Blue Sky Law Reporter contains

selected Blue Sky decisions from both

state and federal courts from 1936 to

the present.

Supplements to the Blue Sky laws and

regulations include:

¡ Securities Administrators list of

each state’s ofﬁce address, phone

number, contact persons and

their phone numbers and email

addresses

¡ Finding lists and Smart Charts

providing state-by-state treatment

of pertinent exemptions and other

topics

¡ Explanatory guides for each

state providing summaries of the

state’s important Blue Sky laws,

regulations, policy statements,

interpretive opinions and

administrative orders

¡ Uniform Securities Acts (1956 and

2002 Acts)

¡ Topical Index to Blue Sky Laws and

Regulations

¡ Topical Index to Blue Sky Decisions

¡ Table of Cases

¡ Guide to Blue Sky Decisions

¡ Statements of Policy of the North

American Securities Administrators

Association, Inc. (electronic only)

¡ Uniform/federal forms (non-

interactive) and a forms list for

each state of that state’s adopted

uniform/federal and state-speciﬁc

forms

¡ Insurance securities laws and

regulations— selective—that

pertain speciﬁcally to insurance

companies selling their own

securities using a solicitation

permit (for those jurisdictions that

have these insurance securities

laws and regulations)

¡ Takeover disclosure laws and

regulations (for those jurisdictions

that have these takeover disclosure

laws and regulations)

Note: The electronic version of the

Blue Sky Law Reporter contains within

the supplements mentioned above

hyperlinks to the full text of the ofﬁcial

laws, regulations, policy statements,

interpretive opinions, administrative

orders and Blue Sky decisions in the

Blue Sky Law Reporter.

What Subscription Includes

Current Reporting …

To keep the six loose-leaf volumes

up-to-date, bi-monthly issues of

new pages are mailed for insertion

in the binders. Current reports

consist of a report letter, new and

amended laws and regulations,

new and revised orders, policy

statements, interpretative opinions,

and decisions, as well as updates to the

abovementioned supplements.

Note: Electronic updates of the

Blue Sky Law Reporter will be made

available at the same time updated

pages are mailed to the print

subscribers. Internet subscribers can

choose to sign up for convenient email

delivery of Blue Sky Report Letters,

access them via RSS Feed, or setup

automatic Tracker News search alerts.

Loose-Leaf Volumes …

Subscribers receive six loose-leaf

volumes organized by guide cards,

one guide card for each of the 54

jurisdictions (the 50 states plus District

of Columbia, Guam, Puerto Rico

and the U.S. Virgin Islands) for quick

reference or study and planning.

The jurisdiction divisions are arranged

alphabetically, with Alabama to

Arizona in Volume 1, Arkansas to Idaho

in Volume 1A, Illinois to Minnesota

in Volume 2, Mississippi to North

Carolina in Volume 2A, North Dakota

to Tennessee in Volume 3, and Texas

through Wyoming in Volume 3A.

Each jurisdiction contains in this order:

(1) table of contents; (2) forms list; (3)

explanatory guide summarizing that

jurisdiction’s laws, regulations, policy

statements, interpretive opinions

and administrative orders; (3) the

jurisdiction’s Blue Sky statute; (4) the

jurisdiction’s takeover disclosure laws

(if the state has these laws); includes

ﬁrst-generation laws governing

takeover disclosures provided for

subscriber convenience that deal

with acquisitions of equity securities

of domestic corporations and target

companies with principal ofﬁces or

substantial assets in the state; (5) the

jurisdiction’s select insurance securities

laws involving an insurance company

selling its own securities via solicitation

permit (if the jurisdiction has these

laws); (6) the jurisdiction’s Blue Sky rules

and regulations; (7) the jurisdiction’s

select Blue Sky policy statements,

interpretive opinions, memorandums,

checklists, administrative orders and

no-action letters; (8) the jurisdiction’s

takeover regulations (if any); and (9) the

jurisdiction’s select insurance securities

regulations involving an insurance

company selling its own securities via

solicitation permit (if the jurisdiction has

these regulations).

The other guide cards in Volume 1 are

for: (1) Topical Index to Blue Sky Laws

and Regulations; (2) Guide to Blue Sky

Decisions containing Topical Index,

Table of Cases, About Blue Sky Laws,

and Annotations to Decisions organized

under appropriate subject; (3) Uniform

Forms containing uniform/federal

forms; (4) two Uniform Securities

Acts (1956 and 2002); and (5) Finding

Lists summaries in chart form of

state-by-state treatment of pertinent

exemptions and other topics. Volume

3A of the Reporter contains the New

Matters (Blue Sky Decisions).

The Internet version of the Blue Sky Law

Reporter contains the abovementioned

“print subscription” items and the

NASAA Statements of Policy from

the NASAA Reports, plus Blue Sky

Smart Charts-Compare Jurisdictions,

an Internet-only product that provides

customizable state-by-state treatment

in chart form of pertinent exemptions

and other topics.

Locating Information

Paragraph and Page Numbers …

For print subscribers, paragraph (¶)

numbers are used exclusively for all

reference purposes in the Tables of

Contents, Topical Index to Blue Sky

Laws and Regulations, Guide to Blue

Sky Decisions annotations, uniform

securities acts, explanatory guides

and ﬁnding lists, as well as in the

Blue Sky laws, regulations, policy

statement and decisions sections;

insurance securities law and regulation

sections; and takeover disclosure law

and regulation sections. The Topical

Index to Decisions contains annotation

references from the Guide to Blue Sky

Decisions. Page numbers establish the

sequence of the basic contents and

are used in the general contents and

also in ﬁling the current Reporter. For

electronic subscribers, supplements in

the Blue Sky Law Reporter, i.e., ﬁnding

lists, Smart Charts, explanatory guides,

uniform securities acts, topical indices

and Guide to Blue Sky Decisions

annotations contain hyperlinks to the

paragraphs (¶) that house the full,

ofﬁcial text of the appropriate Blue Sky

law, rule/regulation, policy statement,

interpretive opinion, administrative

order, no-action letter and decision.

How to Cite …

To cite to speciﬁc documents, combine

the name of the Reporter and the

paragraph number. For example, the

material at ¶1401 may be cited

“Blue Sky Law Reporter ¶1401.”

Features In The Reporter

Topical Index …

TOPICAL INDEX TO BLUE SKY LAWS

AND REGULATIONS. The Topical

Index to Blue Sky Laws and Regulations

provides an entry for all of the laws

and regulations contained in the Blue

Sky Law Reporter. This includes entries

for the laws and regulations in the

takeover disclosure law/regulation

sections, insurance securities law/

regulation sections, and the laws and

regulations contained in any related-

law sections such as for viatical

settlement acts.

The Topical Index to Blue Sky Laws and

Regulations provides an entry for many

of the Blue Sky policy statements,

interpretive opinions, memorandums,

checklists and administrative orders

contained in the Blue Sky Law

Reporter but not for those documents

considered outdated and, hence, no

longer valid. In addition, the Topical

Index does not contain entries for

no-action letters if the topic of the no-

action letter already contains an entry

with links to laws, regulations, policy

statements and/or administrative

orders. Lastly, the Topical Index does

not contain entries for Blue Sky

decisions. The Topical Index to Blue Sky

Decisions is a separate topical index of

the Blue Sky Law Reporter.

Most entries in the Topical Index to

Blue Sky Laws and Regulations will

be indexed twice, once under the

appropriate jurisdiction and once

under the topic to which they pertain.

There are exceptions, however: The

administration or “housekeeping”

entries for each jurisdiction, e.g.,

how many ofﬁcers are in the state

securities department, ofﬁce locations

and hours, etc., will be indexed only

under the jurisdiction. On the other

hand, entries that cross over topics

may appear many times, i.e., a few

times under the jurisdiction and two

or three times under one topic, or

once under two or more topics, e.g., a

limited offering exemption provision

that involves the 25-person-in-12

months exemption, Rule 505 and

506 may appear in the jurisdiction in

the following three places, and under

the following three separate topics:

Exemptions, limited offering; federal

Regulation D, Rule 505; and federal

covered security, Rule 506.

The following topics have entries. All

other topics will contain a “SEE one

of the synonym topics below” so

that the topic below will contain the

needed entries and links to full text

documents:

¡ Advertising And Sales Literature

¡ Agent (Salesperson)

¡ Broker-Dealer (Dealer)

¡ Civil Liabilities

¡ Consent To Service Of Process

¡ Criminal Penalties

¡ Electronic Form D

¡ Evidentiary Burden

¡ Exemptions (For Securities And

Transactions; Each Common-

To-All- States Exemption And

Each State- Speciﬁc Exemption Is

Separated Out By Name)

¡ Federal Covered Investment

Advisers

¡ Federal Covered Securities

(18(B)(1), 18(B)(2) Investment

Companies, 18(B)(3), 18(B)(4)(A),

18(B)(4)(B), 18(B)(4)(C), 18(B)(4)(D)

Rule 506)

¡ Federal Regulation D (Rule 504

And 505)

¡ Fees

¡ Forms

¡ Fraud And Liabilities

¡ Hearings

¡ Injunctive Relief

¡ Insurance Securities

¡ Interpretive Opinions (And

No-Action Letters: General

Mention Of How To Request One)

¡ Investigations and Subpoenas

¡ Investment Advisers

¡ Investment Adviser

Representatives

¡ Investment Companies (Mutual

Funds/Unit Investment Trusts)

¡ Issuers

¡ Issuer Dealers

¡ Issuer Dealer Agents

¡ NASAA Statements of Policy and

Guidelines

¡ Remedies Of Purchaser

(Rescission)

¡ Securities (May Include Viatical

Settlement Acts)

¡ Takeover Disclosures

¡ Uniform Securities Act (1956)

¡ Uniform Securities Act (2002)

Guide to Blue Sky Decisions...

The Guide to Blue Sky Decisions

contains selected state and federal

court decisions, state administrative

decisions, and state attorney general

opinions that have interpreted

state Blue Sky legislation since the

enactment of the ﬁrst Blue Sky Act in

1911. The Guide provides a convenient

reference tool for accessing the text of

the decisions contained in the Blue Sky

Law Reporter.

Internet subscribers may use the

annotations in the Guide to Blue Sky

Decisions to link directly to the text

of all of the decisions from 1936 to

the present that have been reported

in the Blue Sky Law Reporter. Print

subscribers may use the Guide to

Blue Sky Decisions to locate current

decisions contained in the New

Matters division, as well as decisions

contained in the transfer binders.

These decisions from all jurisdictions

are arranged by subject matter,

according to a comprehensive and

detailed outline. A Topical Index to Blue

Sky Decisions at the beginning of the

division affords easy reference to the

subject matter. A Table of Cases lists all

court and administrative decisions and

all attorney general opinions cited in

the division.

Uniform Forms …

Uniform Forms. The print version of

the Blue Sky Law Reporter contains

uniform/federal forms that the various

Blue Sky jurisdictions may have

adopted. These forms include Form

U-1 (uniform registration of securities),

U-2 (uniform consent to service of

process), U-2A (uniform corporate

resolution), U-7 (small company

offering registration), U-SB (uniform

surety bond), CER-1 (coordinated

equity review), D (federal Regulation

D), NF (investment company notice

ﬁling), MAIE (NASAA model accredited

investor exemption), SOI (solicitation

of interest form), U-4 (agent/

investment adviser representative

registration), U-5 (agent/investment

adviser representative termination/

withdrawal), U-6 (disciplinary reporting

form), U-10 (uniform examination for

non-NASD candidates), BD (broker-

dealer licensing), BDW (broker-dealer

withdrawal), ADV (paper version for

investment adviser registration), ADV-E

(certiﬁcate of accounting of client

securities and funds in possession

or custody of investment adviser),

ADV-H (investment adviser temporary

or continuing hardship exemption),

ADV-NR (appointment of agent for

service of process by non-residential

general partner and non-resident

managing agent of investment adviser)

and ADV-W (investment adviser

withdrawal).

NASAA Statements of Policy

(electronic only). The NASAA

Statements of Policy from the NASAA

Reports are available for Internet

subscribers to the Blue Sky Law

Reporter.

Uniform Securities Acts …

The text of the 1956 and 2002

Uniform Securities Acts are provided,

along with ofﬁcial comments of the

National Conference of Commissioners

on Uniform State Laws and NASAA

amendments and comments.

Note: Paragraph ¶5500 provides a list

of the jurisdictions that adopted the

1956 Act. The ﬁnding list at ¶6431

provides a list of the jurisdictions

that adopted the 2002 Act. Internet

subscribers can use the Smart Charts

to create customized charts regarding

the Uniform Securities Act of 2002.

Finding Lists …

The Finding Lists division contains

tables and charts that break down long

paragraphs of full text into “bite size”

bits of information showing state-by-

state treatment of pertinent

exemptions and other topics. The ﬁrst

ﬁnding list is entitled the Securities

Administrators list, a table of each

jurisdiction’s ofﬁce location, address,

phone number, contact people and

their phone numbers and email

addresses, and the jurisdiction’s

website. The Securities Administrators

list provides the ofﬁce for each of the

50 states, plus the District of Columbia,

Guam, Puerto Rico, U.S. Virgin Islands,

Mexico and each territory in Canada.

¡ Other ﬁnding lists are displayed

in the following order in the print

and electronic versions of the Blue

Sky Law Reporter. Each ﬁnding list

contains an introduction to the

topic. Note that all ﬁnding lists

contain, for those jurisdictions

that have adopted the topic,

the paragraph(s) to the ofﬁcial

documents where the text can be

read in full. Some of the ﬁnding

lists, however, do not contain any

summarized (“bite sized”) content;

these ﬁnding lists are set up to be

simply “lists,” i.e., lists of paragraph

numbers for those jurisdictions

that have adopted the topic,

that may then be looked up by

turning pages (print subscribers)

or hyperlinked to the full text

document (electronic subscribers).

¡ NASAA Statement of Policy

Adoptions

¡ Exemptions for Securities

¡ Exemptions for Transactions

¡ Exemptions: Limited Offering/

Regulation D

¡ Shelf Registration

¡ Standard Manuals Exemptions

¡ Commodities Regulation

¡ Multijurisdictional Disclosure

System

¡ Exchange Exemption

¡ Uniform Securities Act of 2002

¡ Investment Adviser Registration

Depository (IARD)

¡ Small Company Offering

Registration (SCOR)

¡ Canadian Broker-Dealers

¡ Qualiﬁed Institutional Buyer and

Accredited Investor Exemptions

¡ Internet: Exemption (for Offers)

and BD/IA Advertising

¡ National Securities Markets

Improvement Act of 1996 (NSMIA)

¡ Blue Sky Fees

¡ Central Registration Depository

(CRD)

¡ Limited Liability Company (LLC)

Interests

¡ Payment of Fees

¡ Service of Process

¡ Summaries of Blue Sky Laws,

Regulations, Policy Statements/

Orders and Case.

Smart Charts …

Blue Sky Smart Charts - Compare

Jurisdictions. Available for Internet

subscribers to the Blue Sky Law

Reporter. Smart Charts, launched June

2006, provide an exciting, new way to

interact with and display ﬁnding list

data. Subscribers click on a topic of

interest (from the list of topics), then

click on any pertinent subtopics (if

the particular topic chosen contains

subtopics), then select the jurisdiction(s)

needed to see results for, and ﬁnally

see the results on that topic for the

jurisdictions selected. The results can

be viewed in a chart or matrix format,

and results can be printed, saved,

exported and emailed to colleagues. A

“links” columns of paragraph numbers

will take the subscriber to the full text

of the applicable law, regulations,

policy statement, interpretive opinion,

administrative order and/ or no-action

letter. Additional commentary on the

results will be provided in a “comments”

column. A “chart note” at the top of

the results page can be clicked on to

provide an introduction to the chart.

Amendments to results page content

can be made to appear highlighted in

yellow, and the highlights can be saved

to remain in yellow for 10 days to 1 year

or a date can be picked to see changes

for that date.

To date, the Smart Chart product

contains the following topics:

¡ Canadian Broker-Dealers

¡ Internet: Exemption (for Offers)

and BD/IA Advertising

¡ Investment Adviser Registration

Depository (IARD)

¡ National Securities Markets

Improvement Act of 1996 (NSMIA)

¡ Qualiﬁed Institutional Buyer and

Accredited Investor Exemptions

¡ Small Company Offering

Registration (SCOR)

¡ Uniform Securities Act of 2002

¡ Blue Sky Fees

¡ Decisions on Exempt Securities

¡ Decisions on Exempt Transactions

¡ Decisions on Federal Preemption

¡ Finders

¡ Hedge Funds

¡ Payment of Fees

¡ Rule 506 Offerings

¡ Rule 701

¡ Service of Process

¡ Standard Manuals Exemptions

¡ Summaries of Blue Sky

Laws, Regulations and Policy

Statements/ Orders

¡ Variable Annuities

¡ Advertising/Sales Literature Filing

Requirements

¡ Bank and Savings and Loan

Securities Exemption

¡ Blue Sky Fees

¡ Broker-Dealers and Agents

¡ Compensatory Beneﬁt Plan

Exemption and Rule 701

¡ Decisions Involving Arbitration

¡ Decisions Involving Corporate

Takeover Laws (Tender Offers)

¡ Decisions Involving Exempt

Securities (Including Rule 506)

¡ Decisions Involving Exempt

Transactions

¡ Decisions Involving Federal

Preemption (Including NSMIA)

¡ Decisions Involving Liability of

Ofﬁcers and Directors

¡ Decisions Involving Statutes of

Limitations

¡ Existing Securityholder Exemption

¡ Financial Institution/Institutional

Investor Transaction Exemption

¡ Finders

¡ Government (Municipal) Securities

Exemption and NSMIA Section

18(b)(4)(C)

¡ Hedge Funds

¡ Institutional Investor Deﬁnition

¡ Internet

¡ Investment Advisers

and Investment Adviser

Representatives

¡ Investment Companies and Unit

Investment Trusts (Notice Filings)

¡ Isolated Transaction and SEC 4(2)

Exemptions

¡ Issuer Financial Statement

Requirements

¡ Issuer-Agent Exclusions and

Exemptions

¡ Legend Requirements in Private

Placement Memorandums

¡ Limited (Private) Offering

Exemption

¡ Merger Exclusion and Exemption

¡ National Securities Markets

Improvement Act of 1996 (NSMIA)

¡ Nonproﬁt Organization Securities

Exemption

¡ Ofﬁcial/Agency Appointed to

Receive Service of Process

¡ Qualiﬁted Institutional Buyer and

Accredited Investor Exemptions

¡ Recognized Securities Manuals

¡ Registration of Securities

¡ Rule 506 Offerings

¡ Securities Administrators Contact

Information

¡ Small Company Offering

Registration Program and Form

U-7

¡ Summaries of Recent Laws, Rules

and Cases

¡ Takeover Disclosure law and

Regulations

¡ Uniform Securities Act of 2002

¡ Variable Annuitants: Are they

included in the state’s deﬁnition of

“Security?

Story Of Blue Sky Legislation

History Of Blue Sky Legislation

State regulation of the sale of securities

in the United States dates from

1911 when the Kansas legislature

passed the ﬁrst securities law. North

Carolina followed the same year and

in 1912 Arizona and Louisiana enacted

legislation in the ﬁeld of securities

regulation. The year 1919 found thirty-

two states with this type of statute

enacted. At present, the federal

government and all the states have

passed legislation regulating the offering

for sale, or sale of, corporate securities,

bonds, investment contracts and stocks.

All legislation has as its basis the

recognition of the fact that, for the great

majority of the people, uneducated

to the complexity of corporate

organization and to the intricacies of

investing, there is a need for protection

from dishonest and unscrupulous

promoters and their doubtful and often

worthless stocks. These promoters, with

their fraudulent practices and dishonest

schemes, found a ready market with

those who saw an opportunity to get

rich quick. These statutes are generally

and popularly referred to as Blue Sky

Laws, because of their purpose of

preventing speculative schemes which

have no more basis than so many feet of

blue sky. Hall v. Geiger-Jones Co. 242 U.

S. 539 (1917).

Constitutionality Of Blue Sky Laws

Some of the early attempts at Blue

Sky legislation by the states were held

unconstitutional (Iowa, Michigan, and

West Virginia). After the decisions in

1917 in the Hall case, supra, upholding

the Ohio Act, and in the two following

cases disposed of the same year by

the United States Supreme Court, all

doubts of the validity of these acts

on constitutional grounds largely

vanished. Caldwell v. Sioux Falls Stock

Yards Co., 242 U. S. 559, upheld the

South Dakota Act, and the Michigan

Act was examined and held a valid

exercise of state power in Merrick v. N.

W. Halsey & Co., 242 U. S. 568. Under

constitutional attack the Blue Sky

legislation is supported by the police

power of the states for the prevention

of fraud and to provide for the general

welfare of the people.

The Fraud Type Law

While all the state statutes vary in

detail (for the important provisions of

any particular state, see the individual

State Guide) they nevertheless are

classiﬁable into groups. The statute with

the least regulatory detail is the fraud

type. At the present time, none of the

states regulate the sale of securities by

means of a fraud type law. However,

for historical purposes, a typical fraud

type law provided penalties for the

fraudulent sale securities and provided

injunctive proceedings to protect the

public from anticipated or further

fraudulent acts. These laws required

neither the licensing of dealers or

brokers nor the registration of securities.

Some state ofﬁcial, usually the Attorney

General, was given general broad

powers to investigate any security or

security transaction which appeared

to be fraudulent. For this purpose, he

had the power of subpoena to examine

documents and question witnesses

and could initiate proceedings to enjoin

the sale of securities and prosecute by

criminal proceedings if the cause for

such measures existed. Part I of the

1956 Uniform Securities Act, at

¶5511 and ¶5512, makes provision for

the enactment of a fraud type law (see

also Ofﬁcial Code Comment at ¶5501).

Regulation By Controlling The

Distributor Or Seller Regulation

By Controlling The Distributor Or

Seller

A second type of law regulating the sale

of securities controls securities dealers

or brokers and salesmen or agents

only. No jurisdiction currently regulates

the sale of securities in this manner,

although at one time this type of law

was in effect in the District of Columbia.

Provision is made for the registration of

dealers and salesmen by the licensing

agency upon the satisfactory showing

that the applicant is of good repute,

that the proposed plan of business is

not unfair, unjust or inequitable, that

the applicant intends to honestly

and fairly conduct its business, with

disclosure of pertinent facts sufﬁcient to

enable intending purchasers to form a

judgment of the nature and value of the

securities, and that the securities that

it proposes to issue or sell are not such

that will work a fraud on the purchasers.

Usually the dealer must ﬁle a bond or

furnish satisfactory proof of his ﬁnancial

responsibility.

As a further protection to the investing

public the supervising agency may

require the dealer at any time to ﬁle

a list of securities which have been

offered for sale or are being offered

for sale, together with all advertising

circulars and any other pertinent facts

concerning the securities, that will

enable an investigation to be made

of the offering. A dealer’s license may

be revoked for any violation of the

provisions of the Blue Sky Law or for

any case of dishonest, deceitful or

fraudulent conduct on the part of the

dealer in connection with his operation

of the business of selling securities.

Licenses granted for one year are usually

renewable upon paying the prescribed

fee without the ﬁling of further

statements or additional information

unless such is speciﬁcally requested.

Effective protection is afforded and

wide scope is added to these laws by

including in the deﬁnition of dealer any

individual, partnership, association,

or corporation engaging in selling

or offering securities for sale. This

deﬁnition is of prime importance since

through it the legislature may either

expand or contract the applicability

of the provisions of the securities

law. Regulation of foreign dealers

is achieved through the ﬁling of a

consent to service of process on the

state regulatory agent in any actions

based upon or arising in connection

with the sale of securities in the state.

Finally, provisions are made for appeals

by aggrieved persons by petition

addressed to the courts.

Regulation By Controlling The

Issuer

A third type of law provides for the

registration of securities that are to be

sold in the state but does not provide

for the licensing or registration of

dealers or brokers. At one time this

type of law was in effect in Wyoming.

Such a law would provide that it is

unlawful for a person, partnership,

association or corporation, either

as principal or through brokers

and agents, to offer securities for

sale without the ﬁling of certain

information with the regulatory agency

of the state.

Generally the information required is

a copy of the securities, a statement in

substantial detail of the issuer’s assets

and liabilities, the total amount of the

issue, the amount to be offered for sale

in the state, copies of any mortgages or

instruments creating liens, the amount

and interest of securities that are prior

in interest or lien, a proﬁt and loss

statement, a copy of the prospectus or

any other advertising matter to be used

in connection with the promotion, the

names and addresses of the selling

agents, names and addresses of the

principal owners of the issuer, a copy of

the charter or articles of partnership,

a statement showing in detail the plan

of business and any other information

that may be required by the licensing

agency that is pertinent to determining

the value or potential value of the

securities to be issued. Foreign

corporations are required to ﬁle a

consent to service of process and may

be required to deposit a surety bond, or

in lieu thereof cash or security, before

a permit to sell the securities set forth

in the applicant’s statement is issued

by the state. In connection with the

granting of permits to sell securities,

the regulatory agency may conduct

hearings upon any investigation or

examination deemed necessary.

Review by a court of competent

jurisdiction is provided if any decisions

of the administrative body are alleged

to be unjust or unreasonable.

Regulation By Controlling Both

Issuer And Dealer

All jurisdictions now have enacted

legislation that provides for the

licensing of dealers and salespersons

and the registration of securities. The

majority have adopted, or substantially

adopted with modiﬁcations, the

Uniform Securities Act of 1956

which was approved by the National

Conference of Commissioners on

Uniform State Laws. More recently,

some states have adopted the Uniform

Securities Act of 2002 in place of their

previous legislation.

North American Securities

Administrators Association, Inc.

An examination of the types of Blue

Sky Statutes reveals a good deal of

similarity. In most jurisdictions, the

administration of the Blue Sky Law is in

the hands of a Securities Commission or

Securities Commissioner in recognition

of the fact that securities regulation is a

full time job for experts. These ofﬁcials

have formally associated themselves

in an organization known as the North

American Securities Administrators

Association, Inc. (NASAA) for the

mutual exchange of ideas in the ﬁeld of

securities administration.

NASAA is a voluntary association

whose membership consists of the

sixty-seven state, provincial and

territorial securities administrators

in the ﬁfty states, the District of

Columbia, Puerto Rico, the U.S. Virgin

Islands, Canada, and Mexico. Although

NASAA itself is not a regulatory

entity, its members have regulatory

authority as securities administrators,

directors or commissioners. As a result,

NASAA’s positions generally prove very

inﬂuential in the area of Blue Sky law.

How Does The Typical Blue Sky Law

Operate?

Included in most of the statutes is

a section of deﬁnitions. The two of

most importance are the deﬁnitions

of securities and sale or sell. Also

important is the deﬁnition of dealer.

Exempt securities and transactions

are enumerated within the Blue Sky

Statutes and rules. Exemptions are

provided where the nature of the

security and the type of transaction

require no regulation under the Blue Sky

Law. However, in connection with the

issuance and sale of stock of insurance

companies, banks, public utilities,

railroads and other corporations subject

to regulation by state agencies other

than Blue Sky Commissions, any special

laws applicable to the issuance and sale

of stock by such corporations should

be consulted. The following securities

or securities issued by the following

organizations or institutions are

generally exempt from the operation of

the Blue Sky Law:

¡ Banks

¡ Canadian and Other Foreign

Governments and Their Public

Taxing Subdivisions

¡ Commercial Paper: States adopting

the Uniform Securities Act of 2002

do not have a commercial paper

exemption

¡ Cooperative Associations

¡ Corporations Organized Under

Acts of Congress

¡ Credit Unions

¡ Employee Plans

¡ Holding Companies Holding Utility

Securities

¡ Insurance Companies

¡ Mortgages

¡ Nonproﬁt Organizations

¡ Public Utilities and Railroads

¡ Savings Associations

¡ Securities Designated on the

NASDAQ/ NMS

¡ Securities Listed in Standard

Manuals Securities Listed on Stock

Exchanges Registered with the

United

¡ States Securities and Exchange

Commission States and Political

Subdivisions

¡ Trust Companies

¡ United States and Territories

Generally, the following transactions or

sales are exempt from the operation of

the law:

¡ Domestic Corporations, Stock

Subscriptions

¡ Isolated Sales by an Owner or

for an Owner’s Account Issues of

Mergers and Reorganizations

¡ Judicial Sales

¡ Limited or Private Offers

¡ Receiver’s or Trustee’s Sales

¡ Sales of Preorganization

Certiﬁcates

¡ Sales to Banks, Insurance

Companies, Trust Companies and

Similar Institutions

¡ Sales to Existing Security Holders

¡ Stock Dividends Issuance

¡ Transactions Between Issuers and

Underwriters

Registration by Notiﬁcation

Registration by notiﬁcation is limited

to certain classes of securities. These

securities are generally securities

issued by a corporation which has

been in continuous operation and

has had a favorable earning record

for a prescribed number of years and

speciﬁed securities registered for

nonissuer distribution that are of a

class where no securities have been

registered or that were originally issued

pursuant to an exemption.

NOTE: States adopting the Uniform

Securities Act of 2002 do not register

securities by notiﬁcation.

The procedure for registration by

notiﬁcation usually requires the ﬁling

of a statement containing the name

and address of the issuer; a brief

description of the security, amount of

the issue and the amount to be offered

in the state; a statement of facts

showing that the issue is entitled to

registration by notiﬁcation; the offering

price; and a copy of the circular to be

used for the public offering. The ﬁling

of this statement accompanied by the

proper fee constitutes the registration

of the security. Upon such registration,

the securities may be sold by a

registered dealer unless the regulatory

agency orders the suspension of sale.

Registration by Coordination

Securities for which a registration

statement has been ﬁled under the

federal Securities Act of 1933 in

connection with the same offering may

be registered by coordination in many

states. The registration statement must

be accompanied by certain documents,

including copies of the prospectus

ﬁled with the Securities and Exchange

Commission; articles of incorporation

and bylaws; agreements with or among

underwriters; a copy of instruments

governing the issuance of the security,

and the security itself.

The administrator may also be

given powers to require additional

documents or information, such as all

future amendments to the prospectus

and information as to other states in

which the registration is expected to

be ﬁled. Registration by coordination

is generally effective at the moment

the federal registration statement

becomes effective, providing the

registration statement was on ﬁle with

the administrator for the speciﬁed

number of days. The maximum and

minimum proposed offering price and

the maximum underwriters discounts

or commissions also must have been

ﬁled with the administrator for the

speciﬁed number of days.

The Securities and Exchange

Commission has established rules

to facilitate cross-border offerings

by certain Canadian issuers. The

Multijurisdictional Disclosure System

permits issuers to make public offerings

and tender offers in Canada and the

U.S. using disclosure documents

prepared in accordance with home

country requirements. Further details

on the MJDS can be found at Blue Sky

Law Reporter ¶6371.

Registration by Announcement or

Description

Securities outstanding and in the

hands of the public for not less than

one year as a result of prior original

registration in the state or as a result

of an SEC registration by the issuer,

or underwriter on his behalf, may

be registered by announcement in

some states. In addition, certain life

insurance stock may be registered by

announcement. North Dakota permits

this type of registration. Securities

may be registered by announcement

only by registered dealers, by the ﬁling

of a written announcement of the

intention to trade in the securities.

The announcement must contain the

name of the issuer and his location, a

description of the security, a statement

that the security has been outstanding

and in the hands of the public for not

less than one year, a balance sheet

not more than 12 months old, and a

statement of registration in the state

or by the SEC. The securities may not

be sold directly for the beneﬁt of the

issuer or the underwriter. The ﬁling of

the announcement and the payment of

the fee constitutes registration.

Registration by description is permitted

in some states. Eligible are securities of

an issuer in continuous operation for

not less than three years and meeting

speciﬁc earnings tests. Arizona and

Ohio are examples of jurisdictions

permitting this type of registration.

Registration by Qualiﬁcation

Registration by qualiﬁcation is required

of all other securities not exempt from

the law or entitled to registration

by notiﬁcation, coordination,

announcement, or description.

The procedure for registration by

qualiﬁcation requires the ﬁling of a

prescribed form. In addition to the

information required for registration

by notiﬁcation, statements, exhibits

and documents concerning the

issuer’s business are required to be

ﬁled in much greater detail. A ﬁling

fee must accompany the application.

Registrations by qualiﬁcation

are usually effective by either an

entry in the Register of Securities

or the issuance of a permit. Some

registrations expire at the end of one

year and others when the prescribed

number of securities for which

applications have been made have

been sold.

Small Company Offering

Registration

Under an exemption provided by

federal Rule 504, a small company

offering registered with a state need

only provide the Securities and

Exchange Commission notice by ﬁling

Form D. The aggregate offering price

of the securities in a small corporate

offering registration (SCOR) may reach

1 million in a 12-month period. SCOR

is not open to any issuer that has been

the subject of a range of speciﬁc law

enforcement actions including any

securities crime, fraud, state cease and

desist order or injunction. To qualify for

SCOR participation, a state must have

adopted laws, regulations and/or policy

statements declaring that the issuers

ﬁling Form U-7 comply with the North

American Securities Administrators

Association’s (NASAA) Instructions

to the form. In certain instances, the

offering must also comply with state

requirements and a merit review by

the state securities commission. For a

list of states that currently participate

in SCOR and for further details on the

requirements under SCOR, see Blue

Sky Law Reporter ¶6461.

Registration of Dealers,

Agents, Investment Advisers

and Investment Adviser

Representatives

Registration of dealers or brokers,

salesmen, agents, investment advisers

and investment adviser representatives

is effected by the ﬁling of an application

for registration and consent to service

of process, accompanied by the

proper fee. Branch ofﬁce managers

are expected to act in a supervisory

capacity over dealers who work for

them. Such managers are accountable

for compliance with record keeping

requirements and the timely submission

of ﬁnancial statements. Most

jurisdictions authorize the Central

Registration Depository (CRD) to collect

broker-dealer fees. Form U-4 is used

to register salespersons afﬁliated with

broker- dealer members of the National

Association of Securities Dealers,

Inc., through the CRD. In addition, all

states now participate in Phase II of

the CRD and permit amended Forms

BD (Broker-Dealer) and BDW (Broker-

Dealer Withdrawal) to be made through

the CRD. The CRD is also authorized to

collect applications, renewals, and other

documents and fees for investment

adviser representatives. Further

information regarding the CRD can be

found at Blue Sky Law Reporter ¶6531.

The Investment Advisory Registration

Depository (IARD) is a web-based

system that electronically receives and

stores ﬁlings, and collects fees, from

investment advisers investment adviser

representatives. Further information

regarding the IARD can

be found at Blue Sky Law Reporter

¶6451.

Advertising

In general, most statutes require that

all advertising matter be submitted to

the regulatory agency for approval. It

is not permissible to make reference in

the advertising to the registration of the

securities or the issuance of a license.

Investigatory Powers

In regard to supervision, most

securities departments have broad

investigatory powers and may by

summons or subpoena require the

attendance and testimony of witnesses

and the production of books and

papers relating to any matter as to

which it has jurisdiction.

Usually annual reports are required

of dealers and issuers. Foreign issuers

and dealers are usually required to

ﬁle surety bonds and an irrevocable

consent to service of process for

actions that may arise as a result of

the securities business transacted.

The regulatory body is often given the

power to require that any securities

which have been or are intended to be

issued for intangible assets, promotion

fees and expenses be deposited in

escrow.

Rules and Regulations

Most securities agencies are authorized

to make necessary rules and

regulations to carry into effect the

full provisions of the law. Also, these

bodies issue forms that reﬂect the

provisions of the law and regulations in

regard to registrations and applications.

Registration of Investment Advisers

Some states have required the

licensing of investment advisers

and representatives who, before

being granted a license, must

furnish satisfactory evidence of their

trustworthiness and their competency

to engage in the business of dealing

in and selling securities. Some states

have also required the registration of

all investment trusts or comparable

investment companies.

Judicial Review and Penalties

Finally, provision is made for judicial

review of department actions,

injunctions, indictments, prosecutions,

remedies for aggrieved purchasers, and

penalties for violations of the Blue Sky

Law.

Judicial Interpretation Of Blue Sky

Laws

For the most part, the courts have

upheld the actions of the securities

departments functioning under the

law. This construction of securities

legislation holds especially true

when it is remedial in nature, as this

construction effects the ultimate

purposes of the acts. The Minnesota

Supreme Court has held that the

Blue Sky Law is a proper and needful

exercise of the police power of the

state and should not be given a narrow

construction. State v. Gopher Tire &

Rubber Co., 146 Minn. 52, 177 N. W.

937 (1920).

Other states, in the minority, have

looked upon the statutes as primarily

penal and as a result have accordingly

construed the statutes. The Supreme

Court of Alabama has said that while

laws of this character should receive

a reasonable construction with a view

to effect the legislative intent, yet,

being penal in nature, its provisions will

not be extended by construction to

include cases which are clearly outside

its scope. And statutory remedies

for rights unknown to the common

law are to be strictly construed.

Westenhaver v. Dunnavant, 225 Ala.

400, 143 So. 823 (1932). But whether

the statutes be construed liberally

or strictly, the inconvenience to the

honest and conscientious engaged in

the legitimate securities business in

complying with the rules, regulations

and licensing provisions of the Blue

Sky Laws must be weighed with the

immeasurable beneﬁts to and the

savings of untold amounts of money

by the general public, as a result of the

suppression of fraudulent practices in

the securities ﬁeld.

Legislative Changes

It should be noted that since the

decisions and opinions included

extend over a period of seven decades,

during which time legislative changes

in many states have been extensive,

some of this authority construes laws

which have been changed, and is

consequently not interpretive of the

law today. The cases and opinions

should be carefully examined in the

light of presently effective law reported

in the appropriate state divisions.

Training and Other Complimentary Securities-related Resources:

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Attend complimentary, instructor-led training:

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and one of our Professional Trainers will contact you to arrange a customized, hands-on training session.

Jim Hamilton’s World of Securities Regulation blog: jimhamiltonblog.blogspot.com

Securities Update: business.cch.com/updates/securities.

Dodd-Frank News Center: ﬁnancialreform.wolterskluwerlb.com

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