Blue-sky Laws

The term "blue-sky laws" refers to:

1. A.The securities laws of the individual statesCorrect — blue-sky laws are state securities statutes, administered by state securities administrators.
2. B.International agreements governing cross-border securities offeringsBlue-sky law is purely domestic and state level; it has nothing to do with cross-border regulation.
3. C.The federal antifraud provisions of the Securities Exchange Act of 1934Those are federal statutes enforced by the SEC. Blue-sky refers specifically to the state layer.
4. D.FINRA's conduct rules for member firmsFINRA rules are SRO rules, not state law. Blue-sky authority belongs to state governments.

Why: Blue-sky laws are the securities statutes of the individual states. They require registration of securities, broker-dealers, and agents at the state level and are administered by each state's securities administrator.

In addition to any federal requirements, an issuer planning a public offering must consider blue-sky laws. These are:

1. A.Exchange listing standards that determine where the shares are permitted to trade.Wrong. Listing standards are set by each exchange and are a separate matter from securities registration.
2. B.FINRA rules governing how underwriting compensation is calculated and reviewed.Wrong. Review of underwriting compensation is a self-regulatory function unconnected to this term.
3. C.SEC rules requiring issuers to disclose environmental liabilities in a filing.Wrong. Environmental disclosure is one topic within federal disclosure rules, not a body of law of its own.
4. D.State securities laws governing the offer and sale of securities in each state.Correct. Blue-sky laws are the state-level securities statutes an offering must satisfy alongside federal law.

Why: Securities regulation in the United States operates on two levels. Federal law governs registration and disclosure for offerings that are not exempt, and each state maintains its own securities statute covering offers and sales within its borders. Those state statutes are traditionally called blue-sky laws, and an issuer distributing across many states must address the requirements applicable in each. State regulators coordinate through NASAA, and a state's authority also reaches the registration of firms and individuals selling within it.

Corvale Tanning Company has not registered its common stock in State N and no exemption is available. Its chief executive mails 60 State N residents a letter describing the stock and inviting orders. Nobody responds and no shares are sold. Under the Uniform Securities Act, the company:

1. A.Did not violate the Act, because no sale was made and no money was received.Incorrect. A completed sale is not required for a violation.
2. B.Did not violate the Act, because a letter is not an offer until a purchaser accepts.Incorrect. An offer includes every solicitation of an offer to buy.
3. C.Violated the Act only if more than ten of the recipients were retail investors.Incorrect. No such threshold applies to the basic prohibition on offering unregistered, non-exempt securities.
4. D.Violated the Act, because it is unlawful to offer as well as to sell an unregistered, non-exempt security.Correct. The prohibition reaches offers, and a solicitation is an offer.

Why: It is unlawful to OFFER as well as to sell a security in the state unless it is registered, is a federal covered security, or is exempt, or the transaction is exempt. Because an offer includes any solicitation of an offer to buy, the mailing violated the Act even though no order was ever placed.

State securities laws are commonly called:

1. A.Blue-sky lawsCorrect - blue-sky is the nickname for state law.
2. B.Federal covered lawsFederal covered describes a category of securities and advisers that state registration cannot reach. It names an exception carved out of state authority rather than the body of state law itself, so it cannot be the nickname for that law.
3. C.Common law onlyThese are statutes enacted by legislatures, not judge-made doctrine. Common law fraud remedies do exist alongside them, but the state securities laws at issue here are written codes modeled on the Uniform Securities Act.
4. D.Antitrust lawsAntitrust law is about competition and monopoly, an entirely separate field. The nickname being asked about comes from the idea of promoters selling nothing more substantial than patches of blue sky.

Why: State securities laws are known as blue-sky laws; the Uniform Securities Act is the model they are based on.