State laws that regulate the offer and sale of securities are known as “blue sky” laws because they were enacted to protect investors from predatory offerings that “would sell building lots in the blue sky.”1 Unlike the federal securities acts that are disclosure driven and designed to complement the blue sky system, the predecessor blue sky laws adopted a “merit regulation” approach in which judges and state regulators would examine the transactions’ substantive fairness. Current blue sky laws in effect in the 50 states range from ones that adopt a pure disclosure philosophy to merit-based models that examine the quality of the securities offered.
No matter the philosophy that informs the state regulation of the securities markets, their importance in providing investors an added layer of protection is apparent in light of the savings clause in the federal securities laws, and is underscored by the enduring prevalence of blue sky laws almost a century after their inception.2 Part and parcel of this layer of protection is that most states’ blue sky laws also provide for a private right of action and, where a private right of action is not available, long-standing common law claims are themselves powerful tools in providing redress to injured investors.
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