By Darius Wood, Spring 2015 Student Intern
To date, forty-nine states have enacted state laws regulating securities, according to The Practitioner’s Guide to Securities Arbitration, with one notable exception, New York. The purpose of the state securities laws, also known as blue sky laws, is to protect investors from unknowingly participating in fraudulent and speculative investments.
There are at least nine federal laws that regulate securities, including the 1933 & 1934 Acts, the Trust Indenture Act, Investment Company Act, Investment Advisers Act, Sarbanes-Oxley, Dodd-Frank Wall Street Reform, Consumer Protection Act, and the Jumpstart Our Business Startups Act. Like these federal securities laws, blue sky laws regulate the disclosure of information to potential investors about securities.
As the SEC notes, in addition to federal laws, blue sky laws regulate securities by defining what a security is, regulating who can sell it, and by providing a private right of action. For example, Georgia’s security laws begin in Georgia’s Code (at O.C.G.A. § 10-5-1) and are divided up into seven articles. The seven articles are described below by number:
(1) lays out the general provisions and defines a security;
(2) provides exemptions to the registration of securities;
(3 & 4) provide the securities registration requirements;
(5) provides the penalties for violating Georgia’s blue sky laws;
(6) deals with the administrative aspects of the regulation; and
(7) governs the applicability of previous securities laws.
It is important to remember that a claim arising from a violation of Georgia’s blue sky laws must be brought within two years. If a blue sky claim does not involve fraud or the unlawful sale of a security it must be brought within two years after discovery of the facts constituting the violation, or five years after the violation occurred –whichever occurs first.