The paralegal’s role in blue sky securities laws.

Blue Sky Forecast The paralegal’s role in blue sky securities laws. By Daniel P. McAndrews November/December 2005 Table of Contents “Blue Sky” is a term that brings a smile to most people’s faces with thoughts of sunny days and good weather ahead. However, to most corporate paralegals, it brings a look of horror to their faces. Why? One reason might be that, instead of contacting, researching and filing documents with one judge, one court or one governmental authority for a single matter, the paralegal could potentially be forced to contact, research and file documents with 50 states for one single offering of securities by a corporation, limited partnership, limited liability company or other entity. There are many variables that determine the number of states involved and the amount of work involved. The History of Blue Sky In 1911, Kansas became the first state to enact a comprehensive state blue sky securities law in response to its residents being taken by salesman selling worthless securities of fly-by-night corporations. Through this law, corporations were required to register their securities and the individuals who sold their securities with the Office of the Securities Commissioner in full detail before they could offer or sell in Kansas. By enacting this law, state residents gained additional protection because the Kansas Securities Commissioner reviewed the offering of securities, the corporation and the people selling the securities before any consideration was exchanged. The protection of purchasers is the fundamental purpose of state blue sky securities laws and the main reason corporate and securities paralegals work on blue sky filings in various states. Following Kansas’ lead, the other 49 states passed similar state blue sky securities laws to protect their residents. The laws at the time attempted to create a level playing field for issuers and purchasers. Eighteen years after the first blue sky law was passed, the great stock market crash of 1929 occurred, followed by the Great Depression. In response to these two events, an increased number of scams and lack of information about investments, the Securities Act of 1933 (the ’33 Act) was enacted. A Securities and Exchange Commission was created in 1934 to administer the ’33 Act on the federal level. The SEC added another level of registration of securities to the state blue sky securities laws by providing additional requirements for corporations offering securities and those selling the securities. More than 60 years later, the states’ powers were severely cut back with the enactment of The National Securities Markets Improvement Act of 1996. NSMIA was enacted due to the states’ failure to uniformly regulate certain types of national securities offerings such as those securities listed or approved for listing on the New York Stock Exchange, American Stock and Options Exchange and the Nasdaq/National Market, and those offerings complying with Rule 506 of Regulation D under the ’33 Act. The states still have the ability to investigate and prosecute fraud for such offerings. However, corporations are not required to register with state securities administrators for the previously described offerings. Continue Reading Here Helpful Web Sites • U.S. Securities and Exchange Commission — www.sec.gov • North American Securities Administrators Association — www.nasaa.org • SECLaw.com, an online guide to securities laws — www.seclaw.com • Consumer Action Web site, State Securities Administrators — www.consumeraction.gov/security.shtml • Practising Law Institute — www.pli.edu Resources • A Brief History of Securities Regulation Wisconsin Department of Financial Institutions www.wdfi.org/fi/securities/regexemp/history.htm • Exemption from Securities Registration Under Rule 701 The National Center for Employee Ownership www.nceo.org/library/rule701.html • “Introduction to the Blue Sky Laws: Yes, there are 50 other securities regulators other than the SEC” by Richard I. Alvarez, Esq. and Mark J. Astarita, Esq. www.seclaw.com/bluesky.htm • Securities Act of 1933 Securities Industry Association www.sia.com/capitol_hill/html/securities_act_of_1933.html • Uniform Securities Act The National Conference of Commissioners on Uniform State Laws www.nccusl.org/nccusl/uniformact_summaries/uniformacts-s-usa2002.htm