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Blue sky laws

Definition of blue sky laws, the state securities laws that regulate offerings alongside federal law, and which exempt offerings are preempted from state registration.

Blue sky laws are the securities laws of the individual US states. Alongside federal law, they can require an offering to be registered or qualified with a state regulator before it is sold to that state's residents, require notice filings and fees, license the people who sell securities, and prohibit fraud. The name is usually traced to a 1917 Supreme Court opinion describing schemes with no more basis than "so many feet of blue sky."

Preemption and covered securities

The National Securities Markets Improvement Act of 1996 created the category of covered securities, which states may not require to be registered or qualified. States keep their antifraud authority and may still require notice filings and fees. For exempt offerings the practical map is:

OfferingState registration or qualification
Rule 506(b) and 506(c) of regulation-dPreempted. States may require a notice filing, usually a copy of the form-d, and a fee
regulation-crowdfundingPreempted. Only the issuer's home state and any state where purchasers of 50% or more of the offering reside may require a notice filing and fee
regulation-a-plus Tier 2Preempted, upheld in Lindeen v. SEC (D.C. Cir. 2016). Most states require a notice filing and fee
Regulation A Tier 1Not preempted. The offering must be registered or qualified in each state where it is sold, often through NASAA's coordinated review program
Rule 504 of Regulation DNot preempted
rule-241 generic solicitationNot preempted, because no exemption has been chosen yet

See reg-a-tiers for how this shapes the choice between Tier 1 and Tier 2. The SEC summarizes the Reg A position in its issuer guide, and state regulators coordinate through NASAA.

What survives preemption

  • Antifraud enforcement. A state can act on false or misleading statements made to its residents, including ads and emails.
  • Notice filings and fees. Missing one can lead a state to stop sales there.
  • Licensing. State rules on who may sell securities for compensation still apply to people and firms that are not exempt, which is one reason a raise works through a registered broker-dealer or funding portal.

Why it matters to marketing

Preemption decides whether a raise can advertise nationally on one set of terms. A preempted offering can use national creative and geo targeting to find investors; an offering that is not preempted has to keep its offers out of states where it is not cleared, which shrinks the audience and complicates every campaign.

Further reading

This page is general information about securities rules, not legal advice. Which state filings apply to a particular offering is a question for the company's own securities counsel.

Topics:glossarycrowdfundingregulation

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