Chapter 15
STATE SECURITIES REGULATION
State securities laws were first
enacted in the United States in 1911.
Challenges to the early securities laws of the various states on
Constitutional grounds were unsuccessful.
When Congress enacted the federal securities laws in the 1930s, it
preserved the rights of the states to have securities laws.
SECTION 18 OF THE SECURITIES ACT OF 1933, 15 U.S.C. § 77r
(1988)
SECTION 28(a) OF THE SECURITIES EXCHANGE ACT OF 1934, 15
U.S.C. § 78bb(a) (1988)
Over the years, the states have had
national associations such as the North American Securities Administrators
Association (NASAA), and the Midwest Securities Commissioners Association that
disbanded in 1980, in order to achieve a certain amount of uniformity in the
state securities laws.[1]
In 1956, the National Conference of
Commissioners on Uniform State Laws adopted the Uniform Securities Act.[2] In 1985, the National Conference of
Commissioners on Uniform State Laws adopted the Revised Uniform Securities Act.[3]
Many states have adopted most or a
significant portion of the original Uniform Securities Act, and some states are
presently considering the revised version.[4]
Section 101 of the Uniform Securities
Act[5]
provides that it is unlawful for any person, in connection with the offer, sale
or purchase of any security, directly or indirectly, to defraud, to make any
untrue statement of a material fact, or to omit to state a material fact.
Section 102 of the Uniform
Securities Act[6]
provides that it is unlawful for any person who receives any consideration from
another person primarily for advising the other person as to the value of
securities or their purchase and sale to defraud the other person.
Section 201 of the Uniform
Securities Act[7]
provides that it is unlawful for any person to transact business in the state
as a broker-dealer, agent, or investment adviser unless registered, which
registration is subject to annual renewal.
Section 301 of the Uniform
Securities Act[8]
provides for a requirement that any security must be subject to registration
before offered or sold in the state unless the security or transaction is
exempt.
Many states provide for several
types of registration.[9] Typical types of registration would be
qualification, notification, and coordination.[10]
One of the most glaring and
controversial aspects of many states securities laws is the merit regulation of
securities offerings.[11] Unlike federal securities laws, which are
based on full disclosure to investors, merit regulation allows the state to
register only those securities offerings that meet certain fair, just and
equitable standards.[12]
The parties to modern securities
transactions can very well reside in different states in the United
States. While most attorneys and
business executives are aware of the existence of the various federal
securities statutes and the various state securities laws, they usually exhibit
surprise to learn that routine business transactions can often involve these
federal and state securities laws.[13] It is possible to have several different
state securities laws involved in the same domestic transaction.[14] Because business transactions often take
place between parties residing in different states or with legal entities
domiciled in different states, more than one state securities law could have an
effect on the transaction.[15] As a result, such domestic transactions can
involve the state securities laws of several states at the same time.[16]
Section 1904 of the Federal
Securities Code[17]
proposes to preempt state securities laws unless the state securities
commission has a procedure for registering a distribution of securities
substantially coordinated with the procedure of the Securities and Exchange
Commission, and to require the state to accept the federal registration
statement and offering statement.[18]
Section 514 of the Federal
Securities Code[19]
proposes to provide for a local distribution, being one that results in sales
substantially restricted to persons who are residents of, or employed primarily
in, a single State, or an area in contiguous States, or a State and a foreign
country, if such area meets a definition based on consideration of its
population and economic characteristics, and involves securities of an issuer
that does business primarily in that State or area, regardless of where
organized, and also to extend to a local distribution by a secondary
distributor, whether or not a resident of the State or area, but only if the
secondary distributor did not buy securities of the same class in connection
with a limited offering.[20]
Broker-Dealers and their Agents must
register with states where they do business.
This registration is done on the Central Registration Depository (CRD)
system. This is a computerized
database. Investment Advisers now
register with the state where their principal place of business is located or
with the United States Securities and Exchange Commission. Investment Advisers with $25 million or more
under management must register with the SEC.
Those with less than $25 million under management must register with the
local state. A computerized database
for Investment Advisers and their Representatives is currently being
organized. Registration will be done on
this Investment Adviser Registration Depository (IARD) system once completed.
REPORT ON THE UNIFORMITY OF
STATE REGULATORY REQUIREMENTS FOR OFFERINGS OF SECURITIES THAT ARE NOT “COVERED
SECURITIES”, Securities and Exchange Commission (1997)
A.S. GOLDMEN & CO., INC. v. NEW JERSEY BUREAU OF SECURITIES,
163 F.3d 780 (3d Cir. 1999)
OFFERS DISSEMINATED THROUGH THE INTERNET, Texas State Securities
Board, Title 7, Section 139.17 (1996)
DEALER AND INVESTMENT ADVISER USE OF THE INTERNET TO
DISSEMINATE INFORMATION ON PRODUCTS AND SERVICES, Texas State Securities
Board, Title 7, Section 139.18 (1997)
©
2000 Harry Stansbury
[1] See 1 LOUIS LOSS & JOEL SELIGMAN, SECURITIES
REGULATION 39-148 (3d ed. 1989 & Supp. 1990); Milton H. Gray, Blue Sky Practice
- A Morass?, 15 Wayne L. Rev. 1519, 1523-24 (1969); Louis Loss, The Harvard Law
School Study of State Securities Regulation, Harv. L. Sch. Bull., Dec. 1954, at
9.
[2] 1 BLUE SKY L. REP. (CCH) ¶¶ 5500-73.
[3] 1 BLUE SKY L. REP. (CCH) ¶¶ 5591-707.
[4] See F.L. Liebolt, Jr., The Revised Uniform Securities
Act - Is ABA Endorsement in the Offing?, 45 Bus. Law. 1333, 1334 (1990); Note,
Secondary Trading in Securities: Labyrinth Beneath the Blue Sky, 1969 Wash.
U.L.Q. 41, 42-43 & n.9 (1969).
[5] UNIF. SECURITIES ACT, 7B U.L.A. 509, 516 (master ed.
1985).
[6] UNIF. SECURITIES ACT, 7B U.L.A. 509, 525-26 (master ed.
1985).
[7] UNIF. SECURITIES ACT, 7B U.L.A. 509, 528 (master ed.
1985).
[8] UNIF. SECURITIES ACT, 7B U.L.A. 509, 550 (master ed.
1985).
[9] See
JOHN BROOKS, THE TAKEOVER GAME 42-43 (1987); see, e.g., Sam Adler, Mid-Sized
Firms Turning to Blue-Sky Specialists, Manhattan Law., Apr. 4-10, 1989, at 5.
[10] See LOUIS LOSS, FUNDAMENTALS OF SECURITIES REGULATION
11-14 (2d ed. 1988).
[11] See Conrad G. Goodkind, Blue Sky Law: Is There Merit in
the Merit Requirements?, 1976 Wis. L. Rev. 79, 79-87 (1976).
[12] See Hugh H. Makens, Who Speaks for the Investor? An Evaluation of the Assault on Merit
Regulation, 13 U. Balt. L. Rev. 435, 437-43 (1984).
[13] See JOSEPH C. LONG, BLUE SKY LAW § 1.02 at 1-2 to 1-5
(1985); see, e.g., Guy C. Lyman, Jr., Securities Regulation in Louisiana - A
Practical Introduction to the Blue Sky Law, 16 La. B.J. 327, 327-28 (1969).
[14] See 1 LOUIS LOSS, SECURITIES REGULATION 23-107 (2d ed.
1961); LOUIS LOSS & EDWARD M. COWETT, BLUE SKY LAW 3-42 (1958). See generally Harry C. Stansbury, A Primer
on Securities Regulation in Louisiana, 13 La. Corp. Newsl. No. 1 (La. St. B.
Ass'n Sec. on Corp. & Bus. L., New Orleans, La.), Fall 1990.
[15] See JOSEPH C. LONG, BLUE SKY LAW § 3.01 at 3-2 to 3-5
(1985); see also Joseph C. Long, State Securities Regulation: An Overview, 32
Okla. L. Rev. 541, 579-97 & n.193 (1979).
[16] See Thomas L. Krebs & David R. Donaldson, Securities
Litigation in Alabama: Open Shirts, Gold Chains and Pinkie Rings: A Guide for
Widows and Orphans, 20 Cumb. L. Rev. 481, 594-97 (1990).
[17] FEDERAL SECURITIES CODE § 1904 (1980).
[18] See Jeffrey B. Bartell, Federal-State Relations Under the
Federal Securities Code, 32 Vand. L. Rev. 457, 470-87 (1979).
[19] FEDERAL SECURITIES CODE § 514 (1980).
[20] See Jeffrey B. Bartell, Federal-State Relations Under
the Federal Securities Code, 32 Vand. L. Rev. 457, 487-91 (1979).