Red Herrings & The Blue Sky

[Fiona Shnapple]

Definition of 'Blue Sky Laws'

State regulations designed to protect investors against securities
fraud by requiring sellers of new issues to register their offerings
and provide financial details. This allows investors to base their
judgments on trustworthy data.

Investopedia explains 'Blue Sky Laws'

The term is said to have originated in the early 1900s when a Supreme
Court justice declared his desire to protect investors from
speculative ventures that had "as much value as a patch of blue sky."


The SEC directly, and through its oversight of the NASD and the
various Exchanges, is the main enforcer of the nation's securities
laws, each individual state has its own securities laws and rules.
These state rules are known as "Blue Sky Laws".

Justice McKenna of the United States Supreme Court, in 1917. Justice
McKenna wrote the Court's opinion in Hall vs. Geiger-Jones Co., 242
U.S. 539 (1917), which was three cases, all dealing with the
constitutionality of state securities regulations. Justice McKenna
wrote

The name that is given to the law indicates the evil at which it is
aimed, that is, to use the language of a cited case, "speculative
schemes which have no more basis than so many feet of 'blue sky'"; or,
as stated by counsel in another case, "to stop the sale of stock in
fly-by-night concerns, visionary oil wells, distant gold mines and
other like fraudulent exploitation." Even if the descriptions be
regarded as rhetorical, the existence of evil is indicated, and a
belief of its detriment; and we shall not pause to do more than state
that the prevention of deception is within the competency of
government and that the appreciation of the consequences of it is not
open for our review.
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