This is the first in a series that will shed light on the intricacies of state blue sky laws – and what to keep in mind if you’re considering preparing a blue sky survey for a transaction. municipal bonds.
The lack of uniformity among state blue sky laws makes legal interpretation difficult. Practitioners should be familiar with each state’s laws, regulations, policy statements, and no-action letters.
- State blue sky laws are based on the (i) Uniform Securities Act of 1956, (ii) the Revised Uniform Securities Act of 1985 (both of which were partly superseded by the National Securities Markets Improvement Act of 1996 (“NSMIA”)) and (iii) the Uniform Securities Act of 2002 (the “2002 Act”).
- States have taken different approaches — incorporating some, but not all, elements of each of the three Uniform Acts. State approaches generally fall into one of the following categories:
- State law is based solely on the 1956 law;
- State legislation is based on the 1956 law plus the 1985 law;
- The state law is based on the 2002 law, which was written to have no conflict by specifying in areas where states can pre-empt;
- State law reflects a selection of different provisions (i.e., cherry picks);
- But, remember, NSMIA partly preempts state law, so the analysis requires more than one investigation. An illustrative example of this concerns the definition of an exempt title.
- The 2002 Act expanded the definition of “exempt security” to include any “separate security” as defined in Rule 131 (17 CFR 230.131) enacted under the Securities Act of 1933. For states that have enacted the Act of 2002, the analysis is simple.
- For states that have not adopted the 2002 Act or by regulation, the issuance of no-action letters and/or policy statements, the following applies:
- If a title (sale, lease, or loan agreement, surety insurance policy, letter of credit, etc.) requires registration or notice filing, they all do.
- NSMIA applies; and
- If the title in question is a federally covered title, states may require a notice to be filed, but the title itself is exempt.
- For securities that are not federally covered securities, other exemptions may apply, such as if it is a bank guaranteed security or if it is issued by a non-profit. Please note that notice deposits may nevertheless be required.
- At the end of the line : Understand the interplay between federal law and the state’s ability to regulate the offering and sale of securities within its jurisdiction. Experienced practitioners can easily and often do interpret state blue sky laws differently.