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Blue Sky Law

Definition - What does Blue Sky Law mean?

Blue sky laws are state securities laws that set up registration, licensing and brokerage rules for companies dealing in securities. Essentially anti-fraud laws, they are legislated to protect local investors. The federal equivalent to these laws is enforced by the United States Securities and Exchange Commission.

Justipedia explains Blue Sky Law

The term "blue sky" in blue sky law refers to language used by the United States Supreme Court Justice Joseph McKenna when the Court upheld states' power to regulate securities sales. McKenna said that the laws were aimed at protecting investors from "speculative schemes which have no more basis than so many feet of blue sky."

States pass blue sky laws because they recognize that the complexity of securities investment makes investors especially vulnerable to deceit.

The protection that blue sky laws offer is achieved by state agencies screening the history and practices of corporations seeking to deal in securities in the state.

Many states reserve the right to prohibit a corporation's activities if the corporation's dealings have historically been unsafe.

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