is a leading seller of accredited investor lead lists. Marketers who use our lists to offer private placements should always be aware of the state regulations governing offerings that have been exempted from registration by the Securities and Exchange Commission, since these offerings may also require exemption from state regulations. If an offering is exempt under the Federal securities laws, it does not necessarily imply exemption from state regulations. These state regulations are dubbed blue sky laws because they are aimed at defending potential investors from being duped into purchasing securities with “as much value as a patch of blue sky”.

Thus, state blue sky laws have been established to protect the public from fraud. Each state has its own unique set of laws, but they all lay out regulations for the registration and exemption of securities sold within the state. Also, each state has its own regulatory body to enforce its laws and specify the legal basis for civil law suits. Forty states have adopted model uniform securities statutes, arising from the Uniform Securities Act of 1956, upon which they base their blue sky laws.

In recent years, Federal laws were passed which circumscribed the power of the states to critique, confine or otherwise limit the sale of most securities. The law’s purpose was to remove redundancies occurring among Federal and state securities laws. Currently, the abilities of most states to prohibit registration or exemption from registration of securities offerings that are made on a national or regional basis have been substantially limited. Nonetheless, there are still notice and filing requirements in each state that must be observed. Additionally, Federal legislation did not remove the authority of the state regulators to lead investigations and to pursue legal actions for fraud.

Fortuitously, many kinds of securities, and many security transactions, are exempt from state registration rules. Exemptions under Rule 506  of Regulation D are not subject to state review, with the exception of New York State. Many states provide exemptions for Regulation D private placements, as long as there is complete observance of SEC Rules 501-503. However, though particular kinds of offerings or transactions may not necessitate registration, many states demand filings or place extra conditions on exemptions. An issuer, before offering an exempt security for sale in any state, should retain experienced blue sky counsel to assess the pertinent state regulations and take whatever steps are needed to allow the offering to be made in any given state.

Eric Bank