Blue Sky Laws

Blue Sky Laws

Laws requiring research and transparency to ensure that a new issue of a security complies with applicable laws in the state in which they are issued. It especially refers to laws protecting investors from securities fraud. The term became popular when U.S. Supreme Court Justice Joseph McKenna wrote in Hall vs. Geiger-Jones Company (1917) that he wished to protect investors from securities with "no more basis than so many feet of 'blue sky.'" See also: Due Diligence.

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blue sky laws

State regulations that cover the offering and sale of securities within state boundaries. Although the laws differ among states, most include provisions relating to fraudulent activities and the licensing of individuals who sell securities. The term derives from an effort to protect investors from unwittingly buying a piece of "blue sky."

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Blue sky laws. Blue sky laws require companies that sell stock, mutual funds, and other financial products to register new issues with the appropriate public agency.

The companies must also provide financial details of each offering in writing so that investors have the information they need to make informed buy and sell decisions.

These laws are state rather than federal laws, and owe their origin -- at least in legend -- to a frustrated judge who equated the value of a worthless stock offering to a patch of blue sky.