Blue Sky laws are state regulations established as safeguards for investors against securities fraud. These laws were enacted to protect buyers in the secondary market from being misled or cheated in the purchase of securities. These laws were put into place by the states because federal laws did not exist to protect investors. In 1911, the first blue sky law was enacted in New York, and in the years following, other states followed suit. The term "blue sky" was derived from the blue background of a popular political cartoon by Joseph Keppler that illustrated the "Stock Exchange Cow", a symbol of the stock market crash of 1873.Blue sky laws generally require sellers to be registered with the state. They also set requirements for issuing various types of securities, like stocks, bonds, and mutual funds. The laws specify details like how a prospectus must be written and distributed to prospective buyers. In addition, they prohibit misrepresentation by sellers and require any selling agent to be registered with the state. Blue sky laws are designed to protect investors from securities fraud and to ensure that investors are given full disclosure of any risks associated with a security.One example of blue sky law was in the state of California. In accordance with the Sherman Anti-Trust Act of 1890, in 1911, California enacted the first blue sky law. The statute required every corporation that issued securities within the State to be registered with the California Secretary of State. The statute also required every corporation that sells securities to be registered with the California Blue Sky Law. After the state passed this regulation, it was upheld in 1917 by the Supreme Court of the United States in "Eighth National Bank v. New York Stock Exchange". This case established that states could regulate interstate securities transactions.
