An Open Attack on the Nonsense of Blue Sky Regulation

The evolution of state securities laws (hereinafter blue sky laws ) in this country is a classic example of regulation that was, perhaps, initially justified and that was apparently promulgated with the best of motives, but which now is actually harmful to society. Today, blue sky laws are ineffective, philosophically unsound, and unnecessarily expensive, and they should be substantially eliminated. Because of the vested interests that have developed, however, it is unlikely that states will respond to this problem, and it will probably take action by the United States Congress to preempt the area. Such an action is appropriate and, indeed, is long overdue. The case for substantially eliminating state blue sky laws is based, fundamentally, on a cost-benefit analysis. This writer\u27s research, as reflected in this Article, uncovered no meaningful benefit to society from state regulation of securities. In the areas of disclosure and broker-dealer governance, for example, blue sky laws merely duplicate the federal requirements and as a result add no additional protection for investors. Where merit regulation is concerned, however, the regulatory scheme is harmful to society, even without considering the actual dollar costs of such regulation. Although the writer does not attempt any precise quantification of these dollar costs to society, the article does contain some information and observations about the level of expenditures generated by the enforcement of and compliance with state blue sky laws. The inference from this information leads one to the conclusion that blue sky laws exact a considerable tribute from society. For these reasons, the Article recommends that the blue sky laws be essentially eliminated