BLUE SKY LAWS. This term is applied to certain statutes which have been enacted in a majority of the United States for the pro tection of investors. They are designed chiefly to regulate the sale of stocks, bonds and other securities, but in practice their applica tion has been extended to a wide range of in vestment enterprises. Thus, in North Carolina, a corporation which sold fig orchards was held to be within the statute, which by its terms ap plies to any foreign corporation or company selling stocks, bonds or other evidences of prop erty within the State.
These statutes, while differing from each other in many details, are very much alike in their essential features. They usually con tain a penal clause, prescribing a penalty for fraud in the sale or negotiation of securities, and vest in a certain State official or body, such as the insurance commissioner or a cor poration commission, the power to investigate all transactions of this character for the pur pose of uncovering fraud or questionable meth ods in any promotion. Persons or corporations desiring to sell securities within the State are further required, as a rule, to file with the proper authorities a statement under oath, con taining a list of such securities, with specific information concerning them, and in some States a license must be obtained upon the payment of a stated fee.
The first blue sky law in the United States was enacted in 1911, by the Kansas legislature, and nearly all similar statutes subsequently passed in other States were modeled after this one. The term "blue sky law)) is said to have originated in a remark made by a member of the Kansas legislative committee having the subject under consideration, who is quoted as saying that the restriction to be placed on in vestment concerns should be as far-reaching as the blue sky. Blue sky laws have been enacted and are now in force in the following States of the Union: Arizona, Arkansas, California, Connecticut, Florida, Georgia, Idaho, Iowa, Kansas, Louisiana, Maine, Minnesota, Missis sippi, Missouri, Montana, Nebraska, North Carolina, North Dakota, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, West Virginia and Wisconsin. The
New York Banking Act is sometimes referred to as a blue sky law, but it does not strictly be long in this category.
Because of the extreme rigor which char acterized the earlier restrictive measures of this class, they were vigorously assailed by banking and investment interests on constitutional grounds. The 1913 enactments of Iowa, Michi gan and West Virginia were declared uncon stitutional by the Federal District Courts. As a result of such adjudication, objectionable blue sky laws were repealed and new ones enacted in 1915 by the legislatures of Arkansas, Iowa, Kansas, Michigan, North Dakota, Clregon, South Carolina, South Dakota and West Virginia. The following year, however, the new Michigan law Was held invalid as impressing upon inter state commerce a direct burden which was be yond the limits of the police power. The same year the blue sky laws of Ohio and South Dakota were declared unconstitutional. In Janu ary 1917 the Supreme Court of the United States upheld as constitutional the blue sky laws of Ohio, Michigan and South Dakota. The decision affected similar laws in 26 States, which had been held in abeyance pending the decision is which held that "Prevention of de ception s within the competency of government. The intangibility of securities, being represen tatives of property in distant States and the in tegrity of them can only be assumed by the probity of the dealers in them and the infor mation they are required to give. This assur ance the States deemed necessary for their welfare to require, and that requirement is not unreasonable or inappropriate.
"We cannot stay the hands of government upon a consideration of the impolicy of its legislation. Every new regulation of business meets challenge. But the policy of a State and its expression in laws must vary with circum stances.
"The statutes burden honest business, it is true, but burden it only that under its forms dis honest business may not be done. Expense may thereby be caused and inconvenience, but to arrest the power of the State by such considera tions would make it impotent to discharge its functions. It costs something to be governed?)