Blue-sky laws are state laws that regulate the sale of bonds, stocks, and other securities. The laws help to protect investors from buying worthless securities. In a document called a prospectus, the promoters (issuers or sellers) must describe the security offered for sale. The promoters must disclose all the interest they are keeping for themselves, and just what, besides “blue sky,” they have contributed in return. A few states have laws that prevent a security from being issued on terms that are unfair to investors. But most states provide only for full disclosure, and let investors decide what is fair.
Blue-sky laws are not so important now as they once were. The federal Securities Act of 1933 placed federal control over securities sold in more than one state. Promoters of these securities must obey both federal and state laws.
