1922 Encyclopædia Britannica/Blue Sky Laws

BLUE SKY LAWS.—This name is popularly applied in the United States to those statutes enacted in many states to protect from fraud purchasers of stocks and bonds. The first Blue Sky law was passed in Kansas in 1911, requiring investment companies among other things to file with the Secretary of State a full description of their business and forbidding them to sell securities until authorized by the bank commissioner. Following the Kansas model, within two years no fewer than 18 other states had enacted similar legislation, and by the close of 1919 some form of Blue Sky law was to be found in 44 states. Requirements vary in the different states, but in every case information must be filed with a designated official or commission and licence obtained. In 1914 there developed considerable opposition to such legislation. Its constitutionality was attacked on the ground that it violated the commerce clause of the Federal Constitution; that it delegated legislative and judicial power to an executive official; that it deprived citizens of liberty and property without due process of law. In three states, Michigan, Iowa and Ohio, these contentions were upheld by the lower courts; but in 1917 the U.S. Supreme Court decided that such laws were constitutional on the ground that "prevention of deception is within the competency of government."