Blue Sky Laws

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Definition of 'Blue Sky Laws'

Blue sky laws are state regulations established in the early 20th century to protect investors from securities fraud. The term "blue sky law" was coined by Justice Louis Brandeis in his 1914 dissent in the Supreme Court case of _L.D. Smith v. United States_. In his dissent, Justice Brandeis argued that the federal government had a responsibility to protect investors from fraud, and he likened the sale of fraudulent securities to the sale of "a pig in a poke."

Blue sky laws vary from state to state, but they typically include requirements for disclosure of material information about securities, registration of securities offerings, and anti-fraud provisions. In recent years, blue sky laws have been supplemented by federal securities laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934.

Despite the existence of blue sky laws and federal securities laws, securities fraud continues to be a problem. In 2017, the Securities and Exchange Commission (SEC) brought over 800 enforcement actions against individuals and companies for securities fraud. The SEC also recovered over $3 billion in disgorgement and penalties in those cases.

The SEC's Office of Investor Education and Advocacy offers a number of resources to help investors protect themselves from securities fraud. These resources include a guide to the antifraud provisions of the federal securities laws, a list of common investment scams, and tips for investing safely.

Investors should also be aware of the red flags that may indicate a potential securities fraud. These red flags include:

* An investment that promises high returns with little or no risk
* An investment that is promoted through high-pressure sales tactics
* An investment that is not registered with the SEC
* An investment that is offered by a person or company that you do not know

If you are considering an investment, it is important to do your research and to consult with a financial advisor before you invest.

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