SECURITIES LAW

I.   GENERALLY.

A.   WHAT ARE SECURITIES.

Stocks, bonds, and notes are commonly called securities, but this term has received an expanded interpretation by the courts. It clearly covers not only stocks, bonds, and notes, but any offering that constitutes an investment, regardless of form. It covers monies paid over as loans, such as bonds, debentures, or promissory notes, as well as purchases of equity or ownership interests.

B.   FEDERAL REGULATION OF SECURITIES. THIS IS AN EXTENSIVE TOPIC OUTSIDE THE GENERAL SCOPE OF THIS BRIEF NOTE.

C.   STATE REGULATION OF SECURITIES.

Nearly every state has some kind of "blue sky" law, which is a law designed to regulate and supervise the issuance and selling of securities. Such laws were first written to outlaw the sale of stock in fraudulent corporations whose primary asset was the "blue sky." The laws' main function now is to assure disclosure of all material facts about securities that are offered for sale.
Several types of these laws are in effect:

1. Fraud: The simplest are laws that simply impose civil or criminal sanctions for any fraud in connection with the sale or issuance of securities.
   
   
2. Registration. Other laws require that the stock be registered with an appropriate state officer or agency prior to issuance. The registration must contain a complete description of the issuance, and the shares must be sold as so described. The purpose of this type of statute is simply disclosure. There is generally no discretion in the state to deny permission to issue.
   
   
3. Permit. The most advanced and complex type of blue sky law is the permit or license type, which in effect provides that no stock may be issued, until a permit is obtained.