Blue Sky Laws

Last updated: March 29, 2016

"Blue Sky Laws" Originated in Kansas

Though nearly every state and territory, with the greatest good nature in the world, will incorporate any sort of rank swindle that comes along only one state, so far as I know, seriously attempts to protect its citizens from these stock-peddling pirates.  - Will Payne, 1911

Kansas makes history. Did you know that Kansas was the first state to enact laws to regulate the sale of securities? That is, Kansas was the first state to require sellers of investments to register their securities with the state. That first securities law and all states' securities laws are called “blue sky laws.” That name has an interesting history.

“Blue sky laws” originated in Kansas in 1911 but the meaning of "blue sky" was shrouded in mystery until recently. Some use to think "blue sky" merely meant that a fraudulent security is worth nothing more than air. However, the actual explanation is a lot more interesting than that. It specifically refers to a scheme where a fraudster promised rain but delivered blue sky. Let's let the author of the original blue sky law, J. N. Dooley, explain.

This excerpt is taken from the Topeka State Journal on October 30, 1935:

"I have been given credit for naming the “Blue Sky” law. That name goes back to the drouth of the nineties. We had them then, just the same as now, altho they were not so well dramatized and advertised and we had learned less about feeling sorry for ourselves.

Crops were burning up. Stock water and even water for domestic use was disappearing. It was the day of professional rain makers and some of our people felt we should make every effort to get rain. So we raised the necessary money and contracted with some chicago slicker to supply us with the necessary quantity of moisture.

They arrived at Maple Hill with two barrels of chemicals, a string of iron pipe and some mysterious mechanical doo-dad. They set up their equipment on a platform within an enclosure to which no one was admitted. Their iron pipe pointed toward the sky. At length it began to emit a light milk colored spray. The machinery was set it (sic) motion.

The milky spray was cast up for four days and four nights. But there was no sign of rain. The fifth day our committee visited the rain makers plant, to discover that the rain makers had disappeared, leaving their equipment behind.

Some of our folks had prepared against overflow damage from the rains expected, moving valuables to uper (sic) stories and other property to high grounds. Not only did we have no flood but we saved others from such a fate because the rain equipment was left with us.

When I appeared before the judiciary committee of the Kansas house and senate with the bill to protect our people against fraudulent stock schemes, one of the senators asked me what to call the law. Remembering our experience with the blue sky artists in trying to make rain, I suggested “the blue sky law.” The name stuck."

Article adapted from  100 Years of Securities Law: Examining a foundation laid in the Kansas Blue Sky. by Rick A. Fleming. Washburn Law Journal Spring 2011 50.3.

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