State Securities Regulators: Blue Sky Law Enforcement.

Blue sky laws are the state laws and statutes that regulate transactions involving securities. Because these are state laws, the specific requirements and restrictions they impose vary substantially.

At the same time, these laws operate alongside the federal securities laws that apply nationwide. As a general rule, federal law does not eliminate all of the enforcement authority that states maintain under blue sky laws.

Some areas of overlap are common. For example, under the federal securities laws and blue sky laws:

• Broker-dealers and agents can be subject to federal and state enforcement action regarding registration issues.
• Investment advisers can be subject to federal and state enforcement action regarding registration issues.
• Securities offerings and sales can be subject to federal and state registration requirements.

Similarly, many states’ blue sky laws prohibit securities fraud and misrepresentation.

What Other Forms of State Enforcement Authority Exist?

State securities laws also impose restrictions and obligations that are not necessarily subject to federal oversight. For example, state regulators can often:

• Require broker-dealers, agents, and investment advisers to register before conducting securities transactions in the state.
• Order the issuance of cease-and-desist orders to stop unlawful offerings and sales.
• Seek injunctions against broker-dealers, agents, and investment advisers.
• Impose administrative fines and penalties.
• Pursue civil enforcement actions.
• Pursue criminal enforcement actions.

State securities regulators also work with federal authorities in some cases. Many state enforcement matters involving registered broker-dealers, agents, and investment advisers also involve federal enforcement. If an investor files a complaint, it will often be forwarded to the appropriate federal or state authorities, or both.

As a result, even if a party does not face federal prosecution, he or she can still face enforcement action under a state’s blue sky laws.

Who investigates securities violations and what can each authority do?

Who Administers State Securities Laws?

As a general rule, a state’s securities laws are administered by a state agency or by the state attorney general. If a securities violation is suspected, state investigators may subpoena testimony and other relevant information. These investigators may work directly with state prosecutors, and they may also coordinate their investigations with other state regulators and federal authorities.

What Can State Securities Regulators Do?

State securities regulators can impose a wide range of administrative penalties. In many cases, they have the authority to revoke, suspend, or otherwise restrict the license or registration of broker-dealers, agents, investment advisers, or other financial professionals. As discussed above, state regulators can also:

• Issue cease-and-desist orders
• Seek injunctions
• Impose administrative fines and penalties
• Pursue civil enforcement actions
• Pursue criminal enforcement actions

Similar to the U.S. Supreme Court, state supreme courts have the authority to override state securities regulations in certain cases, as well.

Who Investigates Suspected Federal Securities Law Violations?

The Division of Enforcement within the U.S. Securities and Exchange Commission (SEC) investigates suspected violations of federal securities laws. The SEC has the authority to impose administrative penalties, and it can also refer criminal cases to the U.S. Department of Justice (DOJ) for prosecution.

In addition to the SEC and the DOJ, other authorities have jurisdiction over certain types of securities fraud. For example, if the Financial Industry Regulatory Authority (FINRA) suspects that a securities firm or professional subject to its self-regulatory authority has committed a violation, it may conduct its own investigation as well. Similarly, proceedings conducted by the Public Company Accounting Oversight Board (PCAOB) will primarily concern auditors and registered accounting firms.

What Other Federal Authorities May Have Jurisdiction Over Securities Fraud?

Our lawyers also defend clients against investigations conducted by the Federal Trade Commission (FTC), Financial Crimes Enforcement Network (FinCEN), Internal Revenue Service (IRS), and various other federal authorities. If your company is suspected of fraud involving cryptocurrencies, virtual currencies, or other digital assets, you may need to defend your company in an investigation conducted by the Commodity Futures Trading Commission (CFTC) or the Department of Commerce as well.

How Do I Find My State’s Securities Regulator?

The North American Securities Administrators Association (NASAA) has a directory that identifies the designated securities regulator for each U.S. state and unincorporated territory. Our lawyers have experience representing clients against investigations and proceedings initiated by all of these state securities enforcement authorities, and we can help you ascertain which ones have jurisdiction over your securities offering, sale, or other transactions.

Does Federal Securities Law Preempt State Registration and Filing Requirements?

Section 18 of the Securities Act of 1933 contains provisions that restrict the scope of state enforcement authority. For example, Section 18, 18(c)(1), and 18(c)(2) provide:

"Section 18. Exemption From State Regulation of Securities Offerings

(a) Scope of exemption. Except as otherwise provided in this section, no law, rule, regulation, or order, or other administrative action of any State or any political subdivision thereof requiring, or with respect to, registration or qualification of securities, or registration or qualification of securities transactions, shall directly or indirectly apply to a security that is a covered security . ..

(b) . ..

(b) Covered securities. For purposes of this section, the following are covered securities . ..

(1) Fraud authority. Consistent with this section, the securities commission (or any agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring enforcement actions, in connection with securities or securities transactions, with respect to fraud or deceit, or unlawful conduct by a broker, dealer, or funding portal.

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Which State Can Regulate an Interstate or Online Securities Transaction?

Every state has its own blue sky laws. As a general rule, for a state to have jurisdiction over a securities transaction, either the conduct must have occurred within the state’s borders or at least one party to the transaction must be a resident of the state. A more specific example of this can be found in Section 610 of the Uniform Securities Act (2002), which has been enacted in roughly 20 states and the U.S. Virgin Islands. In the context of broker-dealers, Section 610 states:

Section 610 of the Uniform Securities Act (2002), titled "Jurisdiction," provides in subsection (a) that the Act's registration and related provisions do not apply to a person that sells or offers to sell a security unless the offer to sell or the sale is made in the state, or the offer to buy or the purchase is made and accepted in the state, and provides a parallel rule in subsection (b) for purchases and offers to purchase.

Given this principle, even if an online offering, sale, or other securities transaction is accessible nationwide, this fact alone will not establish jurisdiction in every state. This is also why companies and other parties that face state-level allegations will, in many cases, pursue statewide or multistate settlements. A settlement with one state can protect against further enforcement action under state law in many cases; however, a settlement with one state will not necessarily bind nonparticipating states, and the fact that a party has settled a case with one state could be used by another state to initiate enforcement action.

Are Other Examples Available?

To take another example from the digital assets space, Oregon sued Coinbase under state securities laws on April 18, 2025. In its complaint, Oregon alleged that 31 cryptocurrencies offered and sold by Coinbase were unregistered securities.Binance is another example.This is the point at which most people call a lawyer. Spodek Law Group takes federal criminal defense cases nationwide from its New York and Los Angeles offices.

What Can Happen After a State Securities Subpoena or Investigation?

Depending on the specific circumstances, state securities investigations and proceedings can have various outcomes. Some examples include:

• Case Closure: If state regulators conclude their investigation and find insufficient evidence to support state charges, they may close their investigation without further action.
• Negotiated Settlement: Many state securities matters end through negotiated settlements between the parties involved.
• Administrative Proceedings: If an investigation leads to allegations of a securities violation, state securities regulators may file administrative charges.
• Judicial Proceedings: If a state securities regulator believes that enforcement action in the state’s court system is warranted, it may file a civil or criminal complaint.
• Private Civil Litigation: Finally, state securities regulators can refer securities cases to private plaintiffs’ attorneys as well, and they can also act in support of private civil actions.

When Does the Investigation End?

Our attorneys can explain when an investigation should end under your state’s specific statutes and rules. With that said, most state securities regulators will end their investigations when they believe that they have insufficient evidence to prevail at trial, and they will accept a negotiated settlement if they believe that this outcome is in the best interests of justice.

What is the Response Deadline for a State Securities Subpoena?

State agencies may issue subpoenas that include a deadline to comply. In many cases, the response deadline will be set by the state agency and documented in the subpoena itself. However, state law or court rules may set deadlines for subpoena responses as well. If you received a state securities subpoena, our attorneys can advise you on the response deadline in your case.

What Are the Procedures for Judicial Review of Final Agency Orders?

The procedures for judicial review of final agency orders vary among the states. Our attorneys have experience representing clients in state securities proceedings in all of the country’s jurisdictions, and we can help you understand the procedures for judicial review of final orders under your state’s administrative law.

Can State Securities Regulators Freeze My Assets?

Similar to state securities regulators’ authority in other matters, generally speaking, state securities regulators must obtain judicial authorization before they can freeze a party’s assets. However, the laws that govern state securities enforcement proceedings also contain provisions that give administrative judges the authority to restrain the distribution of funds in certain circumstances. We can analyze whether the state agency or regulator that has targeted you has authority to freeze your assets in your case.

How Long Do State Securities Investigations and Proceedings Take?

There is no uniform statute that establishes the duration of state securities investigations or proceedings on a national level. Instead, state securities enforcement cases can take various amounts of time, depending on the specific state and specific facts involved.

Who Can File State Securities Charges?

Our attorneys can help you understand the filing procedures under your state’s securities laws as well. In most cases, while state securities regulators can initiate administrative enforcement proceedings, criminal enforcement action requires the approval of a prosecutor.

What Private Claims and Remedies are Available Under State Blue Sky Laws?

State blue sky laws allow for private claims as well as enforcement actions by state authorities. In addition to statutory rescission rights, state securities statutes also allow for other forms of private securities litigation under some circumstances.

These private securities claims often overlap with federal securities claims as well. As a result, private plaintiffs can bring federal and state securities claims that arise from the same underlying conduct, and they can also attempt to seek enforcement action under state law when they think that they are more likely to prevail.

The private securities claims that are available under state law also vary from one state to the next. For example, while some state statutes specifically address claims for statutory rescission, others are silent on the matter. Similarly, while some state statutes contain an exclusive remedies provision that only allows for rescission claims, others do not.

Who Has Standing to Bring a Private State Securities Claim?

State securities statutes impose varying substantive requirements for pursuing private claims. For example, while some statutes limit standing to purchasers or sellers who claim that they were harmed by an unregistered securities transaction, others provide broader or more narrow forms of standing as well.

Our attorneys can help you determine whether your particular state securities statute provides standing for the private claim you are considering filing. If you need to seek private enforcement action under state securities laws, our attorneys can guide you through the necessary steps as well.

What are the Limitations Periods for Filing Private Securities Claims?

The limitations periods for filing private securities claims under state blue sky laws also vary from state to state. We can help you determine what limitations period applies to your state securities claim as well.

What are the Remedies for Statutory Rescission Claims Under State Blue Sky Laws?

In addition to eligibility, requirements for filing, and limitations periods, state blue sky laws also include varying provisions for calculating damages under statutory rescission claims. If you have a statutory rescission claim against a state securities fraud defendant, our attorneys can help you seek maximum damages.

What Are the Requirements for Filing Private State Securities Fraud Claims?

The requirements for filing private securities fraud claims also vary from one state’s blue sky laws to another. For example, while most state securities statutes do not require scienter (i.e., intent), a plaintiff will still have to demonstrate that the defendant knowingly or recklessly made material misrepresentations or omissions. However, the meaning of these terms under state law will vary as well.

Similarly, the requirements for establishing reliance and materiality under state securities statutes also differ among the states. State securities litigation also imposes additional requirements for pleading, proving, and other procedural matters.

As a result, material misstatements or omissions can create state-law liability in certain circumstances. For example, in an unregistered securities offering, if the company fails to disclose information that investors would consider material, this omission alone can give rise to state-law liability.

How Do Parallel Investigations Affect Defense Strategy and Legal Costs?

State securities regulators frequently coordinate their investigations with other states’ securities regulators. In many cases, this coordination takes the form of a multistate investigation, and it can lead to a multi-state settlement.

Likewise, when state regulators investigate suspected securities fraud, they may share evidence and other information with other agencies, and they may do so even if they are not coordinating an investigation in a formal capacity.

The SEC, DOJ, and state securities regulators may all have jurisdiction over the same securities offering, sale, or other transactions. As a result, in many cases a party may need to defend himself or herself against parallel securities investigations.

Given this possibility, state securities regulators may not necessarily wait until federal securities regulators have finished their investigations before pursuing enforcement action themselves, and they can (and should) conduct investigations independent of the DOJ, SEC, and other federal agencies.

To facilitate coordinated enforcement, the North American Securities Administrators Association (NASAA) has established procedures for coordinating enforcement efforts between state and provincial securities regulators in North America.

Does Company Counsel Represent Individual Employees?

When a company receives a securities subpoena or other inquiry from a state securities regulator, this does not necessarily mean that it needs to hire securities defense counsel. While this is sometimes true, it is not always the case.

However, if a company does hire securities defense counsel, this counsel will represent the company, not its employees or directors. While this can be the case in many situations, this can lead to conflicts of interest, and, in certain cases, individual employees or directors will need to retain their own counsel.

At Spodek Law Group, our attorneys represent both companies and individual employees and directors in state securities investigations, and we can also represent both the company and its employees in many cases. We offer hourly, flat-fee, and blended billing arrangements, and our securities defense lawyers can help you determine which arrangement makes the most sense in your case.

The cost of defending against a state securities investigation will depend on the specific facts involved in the case. For example, the number of documents and witnesses involved, whether the investigation is parallel to other proceedings, and whether a party chooses to pursue the investigation through hearings, among other factors, can all materially affect the costs involved.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 212-300-5196.