What We Do and Why Lawyers Use Us
A blue sky memorandum for an issue of municipal bonds lists:
- The states in which offers and sales of the bonds may be made to the general public pursuant to "exempt securities" exemptions from registration and notice filings by registered broker-dealers and the extent to which bond registrations and notice filings must first be carried out.
- The states in which offers and sales of the bonds may be made to specified types of institutional purchasers pursuant to "exempt transactions" exemptions, and whether the broker-dealer must either be registered or, if not registered, can claim an exemption from registration.
We provide blue sky law memoranda and related services to lawyers who represent underwriters of municipal bonds.
We offer these services to lawyer clients ranging from solo practitioners to large, nationally recognized law firms.
We provide these services because the costs of providing blue sky memoranda to underwriter clients often exceed the fees received, because keeping current with changes in blue sky laws can be a burden and because the enactment of the National Securities Market Improvement Act of 1996 has made the legal analysis for blue sky memoranda substantially more complicated.
We provide lawyers a cost-effective way to outsource blue sky memoranda.
Unless you direct otherwise, all client contact is between you and your underwriter client.
- A 54-jurisdiction blue sky memorandum addressed to your firm.
- E-mail transmission of the blue sky memorandum, so that you can provide the identical memorandum on your letterhead to your underwriter client.
- Preparation and filing of all forms needed for blue sky filings.
- When requested, twenty-four hour turn-around time when you are faced with the unexpected need to provide a blue sky memorandum immediately.
- We take the blue sky work off your desk and put it onto ours.
- We do everything except pay the filing fees.
Why Underwriters Need Blue Sky Memoranda
Many hold the mistaken belief that blue sky laws can be ignored on the theory that such laws have been pre-empted by virtue of the enactment of the National Securities Markets Improvement Act of 1996 ("NSMIA").
However, NSMIA's pre-emption of state blue sky laws was only partial, but not complete.
Specifically, even after the enactment of NSMIA:
- States still possess the authority, which they continue to exercise, to impose registration, merit condition and offering document requirements on issuers located within their boundaries.
- In response to NSMIA, many states have imposed notice filing requirements on municipal bonds issued by out-of-state issuers.
- NSMIA expressly did not pre-empt the enforcement powers of state securities commissions.
The failure of an underwriter to satisfy blue sky requirements relating to the registration of bonds, notice filings or registration of broker-dealers ("Blue Sky Requirements") exposes an underwriter to the risk of enforcement actions by state securities commissions.
The enforcement powers of a state securities commission that can be directed against an underwriter for failure to satisfy the Blue Sky Requirements typically include, among others:
- the conduct of investigations to determine if the state's blue sky law has been violated;
- upon a proper showing of a violation of the blue sky law, the filing of a lawsuit seeking a permanent or temporary injunction or other appropriate relief, appointment of a receiver of the underwriter's assets, as well as monetary penalties and orders of recission, restitution or disgorgement;
- the issuance of orders directing the underwriter to cease and desist from engaging in any act, practice or course of business; and
- fines and even imprisonment, in the case of willful violations. See, for example, Sections 602 through 605 of the Uniform Securities Act of 2002.
In addition, in most states, bond purchaser may sue an underwriter for a refund of the purchase price if an underwriter failed to satisfy any of the Blue Sky Requirements prior to offering the bonds for sale. See Section 401(b) of the Uniform Securities Act of 1956, Section 605 of the Uniform Securities Act (1985) with 1988 Amendments and Section 509 of the Uniform Securities Act of 2002.
This little-known remedy continues to be in force after the enactment of NSMIA and exposes underwriters to the risk of law suits being brought by bond purchasers who suffer "buyer's remorse" due to a change in interest rates during the statute of limitations period. This remedy exists even if the bonds are not in default, even if the issuer's financial condition remains sound and even if all statements in the offering document continue to be true and complete.
In the alternative, a complaining bondholder may motivate a state securities commission to bring such a law suit.
Underwriters need blue sky memoranda because blue sky memoranda provide road maps for staying out of trouble with state securities commissions and for avoiding lawsuits for refunds of the purchase price brought by a bond purchaser or a state securities commission. A blue sky memorandum provides such a road map because it gives the underwriter advance notice of the nature and extent of the need to satisfy the Blue Sky Requirements before the bonds may be offered for sale.