New Britain herald. [microfilm reel] (New Britain, Conn.) 1890-1976, 1917-01-22
'GE7-RICH-QU|Ck'
PROMOTERS LOSE
IN SUPREME Court
Blue Sky Laws Of Ohio, South
Dakota and Michigan Up
held As Constitutional
AIMED TO PROTECT PUBLIC
FROM GOLD BRICK STOCKS

Statutes Held As Not a Burden on
Interstate Commerce in Sale of
Stocks and Bonds and Not in Ex-
cess of States Police Power-De-
cision Ends Battle Started in Kan
sas in 1911.
Washington, Jan. 22.-Blue sky
laws of three states-Ohio, South
Dakota and Michigan-designed to
curb sale of fraudulent securities
were today upheld as constitutional
by the supreme court.
The court held that authority ex-
ercised is not in excess of the states
police powers" and that the law is
not a burden upon Interstate COM
merce in the sale Of stocks and bonds.
Blue Sky laws, enacted first in Kan
sas in 1911 with the purpose of pro-
tecting credulous investors against
sales of worthless stocks and bonds,
have been copied in some measure in
more than half the states of the
union. Twenty-six states are said to
have laws embracing the fundamen-
tai principle of endeavoring, by con-
stitutional methods, to prevent sales
of "get-rich- quick" or Fly by night"
securities.
Three cases brought before the SUI
preme court and argued together in
october, 1916, concerned the consti-
tutionality of the blue sky laws of
Ohio, South Dakota and Michigan.
All had been held unconstitutional by
,,,,fc loi,.
forcement by state officials was en-
joined while the officials appealed.
The original Ohio law of 1913 was
amended February 6, 1914, by the
state legislature to meet alleged de-
fects of tn South Dakota and Mich
igan laws. The South Dakota law
of March Is. 1915, and the Michigan
law of April 8, 1916, repeating the
old 1913 act which had been held
void, were substantially patterned
after the "model' blue sky law drawn
by a committee of the National as
ISOLATION of Attorneys General fol-
lowing its 1914 convention.
Two principal points upon which
the Ohio, South Dakota and Michigan
acts were declared void and non-en-
forceable in the lower courts were
That they unduly burden inter-
state commerce, Of which stocks,
bonds and other securities were de-
cared to be instrum entalities, and
that the laws exceed the states po-
lice powers of local supervision.
Fraud Preventative.
The states, however, contended that
the laws prevent fraud only and, I'M
like the original Kansas type of blue
sky legislation, do not attempt to
prevent unwise investments. Also
they contended that the laws do not
restrict or burden interstate COM
merce, applying only to sales within
the states, and in preventing frauds
upon their citizens are a normal, wise
and preventative exercise of state
police powers.
Generally, the laws provide for ex-
aminations of securities, prospectus
and other officials; licensing of deal
ers and penalties of $1,000 fines and
one years imprisonment for viola
tons. The Ohio law, however, ap-
plies only to sales within the state of
securities on property outside of the
state, the South Dakota and Michi-
gan laws applying to both. Also, the
laws generally exempt certain securi-
ties including those listed on stock
and other exchanges. of national and
state bank trust and building and
loan company securities; real estate
transactions, including mortgages; Sc
cured commercial paper. including
promisory notes; and are said not to
restrict individual transa ctions. The
Ohio law, also, does not prohibit mail
order sales.
The twenty-six states reported to
have blue sky restrictions are Arizona,
Arkansas, California, Connecticut,
Florida, Georgia, Idaho, Iowa, Kan
sas, Louisiana, Maine, Michigan, Mis-
souri, Montana, Nebraska, North Car
DINA, North Dakota, Ohio. Oregon,
South Dakota, Tennessee, Texas, Yer
mont, West Virginia and Wisconsin.
S1OO,OOO,OOO Loss Annually.
In addressing the supreme court,
the National Association of Attorneys
General said the legislation was in
response to the increased f1otatlon or
fraudulent securities during the last
twenty years, causing loss of $780,
100000 annually. The ASSOCIATION
asked the court to uphold the legisla-
ton particularly as meteroic value OF
stocks due to the war has given new
IN n1anth