Blue Sky Laws

B is correct. Federal exemptions from SEC registration (like the Rule 147 intrastate exemption) do NOT automatically exempt offerings from state blue sky law registration. Texas Energy Solutions must still register the offering with the Texas State Securities Board under Texas blue sky laws unless a specific state exemption applies. States retain authority to regulate securities offerings within their borders.

A is incorrect because federal and state securities laws operate independently. Qualifying for a federal exemption doesn't eliminate state registration requirements. C is incorrect because securities regulation is a dual federal-state system. The SEC doesn't have exclusive jurisdiction; states regulate through blue sky laws. D is incorrect because NSMIA preempted state registration only for federal-covered securities (like NYSE-listed stocks and SEC-registered investment company securities), not for intrastate offerings that are exempt from federal registration.

C is correct. Kansas enacted the first comprehensive state securities law in 1911, establishing the model for blue sky laws nationwide. The term "blue sky" came from the concern that fraudulent promoters were selling securities with no more basis than "so many feet of blue sky."

A (New York) enacted securities laws early but was not the first state with comprehensive regulation. B (California) has significant securities regulation but was not the 1911 originator. D (Delaware) is known for corporate law (corporate charters) rather than being the pioneer in securities regulation.

B is correct. SEC-registered advisers (federal-covered advisers) are exempt from state registration requirements but must file notice filings in states where they have offices or meet client thresholds. State anti-fraud authority was specifically preserved by NSMIA. Midwest must file notice in Illinois and Missouri (offices) and Iowa (likely exceeds client threshold with 40 clients), and all three states retain authority to investigate and prosecute fraud.

A is incorrect because while SEC registration preempts state registration requirements, it does NOT exempt advisers from notice filing or state anti-fraud enforcement. States explicitly retained anti-fraud jurisdiction under NSMIA. C is incorrect because federal-covered advisers don't register under state blue sky laws; they file notice filings, which are simpler administrative filings. D is incorrect because FINRA regulates broker-dealers, not investment advisers, and NSMIA didn't eliminate state jurisdiction. it redefined it to notice filing plus anti-fraud authority.

C is correct (the EXCEPT answer). Blue sky laws were NOT eliminated by NSMIA. While NSMIA preempted state registration requirements for federal-covered securities (like NYSE-listed stocks and SEC-registered funds), states retained significant authority including anti-fraud enforcement, registration of non-federal-covered securities, and regulation of smaller investment advisers and broker-dealers. Blue sky laws continue to operate alongside federal securities laws.

A is accurate: State administrators have broad authority under blue sky laws to deny, suspend, or revoke securities registrations if they find offerings unfair, fraudulent, or contrary to public interest. B is accurate: Investment advisers managing less than $100 million AUM register under state blue sky laws (typically the Uniform Securities Act) rather than with the SEC. D is accurate: The term 'blue sky laws' emerged from efforts to stop promoters from selling worthless securities, preventing them from 'selling the blue sky' to unsuspecting investors.

D is correct. All four statements are accurate.

Statement 1 is TRUE: State administrators have subpoena power under blue sky laws to compel production of documents, records, and testimony during investigations. This is a core enforcement tool.

Statement 2 is TRUE: In emergency situations where immediate action is needed to protect investors, administrators can issue summary cease and desist orders without prior hearing. Due process occurs through post-order hearings where the respondent can challenge the order.

Statement 3 is TRUE: State administrators have authority to deny initial registration applications, suspend existing registrations, or permanently revoke registrations of investment advisers, broker-dealers, and securities professionals who violate blue sky laws.

Statement 4 is TRUE: State administrators can refer criminal violations to state prosecutors for criminal charges in state court. Blue sky laws typically include both civil and criminal penalties, with criminal prosecution for willful violations.