Testing the Limits of NSMIA Preemption: State Authority to Determine the Validity of Covered Securities and to Regulate Disclosure

摘要

The National Securities Market Improvements Act of 1996 ("NSMIA") significantly limited the scope of state securities regulation under blue sky laws. NSMIA preempted state authority over the registration and qualification of securities offerings deemed "national" in character and established categories of "covered securities" for the purpose of setting those limits. NSMIA includes among "covered securities" those securities offered and sold pursuant to Rule 506 of Regulation D under the Securities Act of 1933. Recent state and federal courts have determined that the issuer must show the actual validity of, and not mere reliance on, the exemption and, just as important, have recognized that states may determine whether the exemption applies and exercise registration-related enforcement authority where the exemption is ruled invalid. At the same time, NSMIA expressly preserves general state antifraud enforcement authority. Some courts have upheld the state's exercise of antifraud enforcement authority to prohibit specific fraudulent issuer disclosure documents within the state in an offering of NSMIA "covered securities." These two sets of cases set up a confrontation between the historic mission of blue sky laws and the intended scope of NSMIA preemption that opens the door to reconsideration of the purpose of NSMIA. We call for a balance of federal and state regulatory authority that is consistent with the actual realignment of roles that NSMIA was designed to accomplish.