State Blue Sky Claims
With the exception of New York, all states have some form of blue sky or state securities act in place. The broad distinction of the states’ securities acts is between uniform securities act states and non-uniform securities act states.
In 1956, the American Bar Association proposed the Uniform Securities Act as a model for states to follow. The 1956 version served as the basis for the securities law in most states and was adopted in whole or in part in over 30 states. It was not adopted in Arizona, California, Florida, Georgia, Illinois, Louisiana, New York, North Dakota, Ohio, Tennessee, and Texas. Uniform Security Act, 7B, ULA § 510 (1991).
A new version of the Uniform Securities Act was proposed in 2002 and, according to a website maintained by the National Conference of Com- missioners on Uniform State Laws, the following 18 states have adopted the 2002 version: Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Maine, Michigan, Minnesota, Mississippi, Missouri, New Mexico, Oklahoma, South Carolina, South Dakota, Vermont, Virgin Islands, Wisconsin.
Under section 509(b) of the Uniform Securities Act of 2002, a person is liable to the purchaser if the person sells a security in violation of section 301 or, by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not misleading, the purchaser not knowing the untruth or omission and the seller not sustaining the burden of proof that the seller did not know and, in the exercise of reasonable care, could not have known of the untruth or omission.
The language of section 509 is similar to that of section 12(a)(2) of the Securities Act of 1933 in that an aggrieved investor must successfully prove that the unlawful sale resulted from:
(1) an untrue statement of a material fact; or
(2) an omission to state a material fact necessary in order to make the statements in light of the circumstances under which they were made not misleading; and
(3) the purchaser did not know of such untruth or omission; and
(4) where the seller does not sustain the burden of proof that he did not know and in the exercise of reasonable care could not have known of such untruth or omission.
Statutory damages under section 509 of the Uniform Securities Act of 2002 is also similar to statutory damages recoverable under section 12(a)(2) of the Securities Act, given that both provide for rescission if the purchaser still holds the security or actual damages if the purchaser already sold the security for a loss.
Section 509(b) of the Uniform Securities Act states in pertinent part:
An action under this subsection is governed by the following:
(1) The purchaser may maintain an action to recover the consideration paid for the security, less the amount of any income received on the security, and interest [at the legal rate of interest] from the date of the purchase, costs, and reasonable attorneys’ fees determined by the court, upon the tender of the security, or for actual damages as provided in paragraph (3). [ . . . ]
(3) Actual damages in an action arising under this subsection are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it, and interest [at the legal rate of interest] from the date of the purchase, costs, and reasonable attorneys’ fees determined by the court.
Generally, courts that have interpreted the Uniform Securities Act have held that private rights of action under the Uniform Securities Act are more similar to section 12(2) claims than to Rule 10b-5 claims. This distinction is important because the scienter elements for Rule 10b-5 claims do not exist for claims brought under section 12(2). For example, in Florida, a state that has not adopted the Uniform Securities Act, the Florida Supreme Court has held that the Florida Securities Act is more similar to section 12(2) than to Rule 10b-5 and as a result, a plaintiff does not have to show that misrepresentations or omissions were made with reckless disregard for the customer. Instead, a plaintiff bringing an action under the Florida Securities Act can satisfy the scienter element simply by demonstrating that the seller was negligent in making those misrepresentations or omissions.