S. 3421 (Introduced in Senate) — Blue Sky Harmonization Act

A BILL

To provide for exclusive Federal jurisdiction over certain civil securities fraud actions, and for other purposes.

Section 1 Short title

This Act may be cited as the “Blue Sky Harmonization Act”.

Sec. 2 Findings

Congress finds the following:

(1)

Companies that are engaged in interstate commerce and publicly traded on national exchanges face unique challenges, often operating in every United States jurisdiction under a variety of civil securities fraud statutes (commonly known as “blue sky laws”) that can overlap or contradict each other and Federal law.

(2)

Civil and criminal fraud have inherent differences in affect and burden of proof. States have a unique interest in prosecuting criminal fraud that should be maintained.

(3)

Imposing differing State regulatory requirements for civil securities fraud on national markets increases risk, creates inefficiencies, raises costs, and can harm the efficient operation of those critical markets without providing material investor protection benefits.

(4)

Complying with dual regulatory regimes places public companies in the United States at a unique competitive disadvantage in an increasingly global marketplace.

(5)

Reputational risk for United States publicly traded companies accused of civil fraud in State civil enforcement actions, often based on State law standards that differ from Federal law that otherwise governs those national markets, can cause immediate and irreparable financial harm to shareholders and an unnecessary loss of jobs, even after those allegations are later found to be baseless.

(6)

As of June 2017, there were 5,734 public companies in the United States, few more than in 1982, when the economy of the United States was less than 1/2 of its size as of the date of enactment of this Act. The lack of a uniform standard for public companies is a contributing factor to the declining interest in the United States public market, harming the economy of the United States and reducing investment opportunities for the public in the United States.

(7)

Article I, section 8, clause 3 of the Constitution of the United States (commonly known as the “Commerce Clause”) explicitly states that Congress shall have power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. The regulation of interstate commerce is an explicitly Federal responsibility and companies actively engaging in commerce across State lines and raising capital on national markets should be primarily regulated by the uniform anti-fraud standard of the Federal Government.

(8)

In the past, Congress has exercised this authority in regards to State securities preemption with both the Private Securities Litigation Reform Act of 1995 (Public Law 104–67; 109 Stat. 737), which was designed to curb abusive Federal class actions, and the National Securities Markets Improvement Act of 1996 (Public Law 104–290; 110 Stat. 3416) to ensure that States could not impose their own views of what should or should not be included in registration statements filed in connection with nationally traded securities.

(9)

It is in the public interest to establish preemption of Federal regulators and courts over civil securities fraud, eliminating concurrent Federal and State jurisdiction over the specific companies covered by this Act.

Sec. 3 Federal jurisdiction over securities fraud

(a)

Securities Exchange Act of 1934— The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 21F (15 U.S.C. 78u–6) the following:

“21G. Federal jurisdiction over securities fraud

“(a) Definitions—In this section:

“(1) Covered security—The term covered security means a security that is—

“(A)

“(i) listed, or authorized for listing, on the New York Stock Exchange or the National Market System of the Nasdaq Stock Market (or any successor to either such entity);

“(ii) listed, or authorized for listing, on a national securities exchange (or a tier or segment of a national securities exchange) that has listing standards that the Commission determines by rule (upon its own initiative or upon the basis of a petition) are substantially similar to the listing standards applicable to a security described in clause (i); or

“(iii) a security of the same issuer that is equal in seniority, or that is a senior security, to a security described in clause (i) or (ii); and

“(B) issued by a company that is engaged in interstate commerce.

“(2) Securities fraud—The term securities fraud means any misrepresentation, omission, or manipulative or deceptive conduct knowingly or unknowingly made or engaged in in connection with a covered security or transaction of a covered security.

“(b) Preemption—No law, rule, regulation, judgment, agreement, order, or other action of any State, or political subdivision of a State, may regulate securities fraud with respect to an issuer.

“(c) Original jurisdiction for Federal courts—The district courts of the United States shall have original jurisdiction over any civil action alleging securities fraud with respect to an issuer and any such action brought in any State court may be removed to the Federal district court for the district in which the action is pending.

“(d) Preservation of State authority—Consistent with this section, the securities commission (or agency or office performing like functions) of any State shall retain jurisdiction under the laws of that State to investigate and bring—

“(1) a civil enforcement action with respect to fraud, deceit, or unlawful conduct in connection with securities or securities transactions other than in connection with a covered security or transactions of a covered security; and

“(2) a criminal enforcement action with respect to fraud, deceit, or unlawful conduct in connection with a covered security or transactions of a covered security if that enforcement action complies in all respects with the legal requirements for securities fraud under Federal law.

“(e) Effect—This section shall be effective notwithstanding any other provision of law and shall supersede any previously enacted conflicting provision.”

(b)

Securities Act of 1933— The Securities Act of 1933 (15 U.S.C. 77a et seq.) is amended by inserting after section 28 (15 U.S.C. 77z–3) the following:

“29. Federal jurisdiction over securities fraud