Federal securities laws have, from the beginning, emphasized fair disclosure, believing that a well-informed investor would be in a position to make his or her own decisions about which investments were worth buying.
Many states have been more aggressive in evaluating securities for sale within their borders, and unlike the
SEC
have traditionally insisted on merit review: assessing the risk and return associated with any given investment and reserving the right to prohibit the sale of investments they believe are without merit.
When the National Securities Market Improvement Act (NSMIA) carved out separate jurisdictions for the SEC and the states, it curtailed the power of states to limit the sale of certain covered securities — for example, those listed on major national exchanges. While states still reserve the right to subject investments to merit review, they must focus on unlisted companies and companies based in other countries, which are not subject to the same SEC disclosure rules as those that apply to domestic companies.
