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The issue of a uniform standard for national securities litigation is a delicate one. The federal securities laws presuppose an active, vital system of state securities regulation and state court enforcement. In addition, state law has traditionally governed issues of corporate governance. This dual system of regulation has worked to the benefit of investors.
More than twenty years before Congress passed the first federal securities laws, state legislatures passed laws to protect their citizen investors. In 1911, Kansas passed the first law regulating securities transactions. A number of states followed suit and today every state has enacted a securities act. These state statutes have been coined "blue sky" laws because of concerns by the Kansas legislature that eastern industrialists were seeking to peddle a multitude of investments to unwary investors, including interests in the blue sky. When the first federal securities laws were passed in the 1930s, federal law was thought to be a supplement to, rather than a substitute for, the blue sky laws. In fact, the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act") each contain a savings clause preserving the rights and remedies existing at law or in equity. These provisions preserve state blue sky law and corporate law. In addition, the Supreme Court has repeatedly reaffirmed state supremacy in matters involving internal corporate affairs.
State and federal securities laws have coexisted for over 60 years. Recently, however, Congress has begun to reexamine the federal-state partnership in this area. Last year, for example, Congress enacted the National Securities Markets Improvement Act of 1996 ("Improvement Act"), which, among other things, divides the responsibility for securities registration, and investment adviser registration and oversight, between the Commission and the states. In doing so, Congress sought to promote efficiency and capital formation in the financial markets. The responsibility for policing fraud, however, stands on somewhat different footing. The Commission has always relied, and continues to rely, on private actions in both federal and state courts to support the agency's efforts to combat fraud. Private actions are an especially important supplement to the Commission's enforcement program today because of the phenomenal growth of the securities industry during a time when the Commission's staff and budget levels have remained relatively constant. The importance of private actions has been reinforced by the recently reported rise in fraud similar to that witnessed during the bull market of the 1980s.
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