A Short History of Arizona's Securities Laws: Wildcats, Bucket Shops, and a Radical Bunny

Abstract

The idea of using government-enforced legislation to protect securities investors was foreign to nineteenth-century thinking. But during the first decade of the twentieth century, interest in state and federal securities legislation developed in several ways. Arizona enacted a bucket-shop law in 1909. A year later, at the 1910 Constitutional Convention, Arizona’s delegates approved a constitutional provision empowering the Corporation Commission to inspect records and investigate corporations that publicly sell stock. In 1912, Arizona became the second state to enact a blue-sky law. The 1912 Act was administered by the newly empowered Corporation Commission. Arizona supplemented the 1912 Act with two more blue-sky laws in 1917 and 1921. These early statutes included registration, licensing, and criminal statutes, but they did not provide for civil liability. To fill the gap, Arizona’s courts judicially implied remedies. In 1951, Arizona’s legislature replaced the blue-sky laws with an entirely new securities act. The 1951 Act included statutes that provide for civil liability of sellers, purchasers, and persons who participate in or induce fraudulent sales. The 1951 Act’s participate-or-induce standard is a defining feature of Arizona’s securities laws. The meaning and application of the standard are among the most litigated issues in Arizona securities law. The article analyzes the major decisions on Arizona’s participate-or-induce standard including five 2011-12 decisions. Aspects of these decisions regarding aiding and abetting under Arizona’s securities laws are also addressed.