Fact Pattern 21-1 Joan Enjoys Cross Stitching, and Her Husband, John, Makes Items

Multiple Choice

Fact Pattern 21-1
Joan enjoys cross stitching, and her husband, John, makes items using a woodworking process. They would like to make more items and open a small shop selling their handiwork, but they need additional capital with which to purchase raw materials, rent space, and advertise. Joan and John discuss the idea with their neighbors during the annual neighborhood picnic. A number of the neighbors say that they would like to invest in the project. This was entirely the initial idea of the neighbors, and Joan and John did not coerce them in any way. Joan and John, however, quickly draw up contracts that the neighbors signed providing that each investor would receive a certain interest in the shop. An attorney who lived in the neighborhood and specialized in family law asked if there were some laws that John and Joan needed to satisfy in order to seek investors. The neighborhood consensus, however, was that, so long as no one was misled and acted voluntarily, no problem existed. John and Joan proceeded with the shop and made a significant amount of profit. Disagreements arose among the neighbors, however, regarding exactly who was entitled to what.
-Refer to Fact Pattern 21-1.Which of the following is true regarding the application of state securities laws to John and Joan's situation?

A) There are no state securities laws because these have been entirely preempted by federal law.
B) Although state securities laws, called blue sky laws, have been preempted in some respects, they remain viable in other respects; and state law should be consulted to ensure compliance.
C) State securities laws have not been preempted in any respect; and state securities laws, called yellow dog laws, should be consulted to ensure compliance.
D) John and Joan may elect whether they want state securities laws rather than federal securities laws to apply.