- 1909 Joseph Norman Dolley; with permission of Kansas State Historical Society, Copy and Reuse Restrictions Apply
Joseph Norman Dolley was both banker and politician, serving in both houses of the Kansas legislature and chairing the state Republican Party before becoming state Banking Commissioner in March 1909. He was a Progressive, committed to using government to fight both public and private corruption. Urban adherents of the movement, such as Louis Brandeis, hoped to protect investors by enforcing transparency in securities offerings; their Midwestern counterparts fought speculation in agricultural commodities to counter Eastern economic power.
Securities fraud soon caught Dolley’s attention. According to one account, he asked those attending a speech to stand if they had not been swindled. One person rose. Dolley felt personally responsible for fraud, lamenting, “So far as the law went, there seemed nothing to do by way of protecting him from losing his money; but I made up my mind I’d do something.” (7)
Dolley collected information about securities firms and advised the public as to their integrity. He established a bureau within the Banking Commission that culled information from bogus claims in Kansas newspapers. Dolley became convinced that Kansans were losing between $1 million and $3 million annually. He asked the legislature for “a law compelling all parties who offer stocks and bonds for sale in Kansas to register with some department of state…and to submit to a full examination of their affairs.” (8)
Introduced on February 6, 1911, the “Act to Provide for the Regulation and Supervision of Investment Companies” required filing with the state Banking Commissioner, who could reject applications he found suspect. The bill was not without some controversy. It was the first of its kind, and called for government intervention in a new field. Even the bill’s supporters worried about the power it vested in one man. One representative stated, “I chance the ills I know not of in this bill rather than to suffer others of which I am sure.” The governor signed the “Blue Sky Law” on March 10th.
In the months afterward, Dolley scrutinized more than seven hundred applications and approved only forty-eight. Irritated investment bankers believed that Dolley was trying to direct money away from investments and into accounts to the benefit of Kansan banking interests. State banks often clashed with investment banks as they competed for scarce savings. While claiming no sympathy for “the oily promoter,” the investment bankers argued that those seeking “more than a fair return for their money” should share the blame for their losses, and that people should realize that deals that seemed too good to be true probably were. They also feared regulatory overreach.
Dolley countered that investment bankers underestimated the amount of outright fraud taking place, and that weeding out illegitimate securities aided those selling valid ones. He noted that the first year’s savings to the public of $6 million amounted to more than the state’s annual budget. (9)
Kansas-style regulation spread like a prairie fire. The Blue Sky Law became a template for most other bills. An Iowa attorney noted “We claim to be progressive in Iowa, but we need a little more ‘mob rule’ here along the lines” of the Blue Sky law. Another wanted a copy of the law so he could “aggetate[sic] this matter to such an extent as to cause the passage if possible of such a bill by our next legilature[sic] similar to the law in Kansas.” South Dakotans and Minnesotans wrote for advice. Within three years, nearly half of the states in the Union had adopted Blue Sky laws. Though many were not as stringent as the Kansas law, by 1933 every state but Nevada had one. (10)
The Burr brothers scandal led directly to the Kansas Blue Sky Law, but the Burrs and Dolley embodied the larger clash between unethical operators and principled Progressives. The ease with which the bill was passed and the readiness with which it was imitated demonstrated that it was a law whose time had come.
An unregulated and speculative market now had a legal counterweight. The Kansas Blue Sky Law indicated that sometimes, when a scandal collides with a countervailing political movement, a direct response could be forthcoming despite the normally complex legislative process.
(7) Munsey’s Magazine, “Barring Out the Stock Thieves,” Vol. XLVI No. 5, February 1912. Current Literature, “Chasing the Wild Cats of Finance,” Vol. LII No. 2, February 1912.
(8) The Ticker, “Saving the People’s Money,” August 1910. J.N. Dolley, Tenth Biennial Report of the Bank Commissioner of the State of Kansas (Topeka: State Printing Office, 1910), xiii-xiv.
(9) Technical World, “The Blue Sky Law,” March 1912, 41. The Bankers’ Magazine, “The ‘Blue Sky Laws,’” May 12, 1912 (Vol. LXXXIV No. 5). J.N. Dolley Moody’s Magazine, “Blue Sky Law,” Vol. XV, p. 45.
(10) Cowing, Populists, Plungers, and Progressives, 68, 72-73.
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