Text: HSB00675 Text: HSB00677 Text: HSB00600 - HSB00699 Text: HSB Index Bills and Amendments: General Index Bill History: General Index
PAG LIN 1 1 Section 1. Section 502.102, Code Supplement 1997, is 1 2 amended by adding the following new subsections: 1 3 NEW SUBSECTION. 5B. "Federal covered adviser" means a 1 4 person who is registered under section 203 of the Investment 1 5 Advisers Act of 1940, 15 U.S.C. } 80(b) et. seq. "Federal 1 6 covered adviser" does not include a person who is excluded 1 7 from the definition of "investment adviser" as provided in 1 8 subsection 8A, paragraph "c", subparagraphs (1) through (7). 1 9 NEW SUBSECTION. 9A. a. "Investment adviser" means any 1 10 person who, for compensation, does any of the following: 1 11 (1) Engages in the business of providing investment 1 12 advisory services by advising others, either directly or 1 13 through publications or writings, as to the value of 1 14 securities or as to the advisability of investing in, 1 15 purchasing, or selling securities. 1 16 (2) As a part of a regular business, issues or promulgates 1 17 analyses or reports concerning securities. 1 18 b. "Investment adviser" includes a financial planner or 1 19 other person who, as an integral component of other 1 20 financially related services, does either of the following: 1 21 (1) Provides investment advisory services to others for 1 22 compensation and as part of a business. 1 23 (2) Holds oneself out as providing investment advisory 1 24 services to others for compensation. 1 25 c. "Investment adviser" does not include a person who is 1 26 any of the following: 1 27 (1) An investment adviser representative. 1 28 (2) A bank, savings institution, or trust company. 1 29 (3) An attorney licensed to practice law in this state, a 1 30 certified public accountant licensed pursuant to chapter 542C, 1 31 a professional engineer licensed pursuant to chapter 542B, or 1 32 a certified teacher, if the person's performance of these 1 33 services is solely incidental to the practice of the person's 1 34 profession. 1 35 (4) An attorney licensed to practice law in this state or 2 1 a certified public accountant licensed pursuant to chapter 2 2 542C who does not do any of the following: 2 3 (a) Exercise investment discretion regarding the assets of 2 4 a client or maintain custody of the assets of a client for the 2 5 purpose of investing the assets, except when the person is 2 6 acting as a bona fide fiduciary in a capacity such as an 2 7 executor, administrator, trustee, estate or trust agent, 2 8 guardian, or conservator. 2 9 (b) Accept or receive directly or indirectly any 2 10 commission, fee, or other remuneration contingent upon the 2 11 purchase or sale of any specific security by a client of such 2 12 person. 2 13 (c) Provide advice regarding the purchase or sale of 2 14 specific securities. However, this subparagraph subdivision 2 15 (c) shall not apply when the advice about specific securities 2 16 is based on a financial statement analysis or tax 2 17 considerations that are reasonably related to and in 2 18 connection with the person's profession. 2 19 (5) A broker-dealer or its agent whose performance of 2 20 these services is solely incidental to the conduct of its 2 21 business as a broker-dealer and who receives no special 2 22 compensation for them. 2 23 (6) A publisher of any bona fide newspaper, news column, 2 24 newsletter, news magazine, or business or financial 2 25 publication or service, whether communicated in hard copy 2 26 form, or by electronic means, or otherwise, that does not 2 27 consist of the rendering of advice on the basis of the 2 28 specific investment situation of each client. 2 29 (7) A person who is excluded from the definition of 2 30 "investment adviser" under section 202(a)(11) of the 2 31 Investment Advisers Act of 1940. 2 32 (8) A person who is a federal covered adviser. 2 33 (9) A person not within the intent of this subsection as 2 34 the administrator may by rule or order designate. 2 35 d. As used in this subsection, "compensation" does not 3 1 include a commission, fee, or a combination of a commission 3 2 and a fee, which is paid to an insurance agent licensed under 3 3 chapter 522, if the insurance agent receives the commission, 3 4 fee, or the combination of a commission and a fee, for the 3 5 sale of insurance as regulated pursuant to Title XIII, 3 6 subtitle 1. 3 7 NEW SUBSECTION. 9B. a. "Investment adviser 3 8 representative" means an individual including but not limited 3 9 to a partner, officer, director, or an individual occupying a 3 10 similar status or performing similar functions as a partner, 3 11 officer, or director, except clerical or ministerial 3 12 personnel, if both of the following apply: 3 13 (1) The individual is employed by or associated with an 3 14 investment adviser that is registered or required to be 3 15 registered under this chapter, or who is employed by or 3 16 associated with a federal covered adviser. 3 17 (2) The individual does any of the following: 3 18 (a) Makes any recommendations or otherwise renders advice 3 19 regarding securities. 3 20 (b) Manages accounts or portfolios of clients. 3 21 (c) Determines which recommendation or advice regarding 3 22 securities should be given. 3 23 (d) Solicits, offers, or negotiates for the sale of or 3 24 sells investment advisory services. 3 25 (e) Supervises employees who perform any of the functions 3 26 in subparagraphs (a) through (d). 3 27 b. "Investment adviser representative" does not include 3 28 any other person not within the intent of this subsection as 3 29 the administrator may by rule or order designate. 3 30 Sec. 2. Section 502.102, subsection 14, Code Supplement 3 31 1997, is amended to read as follows: 3 32 14. "Securities Act of 1933", "Securities Exchange Act of 3 33 1934", "Public Utility Holding Company Act of 1935", 3 34 "Investment Advisers Act of 1940", "Investment Company Act of 3 35 1940", "Internal Revenue Code" and "Agricultural Marketing 4 1 Act" mean the federal statutes of those names. 4 2 Sec. 3. Section 502.301, subsection 3, Code 1997, is 4 3 amended by striking the subsection and inserting in lieu 4 4 thereof the following: 4 5 3. It is unlawful for any person to transact business in 4 6 this state as an investment adviser or as an investment 4 7 adviser representative unless one of the following applies: 4 8 a. The person is registered under this part. 4 9 b. The person has no place of business in this state, and 4 10 either of the following applies: 4 11 (1) The person's only clients in this state are investment 4 12 companies as defined in the Investment Company Act of 1940, 4 13 other investment advisers, federal covered advisers, broker- 4 14 dealers, banks, trust companies, savings and loan 4 15 associations, insurance companies, employee benefit plans with 4 16 assets of not less than one million dollars, and governmental 4 17 agencies or instrumentalities, whether acting for themselves 4 18 or as trustees with investment control, or other institutional 4 19 investors as are designated by rule or order of the 4 20 administrator. 4 21 (2) During the preceding twelve-month period the person 4 22 has had no more than five clients, other than those specified 4 23 in subparagraph (1), who are residents of this state. 4 24 Sec. 4. Section 502.301, Code 1997, is amended by adding 4 25 the following new subsections: 4 26 NEW SUBSECTION. 4. It is unlawful for any of the 4 27 following persons to do the following: 4 28 a. An investment adviser required to be registered to 4 29 employ an investment adviser representative unless the 4 30 investment adviser representative is registered under this 4 31 chapter, provided that the registration of an investment 4 32 adviser representative is not effective during any period when 4 33 the investment adviser representative is not employed by an 4 34 investment adviser registered under this part. 4 35 b. A federal covered adviser to employ, supervise, or 5 1 associate with an investment adviser representative having a 5 2 place of business located in this state, unless the investment 5 3 adviser representative is registered under this chapter, or is 5 4 exempt from registration. 5 5 When an investment adviser representative begins or 5 6 terminates employment or association with an investment 5 7 adviser, the investment adviser in the case of paragraph "a", 5 8 or the investment adviser representative in the case of 5 9 paragraph "b", shall promptly notify the administrator. 5 10 NEW SUBSECTION. 5. Every registration or notice filing 5 11 under this section expires December 31, unless renewed. 5 12 NEW SUBSECTION. 6. Except with respect to advisers whose 5 13 only clients are those described in section 502.301, 5 14 subsection 3, paragraph "b", it is unlawful for any federal 5 15 covered adviser to conduct advisory business in this state 5 16 unless such person complies with the provisions of section 5 17 502.302, subsection 2. 5 18 Sec. 5. Section 502.302, Code Supplement 1997, is amended 5 19 to read as follows: 5 20 502.302 REGISTRATION AND NOTICE FILING PROCEDURES. 5 21 1. A broker-dealer,oragent, investment adviser, or 5 22 investment adviser representative may obtain an initial or 5 23 renewal license by filing with the administrator, or an 5 24 organization which the administrator by rule designates, an 5 25 application together with a consent to service of process 5 26 pursuant to section 502.609 and the appropriate filing fee. 5 27 The application shall containtheinformation the 5 28 administrator requires by rule concerning the applicant's form 5 29 and place of organization, proposed method of doing business 5 30 and financial condition, and the qualifications and experience 5 31 of the applicant, including, in. In the case of a broker- 5 32 dealer or investment adviser, the application shall include 5 33 the qualifications and experience of any partner, officer, 5 34 director or controlling person, any injunction or 5 35 administrative order or conviction of a misdemeanor involving 6 1 securities and any conviction of a felony, and any other 6 2 matters which the administrator determines are relevant to the 6 3 application. In addition, in the case of an investment 6 4 adviser, the application shall include any information to be 6 5 furnished or disseminated to any client or prospective client, 6 6 and any other information which the administrator determines 6 7 is relevant to the application. If no denial order is in 6 8 effect and no proceeding is pending under section 502.304, 6 9 registration becomes effective at noon of the sixtieth day 6 10 after a completed application or an amendment completing the 6 11 application is filed, unless waived by the applicant. The 6 12 administrator may by rule or order specify an earlier 6 13 effective date. 6 14 2. Except with respect to federal covered advisers whose 6 15 only clients are those described in section 502.301, 6 16 subsection 3, paragraph "b", a federal covered adviser shall 6 17 file with the administrator, prior to acting as a federal 6 18 covered adviser in this state, such documents as have been 6 19 filed with the securities and exchange commission as the 6 20 administrator, by rule or order, may require. 6 21 3. Every applicant for initial or renewal registration as 6 22 a broker-dealer or investment adviser shall pay a filing fee 6 23 of two hundred dollars. Every applicant for initial or 6 24 renewal registration as an agent or investment adviser 6 25 representative shall pay a filing fee of thirty dollars. A 6 26 filing fee is not refundable. Every person acting as a 6 27 federal covered adviser in this state, except with respect to 6 28 federal covered advisers whose only clients are those 6 29 described in section 502.301, subsection 3, paragraph "b", 6 30 shall pay an initial and renewal notice filing fee of one 6 31 hundred dollars. 6 323.4. A registered broker-dealer, federal covered adviser, 6 33 or investment adviser may file an application for registration 6 34 of a successor, whether or not the successor is then in 6 35 existence, for the unexpired portion of the year. There shall 7 1 be no filing fee. 7 24.5. The administrator may by rule or order require a 7 3 minimum capital for broker-dealers subject to the limitations 7 4 of section 15 of the Securities Exchange Act of 1934. The 7 5 administrator by rule or order may also establish minimum 7 6 financial requirements for investment advisers, subject to the 7 7 limitations of section 222 of the Investment Advisers Act of 7 8 1940, which may include different requirements for those 7 9 investment advisers who maintain custody of client funds or 7 10 securities or who have discretionary authority over client 7 11 funds or securities and those investment advisers who do not. 7 12 6. The administrator may by rule or order require 7 13 investment advisers who have custody of or discretionary 7 14 authority over client funds or securities to post bonds in 7 15 amounts as the administrator may prescribe, subject to the 7 16 limitations of section 222 of the Investment Advisers Act of 7 17 1940 and may determine conditions on the bonds. A bond shall 7 18 not be required of any investment adviser whose minimum 7 19 financial requirements, which may be defined by rule, exceed 7 20 the amounts required by the administrator. Every bond shall 7 21 provide for suit on the bond by the person who has a cause of 7 22 action under this chapter and, if the administrator by rule or 7 23 order requires, by any person who has a cause of action not 7 24 arising under this chapter. Every bond shall provide that a 7 25 suit shall not be maintained to enforce liability on the bond 7 26 unless brought within the time limitations of section 502.504. 7 275.7. The administrator may by rule or order impose such 7 28 other conditions in connection with registration under this 7 29 chapter as are deemed appropriate, in the public interest or 7 30 for the protection of investors. 7 31 Sec. 6. Section 502.303, Code Supplement 1997, is amended 7 32 to read as follows: 7 33 502.303 POST-REGISTRATION PROVISIONS. 7 34 1. Every registered broker-dealer and investment adviser 7 35 shall make and keep accounts, correspondence, memoranda, 8 1 papers, books, and other records as the administrator may 8 2 prescribe by rule or order, except as provided by section 15 8 3 of the Securities Exchange Act of 1934 in the case of a 8 4 broker-dealer, and section 222 of the Investment Advisers Act 8 5 of 1940 in the case of an investment adviser. All records 8 6 required, with respect to an investment adviser, shall be 8 7 preserved for a period as the administrator prescribes by rule 8 8 or order. 8 9 2. With respect to investment advisers, the administrator 8 10 may require that certain information be furnished or 8 11 disseminated to clients or prospective clients as necessary or 8 12 appropriate in the public interest or for the protection of 8 13 investors and advisory clients. To the extent determined in 8 14 the administrator's discretion, information furnished to 8 15 clients or prospective clients of an investment adviser that 8 16 would be in compliance with the Investment Advisers Act of 8 17 1940 and the rules under that Act may be used in whole or in 8 18 partial satisfaction of this requirement. 8 19 3. Every registered broker-dealer and investment adviser 8 20 shall file such financial reports as the administrator 8 21 prescribes by rule or order, not to exceed the limitations 8 22 provided in section 15 of the Securities Exchange Act of 1934 8 23 in the case of a broker-dealer, and section 222 of the 8 24 Investment Advisers Act of 1940 in the case of an investment 8 25 adviser. 8 263.4. If the information contained in any document filed 8 27 with the administrator is or becomes inaccurate or incomplete 8 28 in any material respect, the registrant or federal covered 8 29 adviser shallpromptlyfile a correcting amendment promptly if 8 30 the document is filed with respect to a registrant, or when 8 31 such amendment is required to be filed with the securities and 8 32 exchange commission, if the document is filed with respect to 8 33 a federal covered adviser, unless notification of the 8 34 correction has been given under section 502.301, subsection 2. 8 354.5. The administrator may make examinations, within or 9 1 without this state, of the business and records of each 9 2 registered broker-dealer or investment adviser, at the times 9 3 and in the scope as the administrator determines. The 9 4 examinations may be made without prior notice to the broker- 9 5 dealer or investment adviser. The administrator may copy all 9 6 records the administratorfeelsbelieves are necessary to 9 7 conduct the examination. The expense reasonably attributable 9 8 to an examination shall be paid by the broker-dealer or 9 9 investment adviser whose business is examined, but the expense 9 10 so payable shall not exceed an amount which the administrator 9 11 by rule prescribes. For the purpose of avoiding unnecessary 9 12 duplication of examinations, the administrator may co-operate 9 13 with securities administrators of other states, the securities 9 14 and exchange commission, and any national securities exchange 9 15 or national securities association registered under the 9 16 Securities Exchange Act of 1934. The administrator shall not 9 17 make public the information obtained in the course of 9 18 examinations, except when a duty under this chapter requires 9 19 the administrator to take action regarding a broker-dealer or 9 20 investment adviser or to make the information available to one 9 21 of the agencies specified in this section, or except when the 9 22 administrator is called as a witness in a criminal or civil 9 23 proceeding. 9 24 Sec. 7. Section 502.304, subsection 1, unnumbered 9 25 paragraph 1, Code Supplement 1997, is amended to read as 9 26 follows: 9 27 The administrator may by order deny, suspend, or revoke a 9 28 registration or may censure, impose a civil penalty upon, or 9 29 bar an applicant, registrant, or any officer, director, 9 30 partner, or person occupying a similar status or performing 9 31 similar functions for a registrant. A person barred under 9 32 this subsection may be prohibited by the administrator from 9 33 employment with a registered broker-dealer or investment 9 34 adviser. The administrator may restrict the person barred 9 35 from engaging in any activity for which registration is 10 1 required. Any action by the administrator under this 10 2 subsection may be taken if the order is found to be in the 10 3 public interest and it is found that the applicant or 10 4 registrant or, in the case of a broker-dealer or investment 10 5 adviser, a partner, an officer, or a director, a person 10 6 occupying a similar status or performing similar functions, or 10 7 a person directly or indirectly controlling the broker-dealer 10 8 or investment adviser: 10 9 Sec. 8. Section 502.304, subsection 1, paragraphs e, h, 10 10 and j, Code Supplement 1997, are amended to read as follows: 10 11 e. Is the subject of an order of the administrator 10 12 denying, suspending, or revoking registration as a broker- 10 13 dealer, agent, investment adviser, investment adviser 10 14 representative, or insurance agent; 10 15 h. Is insolvent, either in the equity or bankruptcy sense; 10 16 but the administrator may not enter an order against a broker- 10 17 dealer or investment adviser under this paragraph without a 10 18 finding of insolvency as to the broker-dealer or investment 10 19 adviser; 10 20 j. Has failed reasonably to supervise an agent or employee 10 21 in the case of a broker-dealer, or an investment adviser 10 22 representative or employee in the case of an investment 10 23 adviser; 10 24 Sec. 9. Section 502.304, subsection 1, paragraph m, 10 25 subparagraph (2), Code Supplement 1997, is amended to read as 10 26 follows: 10 27 (2) Within the past five years, has been the subject of an 10 28 action of a securities regulator of a foreign jurisdiction 10 29 denying, revoking, or suspending the right to engage in the 10 30 business of securities as a broker-dealer,oragent, 10 31 investment adviser, or investment adviser representative. 10 32 Sec. 10. Section 502.304, subsection 3, Code Supplement 10 33 1997, is amended to read as follows: 10 34 3. The administrator may by order summarily postpone or 10 35 suspend registration pending final determination of any 11 1 proceeding under this section. Upon the entry of the order, 11 2 the administrator shall promptly notify the applicant or 11 3 registrant, as well as the employer or prospective employer if 11 4 the applicant or registrant is an agent or investment adviser 11 5 representative, that it has been entered and of the reasons 11 6 therefor and that within fifteen days after the receipt of a 11 7 written request the matter will be set down for hearing. If 11 8 no hearing is requested and none is ordered by the 11 9 administrator, the order will remain in effect until it is 11 10 modified or vacated by the administrator. If a hearing is 11 11 requested or ordered, the administrator, after notice of and 11 12 opportunity for hearing, may modify or vacate the order or 11 13 extend it until final determination. 11 14 Sec. 11. Section 502.304, subsection 4, paragraph a, Code 11 15 Supplement 1997, is amended to read as follows: 11 16 a. If the administrator finds that any registrant or 11 17 applicant for registration is no longer in existence or has 11 18 ceased to do business as a broker-dealer,oragent, investment 11 19 adviser, or investment adviser representative, or is subject 11 20 to an adjudication of mental incompetence or to the control of 11 21 a committee, conservator, or guardian, or cannot be located 11 22 after search, the administrator may by order revoke the 11 23 registration or application. 11 24 Sec. 12. Section 502.304, subsection 5, Code Supplement 11 25 1997, is amended to read as follows: 11 26 5. Withdrawal from registration as a broker-dealer,or11 27 agent, investment adviser, or investment adviser 11 28 representative becomes effective thirty days after receipt of 11 29 an application to withdraw or within such shorter period of 11 30 time as the administrator may by order determine, unless a 11 31 proceeding to deny, suspend, or revoke a registration is 11 32 pending when the application is filed or a proceeding to deny, 11 33 suspend, or revoke a registration, or to impose conditions 11 34 upon the withdrawal is instituted within thirty days after the 11 35 application is filed. If a proceeding is pending or 12 1 instituted, withdrawal becomes effective at such time and upon 12 2 such conditions as the administrator by order determines. If 12 3 no proceeding is pending or instituted and withdrawal 12 4 automatically becomes effective, the administrator may 12 5 nevertheless institute a revocation or suspension proceeding 12 6 under subsection 1, paragraph "b", within one year after 12 7 withdrawal became effective and enter a revocation or 12 8 suspension order as of the last date on which registration was 12 9 effective. 12 10 Sec. 13. NEW SECTION. 502.305 EXAMINATION OF INVESTMENT 12 11 ADVISER REPRESENTATIVE AND EXEMPTION FROM EXAMINATION. 12 12 The administrator may adopt rules requiring the passage of 12 13 an examination by an individual who is required to be 12 14 registered under this chapter as an investment adviser 12 15 representative. However, a person who is registered as an 12 16 investment adviser representative between January 1, 1999, and 12 17 December 31, 2000, shall not be required to pass an 12 18 examination for as long as the person maintains a continuous 12 19 registration. 12 20 Sec. 14. Section 502.406, subsections 1 and 2, Code 12 21 Supplement 1997, are amended to read as follows: 12 22 1. It is unlawful for any person registered as a broker- 12 23 dealer,oragent, investment adviser, or investment adviser 12 24 representative under this chapter to represent or imply in any 12 25 manner whatsoever that such person has been sponsored, 12 26 recommended, or approved or that the person's abilities or 12 27 qualifications have in any respect been passed upon by the 12 28 administrator. Nothing in this subsection prohibits a 12 29 statement other than in a paid advertisement that a person is 12 30 registered under this chapter, if such statement is true in 12 31 fact and if the effect of such registration is not 12 32 misrepresented. 12 33 2. a. The fact that an application for registration or 12 34 notice filing under part III or a registration statement or a 12 35 notice filing has been filed under this chapter or the fact 13 1 that a person or the statement has become effective does not 13 2 constitute a finding by the administrator that any document 13 3 filed under this chapter is true, complete, or not misleading. 13 4 Any such fact or the fact that an exemption is available for a 13 5 security or a transaction does not mean that the administrator 13 6 has passed in any way upon the merits or qualifications of, or 13 7 has recommended or given approval to, any person, security, or 13 8 transaction. 13 9 b. It is unlawful to make, or cause to be made, to any 13 10 prospective purchaser, customer, client, or any other person, 13 11 any representation inconsistent with paragraph "a"of this13 12subsection. 13 13 Sec. 15. NEW SECTION. 502.408 ADVISORY ACTIVITIES. 13 14 1. It is unlawful for any person who receives, directly or 13 15 indirectly, any consideration from another person for advising 13 16 the other person as to the value of securities or their 13 17 purchase or sale, whether through the issuance of analyses or 13 18 reports or otherwise, to do any of the following: 13 19 a. Employ any device, scheme, or artifice to defraud the 13 20 other person. 13 21 b. Engage in any act, practice, or course of business 13 22 which operates or would operate as a fraud or deceit upon the 13 23 other person. 13 24 c. Engage in dishonest or unethical practices as the 13 25 administrator may define by rule. 13 26 2. In the solicitation of advisory clients, it is unlawful 13 27 for a person to make any untrue statement of a material fact, 13 28 or omit to state a material fact necessary in order to make 13 29 the statements made, in light of the circumstances under which 13 30 they are made, not misleading. 13 31 3. Except as may be permitted by rule or order of the 13 32 administrator, it is unlawful for any investment adviser to 13 33 enter into, extend, or renew any investment advisory contract 13 34 unless it provides in writing all of the following: 13 35 a. That the investment adviser shall not be compensated on 14 1 the basis of a share of capital gains upon or capital 14 2 appreciation of the funds or any portion of the funds of the 14 3 client. 14 4 b. That no assignment of the contract may be made by the 14 5 investment adviser without the consent of the other party to 14 6 the contract. 14 7 c. That the investment adviser, if a partnership, shall 14 8 notify the other party to the contract of any change in the 14 9 membership of the partnership within a reasonable time after 14 10 the change. 14 11 4. Subsection 3, paragraph "a", does not prohibit an 14 12 investment advisory contract which provides for compensation 14 13 based upon the total value of a fund averaged over a definite 14 14 period, or as of definite dates or taken as of a definite 14 15 date. "Assignment", as used in subsection 3, paragraph "b", 14 16 includes any direct or indirect transfer or hypothecation of 14 17 an investment advisory contract by the assignor or of a 14 18 controlling block of the assignor's outstanding voting 14 19 securities by a security holder of the assignor. However, if 14 20 the investment adviser is a partnership, no assignment of an 14 21 investment advisory contract is considered to result from the 14 22 death or withdrawal of a minority of the members of the 14 23 investment adviser having only a minority interest in the 14 24 business of the investment adviser, or from the admission to 14 25 the investment adviser of one or more members who, after 14 26 admission, will be only a minority of the members and will 14 27 have only a minority interest in the business. 14 28 5. It is unlawful for any investment adviser to take or 14 29 have custody of any securities or funds of any client if any 14 30 of the following applies: 14 31 a. The administrator by rule prohibits custody. 14 32 b. In the absence of rule, the investment adviser fails to 14 33 notify the administrator that it has or may have custody. 14 34 6. The administrator may by rule or order adopt exemptions 14 35 from the requirements of subsection 1, paragraph "c", and 15 1 subsection 3, paragraphs "a", "b", and "c", where such 15 2 exemptions are consistent with the public interest and within 15 3 the purposes fairly intended by the policy and provisions of 15 4 this chapter. 15 5 Sec. 16. Section 502.501, subsection 1, paragraph c, Code 15 6 Supplement 1997, is amended to read as follows: 15 7 c.Offers or sells a security at any time when such person15 8has committed a material violation ofViolates section 15 9 502.301, or 15 10 Sec. 17. NEW SECTION. 502.502A ADVISORY MISCONDUCT. 15 11 1. A person shall be held civilly liable for doing any of 15 12 the following: 15 13 a. Engaging in the business of advising others, for 15 14 compensation, either directly or through publications or 15 15 writings, as to the value of securities or as to the 15 16 advisability of investing in, purchasing, or selling 15 17 securities, or who, for compensation and as a part of a 15 18 regular business, issues or promulgates analyses or reports 15 19 concerning securities in violation of section 502.301, 15 20 subsection 3 or 4; section 502.406, subsection 2; section 15 21 502.408; or of any rule or order under section 502.602. 15 22 b. Receiving directly or indirectly any consideration from 15 23 another person for advice as to the value of securities or 15 24 their purchase or sale, whether through the issuance of 15 25 analyses, reports, or otherwise and employs any device, 15 26 scheme, or artifice to defraud such other person or engages in 15 27 any act, practice, or course of business which operates or 15 28 would operate as a fraud or deceit on such other person. The 15 29 person acting in violation of this section is liable to the 15 30 other person who may sue either at law or in equity to recover 15 31 the consideration paid for such advice and any loss due to 15 32 such advice, together with interest at the legal rate per year 15 33 from the date of payment of the consideration plus costs and 15 34 reasonable attorney's fees, less the amount of any income 15 35 received from such advice. 16 1 2. A person shall not base the civil action on a contract, 16 2 if the person did any of the following: 16 3 a. Engaged in the performance of the contract in violation 16 4 of any provision of this chapter, or any rule adopted or order 16 5 issued under this chapter. 16 6 b. Acquired any purported right under the contract with 16 7 knowledge of the facts by reason of which its making or 16 8 performance was in violation of any provision of this chapter 16 9 or any rule adopted or order issued under this chapter. 16 10 Sec. 18. Section 502.503, subsection 1, unnumbered 16 11 paragraph 1, Code 1997, is amended to read as follows: 16 12 Affiliates of a person liable under either section 502.501, 16 13or502.502, or 502.502A, partners, principal executive 16 14 officers or directors of such person, persons occupying a 16 15 similar status or performing similar functions for such 16 16 person, persons (whether employees of such person or 16 17 otherwise) who materially aid and abet in the act or 16 18 transaction constituting the violation, and broker-dealers or 16 19 agents who materially aid and abet in the act or transaction 16 20 constituting the violation, are also liable jointly and 16 21 severally with and to the same extent as such person, unless: 16 22 Sec. 19. Section 502.503, subsection 1, paragraph a, Code 16 23 1997, is amended to read as follows: 16 24 a. With respect to section 502.501,andsection 502.502, 16 25 subsections 1 and 5, or section 502.502A, any person liable 16 26 hereunder proves that the person did not know, and in the 16 27 exercise of reasonable care could not have known, of the 16 28 existence of the facts by reason of which the liability is 16 29 alleged to exist; and 16 30 Sec. 20. Section 502.602, Code Supplement 1997, is amended 16 31 to read as follows: 16 32 502.602 FILING OF SALES AND ADVERTISING LITERATURE. 16 33 The administrator may by rule or order require the filing 16 34 of any prospectus, pamphlet, circular, form letter, 16 35 advertisement, or other sales literature or advertising 17 1 communication addressed or intended for distribution to 17 2 prospective investors, including clients or prospective 17 3 clients of an investment adviser, unless the security is a 17 4 federal covered security or the transaction relates to a 17 5 federal covered security or the security or transaction is 17 6 exempted by section 502.202 or 502.203. The administrator may 17 7 by rule or order prohibit the publication, circulation or use 17 8 of any advertising deemed false or misleading. 17 9 Sec. 21. Section 502.608, subsection 2, Code Supplement 17 10 1997, is amended to read as follows: 17 11 2. The administrator shall keep a register of all 17 12 applications for registration, notice filings, and 17 13 registration statements which are or have been effective under 17 14 this chapter and predecessor laws, and all censure, denial, 17 15 suspension, or revocation orders which have been entered under 17 16 this chapter and predecessor laws. All records may be 17 17 maintained in an electronic or microfilm format or any other 17 18 form of data storage. The register shall be open for public 17 19 inspection. 17 20 Sec. 22. Section 502.610, Code 1997, is amended by adding 17 21 the following new subsection: 17 22 NEW SUBSECTION. 5. Section 502.301, subsection 3, and 17 23 section 502.408, and section 502.406 so far as investment 17 24 advisers and investment adviser representatives are concerned, 17 25 apply when any act instrumental in effecting prohibited 17 26 conduct is done in this state, whether or not either party is 17 27 then present in this state. 17 28 Sec. 23. CONDITION TO ADMINISTRATION AND ENFORCEMENT. The 17 29 securities bureau of the insurance division of the department 17 30 of commerce is not required to administer or enforce the 17 31 provisions of this Act, unless the administrator of the 17 32 securities bureau determines that there are sufficient moneys 17 33 available to support administration and enforcement of this 17 34 Act. Sufficient moneys to administer and enforce the 17 35 provisions of this Act shall be deemed to be available if the 18 1 general assembly appropriates at least sixty-nine thousand 18 2 dollars, which provides for two full-time equivalent 18 3 positions, for the fiscal year beginning July 1, 1998, and 18 4 ending June 30, 1999, to the insurance division of the 18 5 department of commerce for purposes of administering and 18 6 enforcing the provisions of this Act. If such sufficient 18 7 funds are available for that fiscal year this Act shall be 18 8 given full force and effect indefinitely. 18 9 Sec. 24. RULEMAKING. The securities bureau of the 18 10 insurance division of the department of commerce shall adopt 18 11 rules as soon as is practicable in order to administer the 18 12 provisions of this Act. 18 13 Sec. 25. EFFECTIVE DATES. 18 14 1. Except as provided in subsection 2, this Act takes 18 15 effect January 1, 1999. 18 16 2. This section and section 24 of this Act, being deemed 18 17 of immediate importance, take effect upon enactment. 18 18 EXPLANATION 18 19 This bill is proposed by the securities bureau of the 18 20 insurance division of the department of commerce. The bill 18 21 amends chapter 502, the Iowa Uniform Securities Act. 18 22 The bill regulates investment advisers. The bill provides 18 23 that an investment adviser is a person who is engaged in the 18 24 business of providing investment advice to persons in return 18 25 for compensation. The bill provides exemptions for federally 18 26 registered advisers, financial institutions, and professionals 18 27 such as attorneys, accountants, engineers, and teachers who 18 28 provide advice incidentally to their practice. The bill also 18 29 regulates investment adviser representatives who are 18 30 individuals employed by or associated with an investment 18 31 adviser and who are involved in managing investments. 18 32 The bill establishes the licensure, registration, and 18 33 examination provisions for investment advisers and investment 18 34 adviser representatives, establishes notice filing 18 35 requirements for federal covered advisers, provides for filing 19 1 fees, and authorizes rules to set minimum financial 19 2 requirements and bonds for investment advisers. 19 3 The bill establishes postregistration requirements, such as 19 4 recordkeeping, financial reports, corrective amendments, and 19 5 bureau inspection authority. 19 6 The bill prohibits certain conduct. The bill lists 19 7 prohibited advisory transactions, including fraud or deceit, 19 8 unethical or dishonest business practices, and limits certain 19 9 types of compensation arrangements. The bill creates civil 19 10 liability for fraud or deceit, failure to register, and 19 11 violations of rules or orders. The bill provides for filing 19 12 certain sales and advertising literature. The bill provides 19 13 that public records may be maintained in electronic, 19 14 microfilm, or other format. 19 15 The bill conditions initial implementation of the bill upon 19 16 an appropriation to the bureau by the general assembly. The 19 17 bill requires the bureau to commence rulemaking as soon as 19 18 possible. The bill provides for a delayed effective date of 19 19 January 1, 1999, except for the rulemaking authority. 19 20 LSB 3307DP 77 19 21 da/jl/8.1
Text: HSB00675 Text: HSB00677 Text: HSB00600 - HSB00699 Text: HSB Index Bills and Amendments: General Index Bill History: General Index
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