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Senate File 2325

Partial Bill History

Bill Text

PAG LIN
  1  1                                        SENATE FILE 2325
  1  2 
  1  3                             AN ACT
  1  4 AMENDING THE UNIFORM SECURITIES ACT, BY REGULATING PERSONS
  1  5    INVOLVED IN MANAGING INVESTMENTS, PROVIDING FOR THE 
  1  6    ADMINISTRATION OF THE SECURITIES BUREAU, PROVIDING FEES, 
  1  7    AND PROVIDING FOR PENALTIES AND EFFECTIVE DATES.  
  1  8 
  1  9 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 
  1 10 
  1 11    Section 1.  Section 502.102, Code Supplement 1997, is
  1 12 amended by adding the following new subsections:
  1 13    NEW SUBSECTION.  5A.  "Federal covered adviser" means a
  1 14 person who is registered under section 203 of the Investment
  1 15 Advisers Act of 1940, 15 U.S.C. } 80(b) et seq.  "Federal
  1 16 covered adviser" does not include a person who is excluded
  1 17 from the definition of "investment adviser" as provided in
  1 18 subsection 9A, paragraph "c", subparagraphs (1) through (7).
  1 19    NEW SUBSECTION.  9A.  a.  "Investment adviser" means any
  1 20 person who, for compensation, does any of the following:
  1 21    (1)  Engages in the business of providing investment
  1 22 advisory services by advising others, either directly or
  1 23 through publications or writings, as to the value of
  1 24 securities or as to the advisability of investing in,
  1 25 purchasing, or selling securities.
  1 26    (2)  As a part of a regular business, issues or promulgates
  1 27 analyses or reports concerning securities.
  1 28    b.  "Investment adviser" includes a financial planner or
  1 29 other person who, as an integral component of other
  1 30 financially related services, does either of the following:
  1 31    (1)  Provides investment advisory services to others for
  1 32 compensation and as part of a business.
  1 33    (2)  Holds oneself out as providing investment advisory
  1 34 services to others for compensation.
  1 35    c.  "Investment adviser" does not include a person who is
  2  1 any of the following:
  2  2    (1)  An investment adviser representative.
  2  3    (2)  A bank, savings institution, or trust company.
  2  4    (3)  An attorney licensed to practice law in this state, a
  2  5 certified public accountant licensed pursuant to chapter 542C,
  2  6 a professional engineer licensed pursuant to chapter 542B, or
  2  7 a certified teacher, if the person's performance of these
  2  8 services is solely incidental to the practice of the person's
  2  9 profession.
  2 10    (4)  An attorney licensed to practice law in this state or
  2 11 a certified public accountant licensed pursuant to chapter
  2 12 542C who does not do any of the following:
  2 13    (a)  Exercise investment discretion regarding the assets of
  2 14 a client or maintain custody of the assets of a client for the
  2 15 purpose of investing the assets, except when the person is
  2 16 acting as a bona fide fiduciary in a capacity such as an
  2 17 executor, administrator, trustee, estate or trust agent,
  2 18 guardian, or conservator.
  2 19    (b)  Accept or receive directly or indirectly any
  2 20 commission, fee, or other remuneration contingent upon the
  2 21 purchase or sale of any specific security by a client of such
  2 22 person.
  2 23    (c)  Provide advice regarding the purchase or sale of
  2 24 specific securities.  However, this subparagraph subdivision
  2 25 (c) shall not apply when the advice about specific securities
  2 26 is based on a financial statement analysis or tax
  2 27 considerations that are reasonably related to and in
  2 28 connection with the person's profession.
  2 29    (5)  A broker-dealer or its agent whose performance of
  2 30 these services is solely incidental to the conduct of its
  2 31 business as a broker-dealer and who receives no special
  2 32 compensation for them.
  2 33    (6)  A publisher of any bona fide newspaper, news column,
  2 34 newsletter, news magazine, or business or financial
  2 35 publication or service, whether communicated in hard copy
  3  1 form, or by electronic means, or otherwise, that does not
  3  2 consist of the rendering of advice on the basis of the
  3  3 specific investment situation of each client.
  3  4    (7)  A person who is excluded from the definition of
  3  5 "investment adviser" under section 202(a)(11) of the
  3  6 Investment Advisers Act of 1940.
  3  7    (8)  A person who is a federal covered adviser.
  3  8    (9)  A person not within the intent of this subsection as
  3  9 the administrator may by rule or order designate.
  3 10    d.  As used in this subsection, "compensation" does not
  3 11 include a commission, fee, or a combination of a commission
  3 12 and a fee, which is paid to an insurance agent licensed under
  3 13 chapter 522, if the insurance agent receives the commission,
  3 14 fee, or the combination of a commission and a fee, for the
  3 15 sale of insurance as regulated pursuant to Title XIII,
  3 16 subtitle 1.
  3 17    NEW SUBSECTION.  9B.  a.  "Investment adviser
  3 18 representative" means an individual including but not limited
  3 19 to a partner, officer, director, or an individual occupying a
  3 20 similar status or performing similar functions as a partner,
  3 21 officer, or director, except clerical or ministerial
  3 22 personnel, if both of the following apply:
  3 23    (1)  The individual is employed by or associated with an
  3 24 investment adviser that is registered or required to be
  3 25 registered under this chapter, or who is employed by or
  3 26 associated with a federal covered adviser.
  3 27    (2)  The individual does any of the following:
  3 28    (a)  Makes any recommendations or otherwise renders advice
  3 29 regarding securities.
  3 30    (b)  Manages accounts or portfolios of clients.
  3 31    (c)  Determines which recommendation or advice regarding
  3 32 securities should be given.
  3 33    (d)  Solicits, offers, or negotiates for the sale of or
  3 34 sells investment advisory services.
  3 35    (e)  Supervises employees who perform any of the functions
  4  1 in subparagraphs (a) through (d).
  4  2    b.  "Investment adviser representative" does not include
  4  3 any other person not within the intent of this subsection as
  4  4 the administrator may by rule or order designate.
  4  5    Sec. 2.  Section 502.102, subsection 14, Code Supplement
  4  6 1997, is amended to read as follows:
  4  7    14.  "Securities Act of 1933", "Securities Exchange Act of
  4  8 1934", "Public Utility Holding Company Act of 1935",
  4  9 "Investment Advisers Act of 1940", "Investment Company Act of
  4 10 1940", "Internal Revenue Code" and "Agricultural Marketing
  4 11 Act" mean the federal statutes of those names.
  4 12    Sec. 3.  Section 502.301, subsection 3, Code 1997, is
  4 13 amended by striking the subsection and inserting in lieu
  4 14 thereof the following:
  4 15    3.  It is unlawful for any person to transact business in
  4 16 this state as an investment adviser or as an investment
  4 17 adviser representative unless one of the following applies:
  4 18    a.  The person is registered under this part.
  4 19    b.  The person has no place of business in this state, and
  4 20 either of the following applies:
  4 21    (1)  The person's only clients in this state are investment
  4 22 companies as defined in the Investment Company Act of 1940,
  4 23 other investment advisers, federal covered advisers, broker-
  4 24 dealers, banks, trust companies, savings and loan
  4 25 associations, insurance companies, employee benefit plans with
  4 26 assets of not less than one million dollars, and governmental
  4 27 agencies or instrumentalities, whether acting for themselves
  4 28 or as trustees with investment control, or other institutional
  4 29 investors as are designated by rule or order of the
  4 30 administrator.
  4 31    (2)  During the preceding twelve-month period the person
  4 32 has had no more than five clients, other than those specified
  4 33 in subparagraph (1), who are residents of this state.
  4 34    Sec. 4.  Section 502.301, Code 1997, is amended by adding
  4 35 the following new subsections:
  5  1    NEW SUBSECTION.  4.  It is unlawful for any of the
  5  2 following persons to do the following:
  5  3    a.  An investment adviser required to be registered to
  5  4 employ an investment adviser representative unless the
  5  5 investment adviser representative is registered under this
  5  6 chapter, provided that the registration of an investment
  5  7 adviser representative is not effective during any period when
  5  8 the investment adviser representative is not employed by an
  5  9 investment adviser registered under this part.
  5 10    b.  A federal covered adviser to employ, supervise, or
  5 11 associate with an investment adviser representative having a
  5 12 place of business located in this state, unless the investment
  5 13 adviser representative is registered under this chapter, or is
  5 14 exempt from registration.
  5 15    When an investment adviser representative begins or
  5 16 terminates employment or association with an investment
  5 17 adviser, the investment adviser in the case of paragraph "a",
  5 18 or the investment adviser representative in the case of
  5 19 paragraph "b", shall promptly notify the administrator.
  5 20    NEW SUBSECTION.  5.  Every registration or notice filing
  5 21 under this section expires December 31, unless renewed.
  5 22    NEW SUBSECTION.  6.  Except with respect to advisers whose
  5 23 only clients are those described in section 502.301,
  5 24 subsection 3, paragraph "b", it is unlawful for any federal
  5 25 covered adviser to conduct advisory business in this state
  5 26 unless such person complies with the provisions of section
  5 27 502.302, subsection 2.
  5 28    Sec. 5.  Section 502.302, Code Supplement 1997, is amended
  5 29 to read as follows:
  5 30    502.302  REGISTRATION AND NOTICE FILING PROCEDURES.
  5 31    1.  A broker-dealer, or agent, investment adviser, or
  5 32 investment adviser representative may obtain an initial or
  5 33 renewal license by filing with the administrator, or an
  5 34 organization which the administrator by rule designates, an
  5 35 application together with a consent to service of process
  6  1 pursuant to section 502.609 and the appropriate filing fee.
  6  2 The application shall contain the information the
  6  3 administrator requires by rule concerning the applicant's form
  6  4 and place of organization, proposed method of doing business
  6  5 and financial condition, and the qualifications and experience
  6  6 of the applicant, including, in.  In the case of a broker-
  6  7 dealer or investment adviser, the application shall include
  6  8 the qualifications and experience of any partner, officer,
  6  9 director or controlling person, any injunction or
  6 10 administrative order or conviction of a misdemeanor involving
  6 11 securities and any conviction of a felony, and any other
  6 12 matters which the administrator determines are relevant to the
  6 13 application.  In addition, in the case of an investment
  6 14 adviser, the application shall include any information to be
  6 15 furnished or disseminated to any client or prospective client,
  6 16 and any other information which the administrator determines
  6 17 is relevant to the application.  If no denial order is in
  6 18 effect and no proceeding is pending under section 502.304,
  6 19 registration becomes effective at noon of the sixtieth day
  6 20 after a completed application or an amendment completing the
  6 21 application is filed, unless waived by the applicant.  The
  6 22 administrator may by rule or order specify an earlier
  6 23 effective date.
  6 24    2.  Except with respect to federal covered advisers whose
  6 25 only clients are those described in section 502.301,
  6 26 subsection 3, paragraph "b", a federal covered adviser shall
  6 27 file with the administrator, prior to acting as a federal
  6 28 covered adviser in this state, such documents as have been
  6 29 filed with the securities and exchange commission as the
  6 30 administrator, by rule or order, may require.
  6 31    3.  Every applicant for initial or renewal registration as
  6 32 a broker-dealer or investment adviser shall pay a filing fee
  6 33 of two hundred dollars.  Every applicant for initial or
  6 34 renewal registration as an agent or investment adviser
  6 35 representative shall pay a filing fee of thirty dollars.  A
  7  1 filing fee is not refundable.  Every person acting as a
  7  2 federal covered adviser in this state, except with respect to
  7  3 federal covered advisers whose only clients are those
  7  4 described in section 502.301, subsection 3, paragraph "b",
  7  5 shall pay an initial and renewal notice filing fee of one
  7  6 hundred dollars.
  7  7    3. 4.  A registered broker-dealer, federal covered adviser,
  7  8 or investment adviser may file an application for registration
  7  9 of a successor, whether or not the successor is then in
  7 10 existence, for the unexpired portion of the year.  There shall
  7 11 be no filing fee.
  7 12    4. 5.  The administrator may by rule or order require a
  7 13 minimum capital for broker-dealers subject to the limitations
  7 14 of section 15 of the Securities Exchange Act of 1934.  The
  7 15 administrator by rule or order may also establish minimum
  7 16 financial requirements for investment advisers, subject to the
  7 17 limitations of section 222 of the Investment Advisers Act of
  7 18 1940, which may include different requirements for those
  7 19 investment advisers who maintain custody of client funds or
  7 20 securities or who have discretionary authority over client
  7 21 funds or securities and those investment advisers who do not.
  7 22    6.  The administrator may by rule or order require
  7 23 investment advisers who have custody of or discretionary
  7 24 authority over client funds or securities to post bonds in
  7 25 amounts as the administrator may prescribe, subject to the
  7 26 limitations of section 222 of the Investment Advisers Act of
  7 27 1940 and may determine conditions on the bonds.  A bond shall
  7 28 not be required of any investment adviser whose minimum
  7 29 financial requirements, which may be defined by rule, exceed
  7 30 the amounts required by the administrator.  Every bond shall
  7 31 provide for suit on the bond by the person who has a cause of
  7 32 action under this chapter and, if the administrator by rule or
  7 33 order requires, by any person who has a cause of action not
  7 34 arising under this chapter.  Every bond shall provide that a
  7 35 suit shall not be maintained to enforce liability on the bond
  8  1 unless brought within the time limitations of section 502.504.
  8  2    5. 7.  The administrator may by rule or order impose such
  8  3 other conditions in connection with registration under this
  8  4 chapter as are deemed appropriate, in the public interest or
  8  5 for the protection of investors.
  8  6    Sec. 6.  Section 502.303, Code Supplement 1997, is amended
  8  7 to read as follows:
  8  8    502.303  POST-REGISTRATION PROVISIONS.
  8  9    1.  Every registered broker-dealer and investment adviser
  8 10 shall make and keep accounts, correspondence, memoranda,
  8 11 papers, books, and other records as the administrator may
  8 12 prescribe by rule or order, except as provided by section 15
  8 13 of the Securities Exchange Act of 1934 in the case of a
  8 14 broker-dealer, and section 222 of the Investment Advisers Act
  8 15 of 1940 in the case of an investment adviser.  All records
  8 16 required, with respect to an investment adviser, shall be
  8 17 preserved for a period as the administrator prescribes by rule
  8 18 or order.
  8 19    2.  With respect to investment advisers, the administrator
  8 20 may require that certain information be furnished or
  8 21 disseminated to clients or prospective clients as necessary or
  8 22 appropriate in the public interest or for the protection of
  8 23 investors and advisory clients.  To the extent determined in
  8 24 the administrator's discretion, information furnished to
  8 25 clients or prospective clients of an investment adviser that
  8 26 would be in compliance with the Investment Advisers Act of
  8 27 1940 and the rules under that Act may be used in whole or in
  8 28 partial satisfaction of this requirement.
  8 29    3.  Every registered broker-dealer and investment adviser
  8 30 shall file such financial reports as the administrator
  8 31 prescribes by rule or order, not to exceed the limitations
  8 32 provided in section 15 of the Securities Exchange Act of 1934
  8 33 in the case of a broker-dealer, and section 222 of the
  8 34 Investment Advisers Act of 1940 in the case of an investment
  8 35 adviser.
  9  1    3. 4.  If the information contained in any document filed
  9  2 with the administrator is or becomes inaccurate or incomplete
  9  3 in any material respect, the registrant or federal covered
  9  4 adviser shall promptly file a correcting amendment promptly if
  9  5 the document is filed with respect to a registrant, or when
  9  6 such amendment is required to be filed with the securities and
  9  7 exchange commission, if the document is filed with respect to
  9  8 a federal covered adviser, unless notification of the
  9  9 correction has been given under section 502.301, subsection 2.
  9 10    4. 5.  The administrator may make examinations, within or
  9 11 without this state, of the business and records of each
  9 12 registered broker-dealer or investment adviser, at the times
  9 13 and in the scope as the administrator determines.  The
  9 14 examinations may be made without prior notice to the broker-
  9 15 dealer or investment adviser.  The administrator may copy all
  9 16 records the administrator feels believes are necessary to
  9 17 conduct the examination.  The expense reasonably attributable
  9 18 to an examination shall be paid by the broker-dealer or
  9 19 investment adviser whose business is examined, but the expense
  9 20 so payable shall not exceed an amount which the administrator
  9 21 by rule prescribes.  For the purpose of avoiding unnecessary
  9 22 duplication of examinations, the administrator may co-operate
  9 23 with securities administrators of other states, the securities
  9 24 and exchange commission, and any national securities exchange
  9 25 or national securities association registered under the
  9 26 Securities Exchange Act of 1934.  The administrator shall not
  9 27 make public the information obtained in the course of
  9 28 examinations, except when a duty under this chapter requires
  9 29 the administrator to take action regarding a broker-dealer or
  9 30 investment adviser or to make the information available to one
  9 31 of the agencies specified in this section, or except when the
  9 32 administrator is called as a witness in a criminal or civil
  9 33 proceeding.
  9 34    Sec. 7.  Section 502.304, subsection 1, unnumbered
  9 35 paragraph 1, Code Supplement 1997, is amended to read as
 10  1 follows:
 10  2    The administrator may by order deny, suspend, or revoke a
 10  3 registration or may censure, impose a civil penalty upon, or
 10  4 bar an applicant, registrant, or any officer, director,
 10  5 partner, or person occupying a similar status or performing
 10  6 similar functions for a registrant.  A person barred under
 10  7 this subsection may be prohibited by the administrator from
 10  8 employment with a registered broker-dealer or investment
 10  9 adviser.  The administrator may restrict the person barred
 10 10 from engaging in any activity for which registration is
 10 11 required.  Any action by the administrator under this
 10 12 subsection may be taken if the order is found to be in the
 10 13 public interest and it is found that the applicant or
 10 14 registrant or, in the case of a broker-dealer or investment
 10 15 adviser, a partner, an officer, or a director, a person
 10 16 occupying a similar status or performing similar functions, or
 10 17 a person directly or indirectly controlling the broker-dealer
 10 18 or investment adviser:
 10 19    Sec. 8.  Section 502.304, subsection 1, paragraphs e, h,
 10 20 and j, Code Supplement 1997, are amended to read as follows:
 10 21    e.  Is the subject of an order of the administrator
 10 22 denying, suspending, or revoking registration as a broker-
 10 23 dealer, agent, investment adviser, investment adviser
 10 24 representative, or insurance agent;
 10 25    h.  Is insolvent, either in the equity or bankruptcy sense;
 10 26 but the administrator may not enter an order against a broker-
 10 27 dealer or investment adviser under this paragraph without a
 10 28 finding of insolvency as to the broker-dealer or investment
 10 29 adviser;
 10 30    j.  Has failed reasonably to supervise an agent or employee
 10 31 in the case of a broker-dealer, or an investment adviser
 10 32 representative or employee in the case of an investment
 10 33 adviser;
 10 34    Sec. 9.  Section 502.304, subsection 1, paragraph m,
 10 35 subparagraph (2), Code Supplement 1997, is amended to read as
 11  1 follows:
 11  2    (2)  Within the past five years, has been the subject of an
 11  3 action of a securities regulator of a foreign jurisdiction
 11  4 denying, revoking, or suspending the right to engage in the
 11  5 business of securities as a broker-dealer, or agent,
 11  6 investment adviser, or investment adviser representative.
 11  7    Sec. 10.  Section 502.304, subsection 3, Code Supplement
 11  8 1997, is amended to read as follows:
 11  9    3.  The administrator may by order summarily postpone or
 11 10 suspend registration pending final determination of any
 11 11 proceeding under this section.  Upon the entry of the order,
 11 12 the administrator shall promptly notify the applicant or
 11 13 registrant, as well as the employer or prospective employer if
 11 14 the applicant or registrant is an agent or investment adviser
 11 15 representative, that it has been entered and of the reasons
 11 16 therefor and that within fifteen days after the receipt of a
 11 17 written request the matter will be set down for hearing.  If
 11 18 no hearing is requested and none is ordered by the
 11 19 administrator, the order will remain in effect until it is
 11 20 modified or vacated by the administrator.  If a hearing is
 11 21 requested or ordered, the administrator, after notice of and
 11 22 opportunity for hearing, may modify or vacate the order or
 11 23 extend it until final determination.
 11 24    Sec. 11.  Section 502.304, subsection 4, paragraph a, Code
 11 25 Supplement 1997, is amended to read as follows:
 11 26    a.  If the administrator finds that any registrant or
 11 27 applicant for registration is no longer in existence or has
 11 28 ceased to do business as a broker-dealer, or agent, investment
 11 29 adviser, or investment adviser representative, or is subject
 11 30 to an adjudication of mental incompetence or to the control of
 11 31 a committee, conservator, or guardian, or cannot be located
 11 32 after search, the administrator may by order revoke the
 11 33 registration or application.
 11 34    Sec. 12.  Section 502.304, subsection 5, Code Supplement
 11 35 1997, is amended to read as follows:
 12  1    5.  Withdrawal from registration as a broker-dealer, or
 12  2 agent, investment adviser, or investment adviser
 12  3 representative becomes effective thirty days after receipt of
 12  4 an application to withdraw or within such shorter period of
 12  5 time as the administrator may by order determine, unless a
 12  6 proceeding to deny, suspend, or revoke a registration is
 12  7 pending when the application is filed or a proceeding to deny,
 12  8 suspend, or revoke a registration, or to impose conditions
 12  9 upon the withdrawal is instituted within thirty days after the
 12 10 application is filed.  If a proceeding is pending or
 12 11 instituted, withdrawal becomes effective at such time and upon
 12 12 such conditions as the administrator by order determines.  If
 12 13 no proceeding is pending or instituted and withdrawal
 12 14 automatically becomes effective, the administrator may
 12 15 nevertheless institute a revocation or suspension proceeding
 12 16 under subsection 1, paragraph "b", within one year after
 12 17 withdrawal became effective and enter a revocation or
 12 18 suspension order as of the last date on which registration was
 12 19 effective.
 12 20    Sec. 13.  NEW SECTION.  502.305  EXAMINATION OF INVESTMENT
 12 21 ADVISER REPRESENTATIVE AND EXEMPTION FROM EXAMINATION.
 12 22    The administrator may adopt rules requiring the passage of
 12 23 an examination by an individual who is required to be
 12 24 registered under this chapter as an investment adviser
 12 25 representative.  However, a person who is registered as an
 12 26 investment adviser representative between January 1, 1999, and
 12 27 December 31, 2000, shall not be required to pass an
 12 28 examination for as long as the person maintains a continuous
 12 29 registration.
 12 30    Sec. 14.  Section 502.406, subsections 1 and 2, Code
 12 31 Supplement 1997, are amended to read as follows:
 12 32    1.  It is unlawful for any person registered as a broker-
 12 33 dealer, or agent, investment adviser, or investment adviser
 12 34 representative under this chapter to represent or imply in any
 12 35 manner whatsoever that such person has been sponsored,
 13  1 recommended, or approved or that the person's abilities or
 13  2 qualifications have in any respect been passed upon by the
 13  3 administrator.  Nothing in this subsection prohibits a
 13  4 statement other than in a paid advertisement that a person is
 13  5 registered under this chapter, if such statement is true in
 13  6 fact and if the effect of such registration is not
 13  7 misrepresented.
 13  8    2.  a.  The fact that an application for registration or
 13  9 notice filing under part III or a registration statement or a
 13 10 notice filing has been filed under this chapter or the fact
 13 11 that a person or the statement has become effective does not
 13 12 constitute a finding by the administrator that any document
 13 13 filed under this chapter is true, complete, or not misleading.
 13 14 Any such fact or the fact that an exemption is available for a
 13 15 security or a transaction does not mean that the administrator
 13 16 has passed in any way upon the merits or qualifications of, or
 13 17 has recommended or given approval to, any person, security, or
 13 18 transaction.
 13 19    b.  It is unlawful to make, or cause to be made, to any
 13 20 prospective purchaser, customer, client, or any other person,
 13 21 any representation inconsistent with paragraph "a" of this
 13 22 subsection.
 13 23    Sec. 15.  NEW SECTION.  502.408  ADVISORY ACTIVITIES.
 13 24    1.  It is unlawful for any person who receives, directly or
 13 25 indirectly, any consideration from another person for advising
 13 26 the other person as to the value of securities or their
 13 27 purchase or sale, whether through the issuance of analyses or
 13 28 reports or otherwise, to do any of the following:
 13 29    a.  Employ any device, scheme, or artifice to defraud the
 13 30 other person.
 13 31    b.  Engage in any act, practice, or course of business
 13 32 which operates or would operate as a fraud or deceit upon the
 13 33 other person.
 13 34    c.  Engage in dishonest or unethical practices as the
 13 35 administrator may define by rule.
 14  1    2.  In the solicitation of advisory clients, it is unlawful
 14  2 for a person to make any untrue statement of a material fact,
 14  3 or omit to state a material fact necessary in order to make
 14  4 the statements made, in light of the circumstances under which
 14  5 they are made, not misleading.
 14  6    3.  Except as may be permitted by rule or order of the
 14  7 administrator, it is unlawful for any investment adviser to
 14  8 enter into, extend, or renew any investment advisory contract
 14  9 unless it provides in writing all of the following:
 14 10    a.  That the investment adviser shall not be compensated on
 14 11 the basis of a share of capital gains upon or capital
 14 12 appreciation of the funds or any portion of the funds of the
 14 13 client.
 14 14    b.  That no assignment of the contract may be made by the
 14 15 investment adviser without the consent of the other party to
 14 16 the contract.
 14 17    c.  That the investment adviser, if a partnership, shall
 14 18 notify the other party to the contract of any change in the
 14 19 membership of the partnership within a reasonable time after
 14 20 the change.
 14 21    4.  Subsection 3, paragraph "a", does not prohibit an
 14 22 investment advisory contract which provides for compensation
 14 23 based upon the total value of a fund averaged over a definite
 14 24 period, or as of definite dates or taken as of a definite
 14 25 date.  "Assignment", as used in subsection 3, paragraph "b",
 14 26 includes any direct or indirect transfer or hypothecation of
 14 27 an investment advisory contract by the assignor or of a
 14 28 controlling block of the assignor's outstanding voting
 14 29 securities by a security holder of the assignor.  However, if
 14 30 the investment adviser is a partnership, no assignment of an
 14 31 investment advisory contract is considered to result from the
 14 32 death or withdrawal of a minority of the members of the
 14 33 investment adviser having only a minority interest in the
 14 34 business of the investment adviser, or from the admission to
 14 35 the investment adviser of one or more members who, after
 15  1 admission, will be only a minority of the members and will
 15  2 have only a minority interest in the business.
 15  3    5.  It is unlawful for any investment adviser to take or
 15  4 have custody of any securities or funds of any client if any
 15  5 of the following applies:
 15  6    a.  The administrator by rule prohibits custody.
 15  7    b.  In the absence of rule, the investment adviser fails to
 15  8 notify the administrator that it has or may have custody.
 15  9    6.  The administrator may by rule or order adopt exemptions
 15 10 from the requirements of subsection 1, paragraph "c", and
 15 11 subsection 3, paragraphs "a", "b", and "c", where such
 15 12 exemptions are consistent with the public interest and within
 15 13 the purposes fairly intended by the policy and provisions of
 15 14 this chapter.
 15 15    Sec. 16.  Section 502.501, subsection 1, paragraph c, Code
 15 16 Supplement 1997, is amended to read as follows:
 15 17    c.  Offers or sells a security at any time when such person
 15 18 has committed a material violation of Violates section
 15 19 502.301, or
 15 20    Sec. 17.  NEW SECTION.  502.502A  ADVISORY MISCONDUCT.
 15 21    1.  A person shall be held civilly liable for doing any of
 15 22 the following:
 15 23    a.  Engaging in the business of advising others, for
 15 24 compensation, either directly or through publications or
 15 25 writings, as to the value of securities or as to the
 15 26 advisability of investing in, purchasing, or selling
 15 27 securities, or who, for compensation and as a part of a
 15 28 regular business, issues or promulgates analyses or reports
 15 29 concerning securities in violation of section 502.301,
 15 30 subsection 3 or 4; section 502.406, subsection 2; section
 15 31 502.408; or of any rule or order under section 502.602.
 15 32    b.  Receiving directly or indirectly any consideration from
 15 33 another person for advice as to the value of securities or
 15 34 their purchase or sale, whether through the issuance of
 15 35 analyses, reports, or otherwise and employs any device,
 16  1 scheme, or artifice to defraud such other person or engages in
 16  2 any act, practice, or course of business which operates or
 16  3 would operate as a fraud or deceit on such other person.  The
 16  4 person acting in violation of this section is liable to the
 16  5 other person who may sue either at law or in equity to recover
 16  6 the consideration paid for such advice and any loss due to
 16  7 such advice, together with interest at the legal rate per year
 16  8 from the date of payment of the consideration plus costs and
 16  9 reasonable attorney's fees, less the amount of any income
 16 10 received from such advice.
 16 11    2.  A person shall not base the civil action on a contract,
 16 12 if the person did any of the following:
 16 13    a.  Engaged in the performance of the contract in violation
 16 14 of any provision of this chapter, or any rule adopted or order
 16 15 issued under this chapter.
 16 16    b.  Acquired any purported right under the contract with
 16 17 knowledge of the facts by reason of which its making or
 16 18 performance was in violation of any provision of this chapter
 16 19 or any rule adopted or order issued under this chapter.
 16 20    Sec. 18.  Section 502.503, subsection 1, unnumbered
 16 21 paragraph 1, Code 1997, is amended to read as follows:
 16 22    Affiliates of a person liable under either section 502.501,
 16 23 or 502.502, or 502.502A, partners, principal executive
 16 24 officers or directors of such person, persons occupying a
 16 25 similar status or performing similar functions for such
 16 26 person, persons (whether employees of such person or
 16 27 otherwise) who materially aid and abet in the act or
 16 28 transaction constituting the violation, and broker-dealers or
 16 29 agents who materially aid and abet in the act or transaction
 16 30 constituting the violation, are also liable jointly and
 16 31 severally with and to the same extent as such person, unless:
 16 32    Sec. 19.  Section 502.503, subsection 1, paragraph a, Code
 16 33 1997, is amended to read as follows:
 16 34    a.  With respect to section 502.501, and section 502.502,
 16 35 subsections 1 and 5, or section 502.502A, any person liable
 17  1 hereunder proves that the person did not know, and in the
 17  2 exercise of reasonable care could not have known, of the
 17  3 existence of the facts by reason of which the liability is
 17  4 alleged to exist; and
 17  5    Sec. 20.  Section 502.602, Code Supplement 1997, is amended
 17  6 to read as follows:
 17  7    502.602  FILING OF SALES AND ADVERTISING LITERATURE.
 17  8    The administrator may by rule or order require the filing
 17  9 of any prospectus, pamphlet, circular, form letter,
 17 10 advertisement, or other sales literature or advertising
 17 11 communication addressed or intended for distribution to
 17 12 prospective investors, including clients or prospective
 17 13 clients of an investment adviser, unless the security is a
 17 14 federal covered security or the transaction relates to a
 17 15 federal covered security or the security or transaction is
 17 16 exempted by section 502.202 or 502.203.  The administrator may
 17 17 by rule or order prohibit the publication, circulation or use
 17 18 of any advertising deemed false or misleading.
 17 19    Sec. 21.  Section 502.608, subsection 2, Code Supplement
 17 20 1997, is amended to read as follows:
 17 21    2.  The administrator shall keep a register of all
 17 22 applications for registration, notice filings, and
 17 23 registration statements which are or have been effective under
 17 24 this chapter and predecessor laws, and all censure, denial,
 17 25 suspension, or revocation orders which have been entered under
 17 26 this chapter and predecessor laws.  All records may be
 17 27 maintained in an electronic or microfilm format or any other
 17 28 form of data storage.  The register shall be open for public
 17 29 inspection.
 17 30    Sec. 22.  Section 502.610, Code 1997, is amended by adding
 17 31 the following new subsection:
 17 32    NEW SUBSECTION.  5.  Section 502.301, subsection 3, and
 17 33 section 502.408, and section 502.406 so far as investment
 17 34 advisers and investment adviser representatives are concerned,
 17 35 apply when any act instrumental in effecting prohibited
 18  1 conduct is done in this state, whether or not either party is
 18  2 then present in this state.
 18  3    Sec. 23.  RULEMAKING.  The securities bureau of the
 18  4 insurance division of the department of commerce shall adopt
 18  5 rules as soon as is practicable in order to administer the
 18  6 provisions of this Act.
 18  7    Sec. 24.  EFFECTIVE DATES.
 18  8    1.  Except as provided in subsection 2, this Act takes
 18  9 effect January 1, 1999.
 18 10    2.  This section and section 23 of this Act, being deemed
 18 11 of immediate importance, take effect upon enactment.  
 18 12 
 18 13 
 18 14                                                             
 18 15                               MARY E. KRAMER
 18 16                               President of the Senate
 18 17 
 18 18 
 18 19                                                             
 18 20                               RON J. CORBETT
 18 21                               Speaker of the House
 18 22 
 18 23    I hereby certify that this bill originated in the Senate and
 18 24 is known as Senate File 2325, Seventy-seventh General Assembly.
 18 25 
 18 26 
 18 27                                                             
 18 28                               MARY PAT GUNDERSON
 18 29                               Secretary of the Senate
 18 30 Approved                , 1998
 18 31 
 18 32 
 18 33                         
 18 34 TERRY E. BRANSTAD
 18 35 Governor
     

Text: SF02324                           Text: SF02326
Text: SF02300 - SF02399                 Text: SF Index
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