48 Neb. Admin. Code, ch. 12, § 006

Current through September 17, 2024

Section 48-12-006 - FRAUDULENT AND DISHONEST OR UNETHICAL PRACTICES FOR INVESTMENT ADVISERS, FEDERAL COVERED ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES

An investment adviser, federal covered adviser, or investment adviser representative, or any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale (collectively "adviser") who engages in one or more of the following practices shall be deemed to have engaged in an "act, practice, or course of business which operates or would operate as a fraud" for purposes of Section 8-1102(2)(b) or a "dishonest or unethical practice" as used in Section 8-1102(2)(d) and Section 8-1103(9)(a)(vii) of the Act:

006.01 Recommending the purchase, sale or exchange of any security to a client without reasonable grounds to believe the recommendation is suitable for the client based on:

006.01A Information furnished by the client;

006.01B Reasonable inquiry concerning the client's investment objectives, financial situation and needs by the adviser or its registered representative; and

006.01C Any other information known or acquired by the adviser after reasonable examination of any records provided to the adviser by the client.

006.02 Placing an order to purchase or sell a security for the account of a client without authority to do so.

006.03 Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first obtaining a written authorization from the client.

006.04 Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of specified securities shall be executed, or both.

006.05 Inducing trading in a client's account that is excessive in size and frequency in view of the client's financial resources and investment objectives, and character of the account.

006.06 Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the adviser, a financial institution engaged in the business of loaning funds or securities, or a member of the investment adviser representative's immediate family.

006.06A For purposes of this subsection, "immediate family" means a spouse, child, sibling, parent, grandparent, or grandchild, including stepparents, stepchildren, stepsiblings, and adoptive relationships.

006.07 Loaning money to a client unless the adviser is a financial institution engaged in the business of loaning funds, the client is an affiliate of the adviser, or the client is a member of the investment adviser representative's immediate family, as defined in subsection 006.06A of this section.

006.08 Misrepresenting to any client or prospective client, the qualifications of the adviser, any representative or any employee of the investment adviser, or misrepresenting the nature of the advisory services being offered or fees to be charged for such service, or omitting to state a material fact necessary to make the statements made regarding qualifications, services or fees not misleading, in light of the circumstances under which they are made.

006.09 Providing a report or recommendation to any advisory client prepared by someone other than the adviser to any client, without disclosing that fact, except where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.

006.10 Charging a client an excessive advisory fee.

006.11 Failing to disclose any material conflict of interest relating to the adviser, any representative or any employee, which could reasonably be expected to impair the rendering of unbiased and objective advice, to a client in writing before entering into or renewing an advisory agreement with that client. Such conflicts include, but are not limited to:

006.11A Receiving compensation relating to advisory services provided to clients which is in addition to compensation received from such clients for such services; and

006.11B Charging a client a fee for rendering advice without disclosing that a commission for executing transactions pursuant to such advice will be received by the adviser, its representatives or its employees, or that the advisory fee will be reduced by the amount of the commission.

006.12 Guaranteeing a client that a specific result, either gain or loss, will be achieved as a result of the advice.

006.13 Disclosing the identity, affairs, or investments of any client to any third party without the client's consent, unless required by law to do so.

006.14 Failing to comply with the requirements for investment advisers with custody set forth in 48 NAC 7.012 or for federal covered advisers with custody found in Rule 206(4)-2 under the Investment Advisers Act of 1940, 17 CFR § 275.206(4)-2.

006.15 Entering into, extending or renewing any investment advisory contract, other than a contract for impersonal advisory services as defined in 48 NAC 7.010.04A, unless:

006.15A The contract is in writing; and

006.15B The contract discloses, in substance:

006.15B1 The services to be provided,

006.15B2 The term of the contract,

006.15B3 The advisory fee or the formula for computing the fee,

006.15B4 The amount or the manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination or non-performance,

006.15B5 The discretionary power granted to the adviser or its representatives, if any, and

006.15B6 The contract shall not be assigned by the adviser without the client's consent.

006.16 Employing any device, scheme, or artifice to defraud or engage in any act, practice or course of business which operates or would operate as a fraud or deceit.

006.17 Failing to disclose to any client or prospective client all material facts with respect to:

006.17A A financial condition of the adviser that is reasonably likely to impair the ability of the adviser to meet contractual commitments to clients, if the adviser has discretionary authority, express or implied, or custody over such client's funds or securities, or requires prepayment of advisory fees of more than twelve hundred dollars ($1,200.00) from such client, six months or more in advance; or

006.17B A legal or disciplinary event that is material to an evaluation of the adviser's integrity or ability to meet contractual commitments to clients. There is a rebuttable presumption that the following legal or disciplinary events involving the adviser or a management person of the adviser ("person") that were not resolved in the person's favor or subsequently reversed, suspended, or vacated are material within the meaning of this paragraph for a period of ten years from the time of the event:

006.17B1 A criminal action in a court of competent jurisdiction in which the person was convicted or pleaded guilty or nolo contendere ("no contest") to a felony or misdemeanor, or is the named subject of a pending criminal proceeding, involving an investment-related business; fraud, false statements, or omissions; wrongful taking of property; or bribery, forgery, counterfeiting, or extortion.

006.17B2 A criminal or civil action in a court of competent jurisdiction in which the person:

006.17B2a Was found to have been involved in a violation of an investment-related statute or regulation; or

006.17B2b Was the subject of any order, judgment, or decree permanently or temporarily enjoining the person from, or otherwise limiting the person from, engaging in any investment-related activity.

006.17B3 Administrative proceedings before the Director, SEC, any other federal regulatory agency, or any other state agency (collectively "agency") in which the person:

006.17B3a Was found to have caused an investment-related business to lose its authorization to do business; or

006.17B3b Was found to have been involved in a violation of an investment-related statute or regulation and was the subject of an order by the agency denying, suspending, or revoking the authorization of the person to act in, or barring or suspending the person's association with, an investment-related business; or otherwise significantly limiting the person's investment-related activities.

006.17B4 Self-Regulatory Organization ("SRO") proceedings in which the person:

006.17B4a Was found to have caused an investment-related business to lose its authorization to do business; or

006.17B4b Was found to have been involved in a violation of the SRO's rules and was the subject of an order by the SRO barring or suspending the person from association with other members, or expelling the person from membership; or fining the person more than two thousand five hundred dollars ($2,500.00), or otherwise significantly limiting the person's investment-related activities.

006.17B5 For purposes of calculating the ten year period during which events are presumed to be material under this subsection, the date of a reportable event shall be the date on which the final order, judgment, or decree was entered, or the date on which any rights of appeal from preliminary orders, judgments, or decrees lapsed.

006.17C The information required to be disclosed by this subsection shall be disclosed to clients within thirty days, and to prospective clients not less than forty-eight hours prior to entering into any written investment advisory contract, or no later than the time of entering into such contract if the client has the right to terminate the contract without penalty within five business days after entering into the contract.

006.17D For purposes of this subsection:

006.17D1 "Management person" means a person with power to exercise, directly or indirectly, a controlling influence over the management or policies of an adviser which is a company or to determine the general investment advice given to clients.

006.17D2 "Found" means determined or ascertained by adjudication or consent in a final SRO proceeding, agency administrative proceeding, or court action.

006.17D3 "Investment-related" means pertaining to securities, commodities, banking, insurance, or real estate, including, but not limited to, acting as or being associated with a broker-dealer, investment company, investment adviser, government securities broker or dealer, municipal securities dealer, bank, savings and loan association, entity or person required to be registered under the Commodity Exchange Act, 7 U.S.C. § 1 et seq., or fiduciary.

006.17D4 "Involved" means acting or aiding, abetting, causing, counseling, commanding, inducing, conspiring with or failing reasonably to supervise another in doing an act.

006.17D5 "Self-Regulatory Organization" means any national securities or commodities exchange, registered association, or registered clearing agency, rule, or regulation.

006.17E Disclosure pursuant to this subsection does not relieve any investment adviser from the obligations of any other disclosure requirement under the Act, the rules and regulations thereunder, or under any other federal or state law.

006.18 Entering into, extending or renewing any investment advisory contract, if such contract contains any provision which limits or purports to limit:

006.18A Liability of the adviser for conduct or omission arising from the advisory relationship which does not conform to the Act, applicable federal statutes, and common law fiduciary standards of care; or

006.18B Applicability of the laws of Nebraska with respect to the construction or interpretation of the contract provisions.

006.19 Failing to cooperate with, or providing false or incomplete information to, the Director in connection with an investigation.

006.20 Failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information in violation of Section 204A of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-4a.

006.21 Entering into, extending or renewing any advisory contract which would violate Section 205 of the Investment Advisers Act of 1940, 15 U.S.C § 80b-5, notwithstanding the fact that such adviser would be exempt from federal registration pursuant to Section 203(b) of the Investment Advisers Act of 1940, 15 U.S.C § 80b-3.

006.22 Including a provision which purports to waive compliance with any provision of the Act, of the rules and regulations thereunder, or of the Investment Advisers Act of 1940 in any advisory contract, stipulation or other document binding on any person, or any other practice that would violate Section 215 of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-15.

006.23 Engaging in any act, practice, or course of business which is fraudulent, deceptive or manipulative in contravention of Section 206(4) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-6, notwithstanding the fact that such investment adviser is not registered or required to be registered under Section 203(b) of the Investment Advisers Act of 1940, 15 U.S.C § 80b-3.

006.24 Engaging in conduct or any act, indirectly or through or by any other person, which would be unlawful for such person to do directly under the provisions of the Act or any rule or regulation thereunder.

006.25 Dividing, splitting or otherwise paying fees or other compensation paid pursuant to the investment adviser contract with any individual or entity which is not registered as an investment adviser or investment adviser representative under the Act.

006.26 Publishing, circulating or distributing any advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940, 17 CFR § 275.206(4)-1.

006.27 Conducting a seminar, or advertising for a seminar, unless all advertisements, including but not limited to, flyers, invitations, postcards, letters, e-mails, sales material, newspaper, television, radio, and social media posts related to the seminar, and handouts given to attendees at the seminar, identify the name of the investment adviser representative offering the seminar and any investment adviser with which the investment adviser is affiliated.

006.27A For purposes of this subsection, "seminar" includes any educational or financial workshop targeted to members of the public at which at least one of the following occur:

006.27A1 Securities products are discussed;

006.27A2 The advertising for the seminar states or implies that securities products are going to be discussed; or

006.27A3 The presenter is collecting contact information to make future solicitations concerning securities products.

006.28 Accessing a client's account by using the client's own unique identifying information, such as username and password.

006.29 Failing to establish, maintain, or enforce a required policy or procedure.

006.30 Federal statutory and regulatory provisions referenced herein shall apply to investment advisers and federal covered advisers, regardless of whether the federal provision limits its application to advisers subject to federal registration.

48 Neb. Admin. Code, ch. 12, § 006

Adopted effective 6/5/2017.

Amended effective 11/27/2019

Amended effective 6/13/2022