Section 0780-04-03-.08 - INVESTMENT ADVISER FINANCIAL AND DISCIPLINARY DISCLOSURE(1) It shall constitute an act, practice, or course of business which operates or would operate as a fraud or deceit upon another person within the meaning of T.C.A. § 48-1-121(b)(2) of the Act for any investment adviser to fail to disclose to any client or prospective client all material facts with respect to: (a) 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 five hundred ($500) from such client, six (6) months or more in advance; or(b) A legal or disciplinary event that is material to an evaluation of the adviser's integrity or ability to meet contractual commitments to clients.(2) It shall constitute a rebuttable presumption that the following legal or disciplinary events involving the adviser or a management person of the adviser (any of the foregoing being referred to hereafter as "person") that were not resolved in the person's favor or subsequently reversed, suspended, or vacated are material within the meaning of subparagraph (1)(b) of this Rule for a period of ten (10) years from the time of the event. (a) A criminal or civil action in a court of competent jurisdiction in which the person: 1. Was convicted, pleaded guilty, or nolo contendere ("no contest") to a felony or misdemeanor, or is the named subject of a pending criminal proceeding (any of the foregoing referred to hereafter as "action") and such action involved: an investment-related business; fraud, false statements, or omissions; wrongful taking of property; or bribery, forgery, counterfeiting, or extortion;2. Was found to have been involved in a violation of an investment-related statute or regulation; or3. 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.(b) Administrative proceedings before the SEC, any other federal regulatory agency, or any state agency (any of the foregoing being referred to hereafter as "Agency") in which the person: 1. Was found to have caused an investment-related business to lose its authorization to do business; or2. 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.(c) Self-Regulatory Organization (SRO) proceedings in which the person: 1. Was found to have caused an investment-related business to lose its authorization to do business; or2. 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 membership or from association with other members, or expelling the person from membership; fining the person more than two thousand five hundred dollars ($2,500); or otherwise significantly limiting the person's investment-related activities.(3) The information required to be disclosed by paragraph (1) of this Rule shall be disclosed to clients promptly, and to prospective clients not less than forty-eight (48) hours prior to entering into any written or oral 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 (5) business days after entering into the contract.(4) For purposes of this Rule: (a) "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.(b) "Found" means determined or ascertained by adjudication or consent in a final SRO proceeding, administrative proceeding, or court action.(c) "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 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.)(d) "Involved" means acting or aiding, abetting, causing, counseling, commanding, inducing, conspiring with, or failing reasonably to supervise another in doing an act.(e) "Self-Regulatory Organization" or "SRO" means any national securities or commodities exchange, registered association, or registered clearing agency.(5) For purposes of calculating the ten (10) year period during which events are presumed to be material under paragraph (2) of this Rule, 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.(6) Compliance with paragraph (2) of this Rule shall not relieve any investment adviser from the disclosure obligations of paragraph (1) of this Rule. Compliance with paragraph (1) of this Rule shall not relieve any investment adviser from any other disclosure requirement under the Act, these Rules, or under any other federal or state law.Tenn. Comp. R. & Regs. 0780-04-03-.08
Original rule filed November 6, 1997; effective January 20, 1998. Repeal and new rule filed March 16, 2015; effective 6/14/2015.Authority: T.C.A. §§ 48-1-115, 48-1-116, 48-1-121, §222 of the Investment Advisers Act of 1940, as amended by §304(a) of the National Securities Markets Improvement Act of 1996, and 17 C.F.R. §275.206(4)-4.