W. Va. Code R. § 111-1-13

Current through Register Vol. XLI, No. 44, November 1, 2024

Section 111-1-13 - Licensing of investment advisers

Each of the rules in this section (13 through 13.5) is a legislative rule, and is adopted pursuant to the provisions of section four hundred twelve, article four, chapter thirty-two, of the Code, and sections two hundred one, two hundred two, two hundred three and two hundred four, article two, chapter thirty-two, of the Code, and each relates to sections two hundred one, two hundred two, two hundred three and two hundred four, article two, chapter thirty-two of the Code.

13.1. Licensing procedure.

(1) Applications for initial and renewal licenses and qualifications of investment advisers and their representatives shall be filed as prescribed by the Commissioner in Section 11.2(b)(4) of these rules.

(2) Each applicant for an initial license as an investment adviser or for qualification as an investment adviser representative is required to pass a written examination prescribed by the Commissioner, unless the requirement is waived under Subsection (3) of this section. The examination shall relate to chapter thirty-two of the Code, the rules of the Commissioner thereunder, the applicable federal securities laws and rules of the SEC thereunder, general matters concerning the securities business and such other matters as the Commissioner may determine. The Commissioner may prescribe different examinations for different classes of applicants. Evidence of passing such examinations must be submitted to the Commissioner prior to approval of registration.

(3) The Commissioner may waive, in whole or in part, the examination requirement for:

(a) Any applicant upon receipt of evidence of satisfactory completion, with a passing grade of at least seventy percent (70%), of a comparable examination, administered by a national securities exchange, the NASD or the SEC;

(b) Any applicant for qualification as an investment adviser representative, if any undertaking satisfactory to the Commissioner is submitted setting forth how the agent will be adequately supervised, and the qualification of the representative is appropriately limited;

(c) Any applicant who, within two (2) years prior to the date the application is filed, has been licensed or qualified under chapter thirty-two of the Code;

(d) Any person by order of the Commissioner under such conditions as the Commissioner may prescribe.

(4) Prior to issuance of a license as an investment adviser, at least one (1) employee of the investment adviser must be designated in the license application to act in a supervisory capacity and be qualified as an investment adviser representative for the investment adviser, and must pass a written supervisory examination required by the Commissioner unless that requirement is waived under Subsection (3) of these rules.

(5) Any application for registration which is not completed or withdrawn within four (4) months from the date it is initially received may be deemed materially incomplete under section two hundred four, article two, chapter thirty-two of the Code, and the Commissioner may enter an order denying the effectiveness of such application.

(6) Every investment adviser whose principal office is located in this State shall have at least one (1) person qualified as an investment adviser representative employed on a full-time basis at its principal office.

13.2. Net capital requirement.

(1) Every investment adviser shall maintain net capital of not less than twenty-five thousand dollars ($25,000), which shall be in the form of case or securities or other liquid assets as determined by the Commissioner. Any investment adviser which fails to meet, or does not at all times maintain the minimum net capital herein prescribed shall be required to furnish a surety bond as prescribed and detailed in Section 11.2(e) of these rules.

(2) If an investment adviser is an individual, the person shall segregate from personal capital an amount sufficient to satisfy the net capital requirement, and the amount so segregated shall be utilized solely for the business for which the investment adviser is licensed.

13.3. Investment adviser's books and records.

(1) Every licensed investment adviser shall make and keep current such books and records relating to the investment adviser's business as are required by the SEC to be made and kept current by registered investment advisers under the Investment Adviser's Act of 1940, 15 U.S.C. 80 b et seq., and such other books and records relating to the investment adviser's business as the Commissioner may reasonably require, including, but not limited to:

(a) Copies of all written communications, correspondence, confirmations, appraisals and other records relating to investment activities of customers;

(b) Copies of all complaints of customers relating to investment activities for customers. In this paragraph, "Complaint" means any written or oral statement of a customer or any person acting on behalf of a customer alleging a grievance involving the activities of persons under the control of the investment adviser in connection with providing advice or placing orders on behalf of customers;

(c) A list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transaction of any customer;

(d) A file containing any advertisement (As defined within the meaning of SEC 206(4)-1 of the Investment Advisers Act of 1940) used in connection with the offering of investment advisory services in this State.

(2) Every investment adviser shall preserve for a period of not less than six (6) years, the first two (2) years in an easily accessible place, all records required under Subsection (1) of these rules except that records respecting an account required under Subsection (1)(c) of these rules shall be preserved by the investment adviser for a period of not less than six (6) years after withdrawal or expiration of its license in this State. After a record or other document has been preserved for two (2) years as required in this subsection, a microfilm copy thereof may be substituted for the remainder of the required period.

(3) The Commissioner may by order exempt any investment adviser from all or part of the requirements of this section, either unconditionally or upon specified conditions, if by reason of the special nature of its business the Commissioner finds that the issuance of the order is necessary or appropriate in the public interest or for the protection of investors.

13.4. Reporting requirements.

(1) Each investment adviser shall file with the Commissioner a copy of any complaint related to its business, transactions or operations in this State, naming the investment adviser or any of its partners, officers or investment adviser representatives as defendants in any civil or criminal proceeding, or in any administrative or disciplinary proceeding by any public or private regulatory agency, within twenty (20) days of the date the complaint is served on the investment adviser; a copy of the answer or reply to the complaint filed by the investment adviser within ten (10) days of the date the answer or reply is filed; and a copy of any decision, order or sanction made with respect to any proceeding within twenty (20) days of the date the decision, order or sanction is rendered.

(2) Each investment adviser shall file with the Commissioner a notice of transfer of control or change of name not less than thirty (30) days prior to the date on which the transfer of control or change of name is to become effective, or such shorter period as the Commissioner may permit.

(3) Except as provided in Subsections (2) and (3) of these rules, all material changes in the information included in an investment adviser's most recent application for license shall be set forth in an amendment to Form ADV filed with the Commissioner within thirty (30) days after the change occurs.

13.5. Prohibited business practices. -- The following are deemed "Dishonest or Unethical Practices in the Securities Business" by an investment adviser under subsection (g), section two hundred four, article two, chapter thirty-two of the Code, without limiting those terms to the practices specified in this section:

(1) Exercising any discretionary power in placing an order for the purchase or sale of securities for the account of a customer without first obtaining written discretionary authority from the customer unless the discretionary power relates solely to the price at which, or at the time when, an order involving a definite amount of a specified security shall be executed, or both;

(2) Placing an order to purchase or sell a security for the account of a customer upon instructions of a third party without first having obtained written third party trading authorization from the customer;

(3) Inducing trading in a customer's account that is excessive in size or frequency in view of the financial resources and character of the account;

(4) Placing an order to purchase or sell for the account of a customer without authority to do so;

(5) Placing an order for the purchase or sale of a security if the security is not registered or transaction is not exempt from registration under chapter thirty-two of the Code;

(6) Placing an order to purchase or sell a security for a customer through a broker-dealer or agent not licensed under chapter thirty-two of the Code unless the person is a person referenced by subdivision (8), subsection (b), section four hundred two, article four, chapter thirty-two of the Code.

13.6. License period.

(1) The license period of an investment adviser shall be that as provided for in Section 11 of these rules.

(2) The qualification of an investment adviser representative is not effective during any period when the investment adviser which the person represents is not licensed or during any period when the representative is not employed by a specified investment adviser licensed under chapter thirty-two of the Code.

13.7. Withdrawal of licenses.

(1) An application for withdrawal from the state of a licensed investment adviser under chapter thirty-two of the Code shall be filed by the licensee in the manner and on the forms prescribed by the Commissioner, and shall include a report on the status of all customer accounts of the licensee in this State, and any additional information the Commissioner may require.

(2) An application for withdrawal from the state of a qualified investment adviser representative shall be filed by the investment adviser which the person represents within ten (10) days of the termination of the representative's employment on Form U-5.

W. Va. Code R. § 111-1-13