Section 710IAC4-9-18. Unlawful practices; investment advisers and investment adviser representatives

   (a) It is unlawful for an investment adviser or an investment adviser representative who receives consideration, directly or indirectly, from another person for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise to:

(1) employ a device, scheme, or artifice to defraud the other person;

(2) engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon the other person; or

(3) knowingly sell to or purchase from a client a security when the investment adviser or investment adviser representative is acting as principle for the adviser's or the representative's own account, or knowingly sell to or purchase for the account of a client a security when the investment adviser or investment adviser representative is acting as a broker for a person other than the client without:

(A) disclosing to the client in writing before the completion of the sale or purchase the fact that the investment adviser or investment adviser representative is acting as a broker for a person other than the client; and

(B) obtaining consent from the client for the sale or purchase.

The prohibitions of this subdivision do not apply to a transaction with a client of a broker-dealer if the broker-dealer is not acting as an investment adviser in the transaction.

  (b) Except as permitted by rule or order of the commissioner, it is unlawful for an investment adviser to enter into, extend, or renew an investment advisory contract unless it provides in writing that:

(1) the investment adviser shall not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or a portion of the funds of the client;

(2) no assignment of the contract may be made by the investment adviser without the consent of the other party to the contract; and

(3) the investment adviser, if a partnership, shall notify the other party to the contract of a change in the membership of the partnership within reasonable time after the change.

Subdivision (1) does not prohibit an investment advisory contract that provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates or taken as of a definite date. "Assignment", as used in subdivision (2), includes a direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor, but if the investment adviser is a partnership, no assignment of an investment advisory contract is considered to result from the death or withdrawal of a minority interest in the business of the investment adviser or from the admission to the investment adviser of one (1) or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.

  (c) It is unlawful for an investment adviser to take or have custody of the securities of a client if:

(1) the commissioner prohibits custody; or

(2) in the absence of a prohibition, the investment adviser fails to notify the commissioner that the investment adviser has or may have custody.

  (d) When soliciting advisory clients, it is unlawful for a person to make an untrue statement

of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.

  (e) The commissioner may allow exemptions from subsections (a)(3), (b)(1), (b)(2), and (b)(3) if the exemptions are in the public interest and within the purposes of this rule.

  (f) The commissioner may require disclosure in writing by an investment adviser or an investment adviser representative of specified information to be presented to a client or prospective client.

  (g) It is unlawful for a person that is required to be registered under Section 203 of the Investment Adviser Act of 1940 (15 U.S.C. 80b-3) as an investment adviser to:

(1) employ a device, scheme, or artifice to defraud another person;

(2) engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person; or

(3) when soliciting advisory clients, make an untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances in which they are made, not misleading.

(Securities Division; 710 IAC 4-9-18; filed Jun 28, 2010, 2:36 p.m.: 20100728-IR-710100044FRA; readopted filed May 12, 2016, 1:47 p.m.: 20160608-IR-710160136RFA)