Arkansas Administrative Code
Agency 214 - Arkansas Securities Department
Rule 214.00.11-001 - Rules of the Securities Commissioner
Universal Citation: AR Admin Rules 214.00.11-001
Current through Register Vol. 49, No. 2, February 2024
CHAPTER 1 GENERAL PROVISIONS
RULE
101
TITLE.
[RESERVED]
RULE 102
102.01
DEFINITIONS.
When the terms listed below are used in the Act, Arkansas Code Sections 23-42-101 through 509, these Rules, the forms, and the instructions and orders of the Commissioner, the following definitions shall apply (unless the context indicates otherwise), together with the definitions which may hereinafter appear, to the extent that they are not inconsistent with the definitions provided in Section 23-42-102 of the Act.
(1)
ACCESS TO OR
FURNISHING OF INFORMATION. Access to or furnishing of information can
only exist by reason of the purchaser's position with respect to the issuer or
seller. Position means an employment or family relationship or economic
bargaining power that enables the purchaser to obtain information from the
issuer or seller in order to evaluate the merits and risks of a prospective
investment. In any event, each purchaser or his legal, financial or other
representative(s), or both, shall have access to or have been furnished during
the course of the transaction and prior to the sale, by the issuer or any
person acting on its behalf, or the seller or any person acting on its behalf,
the same kind of information that is required by a registration under the Act,
to the extent that the issuer or seller possesses the information or can
acquire it without reasonable effort or expense. This condition shall be deemed
to be satisfied if the purchaser or his legal, financial or other
representative(s) is furnished with information, either in the form of
documents actually filed with the Commissioner or otherwise. The issuer or
seller shall make available, during the course of the transaction and prior to
sale, to each purchaser or his legal, financial or other representative(s) or
both, the opportunity to ask questions of, and receive answers from, the issuer
or seller, or any person acting on the issuer's or seller's behalf, concerning
the terms and conditions of the offering and to obtain any additional
information, to the extent that the issuer or seller possesses the information
or can acquire it without unreasonable effort or expense, necessary to verify
the accuracy of the information obtained. Audited, unaudited or other financial
statements must be sworn to with a statement from a responsible representative
of the issuer as follows: "To the best of my knowledge and belief these
financial statements and supporting schedules or documents of the issuer are
true, correct and fairly represent the financial position of the
issuer."
(2)
ACCREDITED
INVESTOR. See definition of "Accredited Investor" found in SEC Rule
501 of Regulation D, promulgated
under the Securities Act of 1933,
17 C.F.R. §
230.501.
(3)
ACT. The Arkansas Securities
Act, as amended, codified at Arkansas Code Sections
23-42-101
through 509.
(4)
ADVISORY
AFFILIATE. A person that directly or indirectly controls or is
controlled by a person who either is registered as an investment adviser or has
filed an application to become registered as an investment adviser, including
any current employee except one performing only clerical, administrative,
support or similar functions.
(5)
AFFILIATE. The term "affiliate" of or "affiliated" with a person
means a person that directly or indirectly through one (1) or more
intermediaries' controls, or is controlled by, or is under common control with
the person.
(6)
APA.
The Arkansas Administrative Procedures Act ("APA"), as amended, codified at
Arkansas Code Sections
25-15-201
through
25-15-219.
(7)
APPLICANT. A person who
submits an application for registration of securities, for an exemption
procedure or for registration as a broker-dealer, broker-dealer agent, agent of
the issuer, investment adviser, or investment adviser representative who files
an application for an order of the Commissioner.
(8)
APPLICATION. The form
prescribed by the Commissioner for filing in connection with the registration
of securities, for an exemption procedure and as a broker-dealer, broker-dealer
agent, agent of the issuer, investment adviser, or investment adviser
representative, including all amendments, papers, documents and exhibits
incidental thereto.
(9)
CLIENT. For purposes of Sections
23-42-102(8)(E)(ii)
of the Act, the following shall be deemed a single client:
(A) A natural person, and:
(i) Any minor child of the natural
person;
(ii) Any relative, spouse,
or relative of the spouse of the natural person who has the same principal
residence;
(iii) All accounts of
which the natural person and/or the persons referred to in this subsection (A)
are the only primary beneficiaries; and
(iv) All trusts of which the natural person
and/or the persons referred to in this subsection (A) are the only primary
beneficiaries;
(B) A
corporation, general partnership, limited partnership, limited liability
company, trust (other than a trust referred to in Rule
102.01(9)(A)(iv)
above), or other legal organization that receives investment advice based on
its investment objectives rather than the individual investment objectives of
its shareholders, partners, limited partners, members, or beneficiaries, or any
two (2) or more legal organizations that have identical owners, provided
however, an owner must be counted as a client if the investment adviser
provides investment advisory services to the owner separate and apart from the
investment advisory services provided to the legal organization, and a limited
partnership shall be deemed a client of any general partner or other person
acting as investment adviser to the partnership.
(10)
COMMISSIONER. The Arkansas
Securities Commissioner.
(11)
CONTROL. Including the terms "controlling," "controlled by," and
"under common control with," means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of securities, by contract, or otherwise.
Control of a person is presumed when any individual or firm does the following:
(A) Is a director, partner or officer
exercising executive responsibility or has a similar status or performs similar
functions;
(B) Directly or
indirectly has the right to vote twenty-five percent (25%) or more of the
voting securities of a person; or
(C) Is entitled to twenty-five percent (25%)
or more of the profits of a person.
(12)
CONTROL AFFILIATE. Any
person that directly or indirectly controls, is controlled by, or under common
control with an applicant or registrant, including any current employee except
one performing only clerical, administrative, support or similar functions, or
who, regardless of title, performs no executive duties or has no senior policy
making authority.
(13)
CRD. The Central Registration Depository operated by FINRA.
(14)
CUSTODY. Holding, directly
or indirectly, client funds or securities, having any authority to obtain
possession of them, or having the ability to appropriate them. An investment
adviser has custody if a related person, as defined in Rule
307.02, holds, directly or
indirectly, client funds or securities, or has any authority to obtain
possession of them, in connection with advisory services the investment adviser
provides to clients.
(A) Custody includes the
following:
(i) Possession of client funds or
securities unless the investment adviser receives them inadvertently and
returns them to the sender promptly but in any case within three (3) business
days of receiving them;
(ii) Any
arrangement (including a general power of attorney) under which the investment
adviser is authorized or permitted to withdraw client funds or securities
maintained with a custodian upon the investment adviser's instruction to the
custodian; and
(iii) Any capacity,
such as general partner of a limited partnership, managing member of a limited
liability company or a comparable position for another type of pooled
investment vehicle, or trustee of a trust, that gives the investment adviser or
its supervised person legal ownership of or access to client funds or
securities.
(B) Receipt
of checks drawn by clients and made payable to third parties will not meet the
definition of custody if forwarded to the third party within three (3) business
days of receipt and the investment adviser maintains a record of the
transfer.
(15)
CUSTOMER. The person being charged a commission or fee, being rendered a
service, being sold a security, being solicited to sell a security, or
receiving investment advice. However, the term "customer" shall not include the
broker-dealer or investment adviser charging the commission or fee, offering
the services, or rendering the investment advice.
(16)
DEPARTMENT. The Arkansas
Securities Department.
(17)
DISCRETION OR DISCRETIONARY AUTHORITY. The authority that an investment
adviser or broker-dealer possesses by virtue of a limited power of attorney or
other grant of authority enabling the investment adviser or broker-dealer to
determine what securities shall be purchased or sold by or for an account, or
make decisions as to what securities or other property shall be purchased or
sold by or for an account even though some other person may have responsibility
for the investment decisions. A firm also has discretionary authority if it has
the authority to decide which investment advisers to retain on behalf of the
client.
(18)
ENGAGED IN THE
BUSINESS OF EFFECTING TRANSACTIONS IN SECURITIES. As used in Section
23-42-102(2)
of the Act, the term "engaged in the business of effecting transactions in
securities," includes any person who holds himself out as being able to effect
transactions in securities for the accounts of others or for his own account
regardless of whether any transactions have actually been effected. The term
shall not include a business broker who, as part of the facilitation of the
sale of business, including securities of the business, takes a fee provided
all of the following conditions are met:
(A)
The business broker has a limited role in negotiations between the purchaser
and the seller;
(B) The businesses
represented by the business broker are going concerns and are not "shell"
organizations;
(C) Only assets are
advertised or otherwise offered for sale by the business broker;
(D) Transactions effected by means of
securities convey all of the business' equity to a single purchaser or group of
purchasers formed without the assistance of the business broker;
(E) The business broker does not advise the
parties whether to issue securities or assess the value of any securities
sold;
(F) The business broker's
compensation does not vary according to the form of conveyance the parties
agree to; and
(G) The business
broker does not assist purchasers in obtaining financing other than to provide
to a party a list of potential lenders.
(19)
EXEMPTED OR EXEMPTION.
Securities or transactions meeting the requirements of Section
23-42-503 or
Section
23-42-504
of the Act, and the applicable Rules, are exempt from the registration
requirements contained in Section
23-42-501
and Section
23-42-502
of the Act. These securities or transactions are not exempted from any other
provisions of the Act or applicable Rules.
(20)
FINRA. The Financial
Industry Regulatory Authority.
(21)
FORMS. See Rule
204.01(c).
(22)
IARD. The Investment
Adviser Registration Depository operated by FINRA.
(23)
INDICATIONS OF INTEREST.
Communications and/or actions on the part of a customer, or the solicitation
thereof, that give rise to the inference that the customer may purchase the
yet-to-be issued securities.
(24)
INVESTMENT INTENT. Securities purchased under the Act and Rules
with "investment intenf cannot be purchased with a view to, or for resale in
connection with any sale or hypothecation. Securities purchased with investment
intent cannot be disposed of unless the securities are registered under the Act
or, in the opinion of counsel for the issuer, an exemption from the
registration requirements of the Act is available. As a result, the purchaser
of these securities must be prepared to bear the economic risk of the
investment for an indefinite period of time and have no need of liquidity of
the investment. Where securities are purchased under the Act for investment,
investment intent shall be presumed if the purchaser retains the securities for
one year from the date of consummation of the sale. However, any disposition of
the securities within one year of the date of purchase, in the absence of an
unforeseeable change of circumstances, shall create a presumption that the
person did not purchase the securities with investment intent.
(25)
LIFE SETTLEMENT CONTRACT.
An agreement for the purchase, sale, assignment, transfer, devise, or bequest
of any portion of the death benefit or ownership of a life insurance policy or
certificate for consideration that is less than the expected death benefit of
the life insurance policy or certificate. Life settlement contract does not
include the following:
(A) The assignment,
transfer, sale, devise or bequest of a death benefit, life insurance policy or
certificate of insurance by the insured to the life settlement provider
pursuant to the Life Settlements Act, Ark. Code Ann.
Sections
23-81-801
through
23-81-818;
(B) The assignment, transfer, sale, devise or
bequest of a life insurance policy, for any value less than the expected death
benefit, by the insured to a friend or family member who enters into no more
than one such agreement in a calendar year;
(C) An assignment of a life insurance policy
to a bank, savings bank, savings and loan association, credit union or other
licensed lending institution as collateral for a loan; or
(D) The exercise of accelerated benefits
pursuant to the terms of the Arkansas Insurance Code and of the life insurance
policy.
(26)
MSRB. Municipal Securities Rulemaking Board.
(27)
NASAA. North American
Securities Administrators Association, Inc.
(28)
NOTICE FILING. A filing
made pursuant to Section
23-42-301(c)(1)
of the Act in the case of investment advisers, and Section
23-42-509
of the Act in the case of persons issuing or offering securities.
(29)
OFFER OR OFFER TO SELL.
For the purposes of Sections
23-42-501
and
23-42-502
of the Act, the term "offer" or "offer to sell" as defined in Section
23-42-102(13)(A)(ii)
of the Act shall not include negotiations, agreements or similar communications
with respect to a proposed reorganization provided the negotiations, agreements
or similar communications are incidental to the formulation of a proposal of a
reorganization and, except for the merger of a subsidiary entity into its
parent, a vote of approval and consent of security holders is required to
effectuate the proposed transactions.
(30)
PARENT. An affiliate
controlling another person.
(31)
PLACE OF BUSINESS. The term "place of business" means the
following:
(A) Any office or other location
at or from which an investment adviser, investment adviser representative,
broker-dealer, or agent regularly provides investment advisory or broker-dealer
services, solicits, meets with, or otherwise communicates with clients;
and
(B) Any other location that is
held out to the general public as a location at which the investment adviser,
investment adviser representative, broker-dealer, or agent provides investment
advisory or broker-dealer services, solicits, meets with, or otherwise
communicates with clients.
(32)
PRINCIPAL PLACE OF
BUSINESS. The executive office of a registrant from which the officers,
partners, or managers of the registrant direct, control, and coordinate the
activities of the registrant.
(33)
PROMOTER. A person who, acting alone or in conjunction with
others, takes the initiative in founding, organizing or incorporating the
business or enterprise. A promoter does not include a lawyer or accountant
acting as an independent contractor.
(34)
PROOF OF EXEMPTION. "Proof
of Exemption" as used in Sections
23 -42-503(d) and
23-42-504(b)
of the Act shall mean the filing made by an applicant, together with any
supporting documents and written statements of the applicant as set forth in
the appropriate Rule, whereby the applicant describes his expected conduct
during the exemption process and demonstrates his disclosure and antifraud
responsibilities required in order to qualify for the exemption. A proof of
exemption is not in and of itself an exemption. It is merely the filing by
which an applicant requests the Commissioner not to withdraw the availability
of use of the exemption based on the applicant's demonstration of his
recognition of the technical requirements necessary to qualify.
(35)
PUBLIC ADVERTISING. Any
form of general solicitation, offer, invitation to invest, or other writing
that could be easily understood to be designed to attract investors, general
advertising or any other communication directed to persons whose background is
unknown to the communicant, including, but not limited to, the following:
(A) Any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar medium or
broadcast over television, radio or other electronic media;
(B) Any seminar or meeting or invitation to
or promotion of a meeting or seminar;
(C) Any letter, circular, handbill, notice or
other written communication;
(D)
Any solicitation by telephone or other electronic media; or
(E) A solicitation that is maintained on or
disseminated by way of any webpage, site on the Internet, or other electronic
posting.
(36)
PURCHASER. For purposes of computing the number of purchasers, offerees,
investors, or subscribers, a husband and wife who purchase or contemplate
purchasing in the joint names of both spouses shall be deemed to be one offer
or sale.
(37)
REGISTRANT. An applicant for whom a registration has been declared
effective.
(38)
RESTRICTIVE
LEGEND. An appropriate restrictive legend shall conform to the NASAA
Uniform Disclosure Guidelines for Cover Legends.
(39)
REORGANIZATION. Any merger,
consolidation, reclassification of securities, sale of assets in consideration
of the issuance of securities of another person, exchange of outstanding
securities for the issuance of securities or assets of another person, or other
similar reorganization, pursuant to applicable statutory provisions of the
jurisdiction under which the corporation or other person is organized, or
pursuant to the provisions of its Articles of Incorporation or similar
controlling instrument, which the approval or consent of the security holders
is required to effectuate, or any merger of a subsidiary entity into its parent
where a vote, approval or consent is not required by the applicable
statute.
(40)
RULES.
The Rules of the Arkansas Securities Commissioner.
(41)
SEC. The United States
Securities and Exchange Commission.
(42)
SPONSOR. A person or a
member of the immediate family of a person who acts as a general partner,
manager or management company of a program including an affiliate of, or a
person associated with, a sponsor, except as otherwise provided.
(43)
SUBSIDIARY. An affiliate
controlled by another person.
(44)
STAFF. The Staff of the Arkansas Securities Department.
(45)
TRANSACT BUSINESS. As used
in Sections
23-42-301(a)
and
23-42-301(c)
of the Act, the term "transact business" includes representing a person or
entity as being able to effect transactions in securities for the account of
others or for his or her own account regardless of whether any transactions
have actually been effected, or being able to serve as an investment adviser
regardless of whether any investment advice or service has actually been
rendered. The term shall not include communications, postings, or distributions
of information set forth on the Internet or other mass media outlet if each of
the following conditions are met:
(A) The
Internet or other mass media outlet communication contains a legend in which
the following is clearly stated:
(i) The
broker-dealer, investment adviser, broker-dealer agent, agent of the issuer, or
investment adviser representative in question may only transact business in
this state if first registered, or exempted from registration as a
broker-dealer, investment adviser, broker-dealer agent, agent of the issuer, or
investment adviser representative, whichever is applicable; and
(ii) Follow-up, individualized responses to
persons in this state by a broker-dealer, investment adviser, broker-dealer
agent, agent of the issuer, or investment adviser representative that involve
either the effecting of or the attempt to effect transactions in securities, or
the rendering of personalized investment advice for compensation or attempt to
render advice, as may be, will not be made absent compliance with state
broker-dealer, investment adviser, broker-dealer agent, agent of the issuer, or
investment adviser representative requirements, or an applicable
exemption;
(B) The
Internet or other mass media outlet communication contains a mechanism,
including and without limitation, technical "firewalls" or other implemented
policies and procedures, designed reasonably to ensure that prior to any
subsequent, direct communication with prospective customers or clients in this
state, the broker-dealer, investment adviser, agent of the issuer,
broker-dealer agent, or investment adviser representative is first registered
in this state or is exempt from registration under the Act. Nothing in this
Rule shall be construed to relieve a broker-dealer, investment adviser,
broker-dealer agent, agent of the issuer, or investment adviser representative
from any applicable securities registration requirements in this
state;
(C) The Internet or other
mass media outlet communication does not involve either effecting or attempting
to effect transactions in securities, or rendering of or attempting to render
personalized investment advice for compensation, as may be, in this state over
the Internet, but is limited to the dissemination of general information on
products and services; and
(D) In
the case of an agent or representative:
(i)
The affiliation with the broker-dealer or investment adviser of the agent, or
representative is prominently disclosed within the communication;
(ii) The broker-dealer or investment adviser
with which the agent or representative is associated retains responsibility for
reviewing and approving the content of any Internet or other mass media outlet
communication by the agent or representative;
(iii) The broker-dealer or investment adviser
with which the agent or representative is associated first authorizes the
distribution of information on the particular products and services through the
Internet or other mass media outlet communication; and
(iv) In disseminating information through the
Internet or other mass media outlet communication, the agent or representative
acts within the scope of the authority granted by the broker-dealer or
investment adviser with which the agent or representative is
associated.
(46)
UNDERWRITER. Any person who
has purchased from an issuer with a view to, or offers or sells for an issuer
in connection with, the distribution of any security, or participates or has a
direct or indirect participation in any such undertaking, or participates or
has a participation in the direct or indirect underwriting of any such
undertaking; but the term shall not include a person whose interest is limited
to a commission from an underwriter or broker-dealer not in excess of the usual
and customary distributors' or sellers' commission.
RULE 103
APPLICABILITY.
[RESERVED]
RULE 104
CRIMINAL PENALTIES.
[RESERVED]
RULE 105
PROSECUTION OF CRIMINAL
OFFENSES.
[RESERVED]
RULE 106
CIVIL LIABILITY.
[RESERVED]
RULE 107
CONSENT TO SERVICE OF
PROCESS.
[RESERVED]
RULE 108
RIGHTS AND REMEDIES CUMULATIVE.
[RESERVED]
RULE 109
WAIVER OF COMPLIANCE
VOID.
[RESERVED]
RULE 110
FALSE OR MISLEADING STATEMENTS
UNLAWFUL.
[RESERVED]
CHAPTER 2 ADMINISTRATION
RULE 201
ADMINISTRATION BY SECURITIES
COMMISSIONER - CONFLICTS OF INTEREST.
[RESERVED]
RULE 202
DELEGATION OF AUTHORITY BY
SECURITIES COMMISSIONER.
[RESERVED]
RULE 203
CONFIDENTIALITY OF INFORMATION
OR PROCEEDINGS - GENERALLY.
[RESERVED]
RULE 204
RULES, FORMS, AND ORDERS OF
SECURITIES COMMISSIONER.
204.01
GENERAL.
The following provisions apply to all applications, petitions, notice filings, amendments, reports, complaints, or other documents required under the Act, Rules, or any order of the Commissioner:
(a)
FILING. A document is deemed
filed when it is received in the office of the Commissioner.
(1) All communications and inquiries shall be
addressed or delivered to: Arkansas Securities Commissioner, 201 East Markham,
Suite 300, Little Rock, Arkansas 72201, Telephone (501) 324-9260.
(2) The Office of the Commissioner shall be
open for business between the hours of 8:00 a.m. and 4:30 p.m. on weekdays,
except for legally declared holidays.
(3) The original of each form or exhibit is
required. Additional copies of certain documents may be requested or required
by other provisions of the Act or Rules.
(4) When a document is required to be signed,
the signature shall be an original signature of the person signing or if
submitted electronically, the signature shall be verified through a
certification authority that shall verify for the Department that the
electronic signature is authentic.
(5) A filing shall be deemed incomplete until
all requested information and applicable fees are received.
(b)
FEES.
(1) Unless a filing is made electronically or
as otherwise set forth specifically in the Rules, all filing fees must
accompany the application, or supplemental amendment to which they
pertain.
(2) Filing fees for notice
filings shall accompany the notice filing when possible or as soon thereafter
as is practical.
(3) Copies of
documents filed and recorded in the office of the Commissioner will be provided
at a charge of ten cents (10¢;) per page.
(4) Certified copies will be provided at an
additional charge of one dollar ($1.00) per document.
(5) Postage, shipping fees, and additional
costs related to providing information to the public may be charged.
(6) Fee payments made directly to the
Department shall be by check or money order made payable to the Arkansas
Securities Department.
(c)
FORMS. The following forms
have been adopted for use.
(1) BROKER-DEALER
REGISTRATION.
(A) Uniform Application to
Register for Broker-Dealer Registration (Form BD).
(B) Uniform Application for Securities
Industry Registration or Transfer (Form U4).
(C) Uniform Branch Office Registration (Form
BR).
(D) Uniform Termination Notice
(Form U5).
(E) Notice of Withdrawal
from Registration as Broker-Dealer (Form BDW).
(F) Independent Contractor Acknowledgement
Form.
(2) INVESTMENT
ADVISER REGISTRATION.
(A) Uniform Application
for Investment Adviser Registration (Form ADV).
(B) Uniform Surety Bond (Form USB)
(C) Notice of Withdrawal from Registration as
Investment Adviser (Form ADVW).
(D)
Independent Contractor Acknowledgement Form.
(3) SECURITIES AGENT, AGENT OF AN ISSUER AND
INVESTMENT ADVISER REPRESENTATIVE.
(A) Uniform
Application for Securities Industry Registration (Form U4).
(B) Uniform Surety Bond (Form USB).
(C) Uniform Termination Notice (Form
U5).
(D) Uniform Examination
Request for Non-FINRA Candidates (Form U10).
(E) Agreement of Joint Supervision for Dual
Registration.
(F) Agent of the
Issuer Renewal Registration Letter.
(4) SECURITIES REGISTRATION AND EXEMPTION.
(A) Uniform Application to Register
Securities (Form U-1).
(B) Uniform
Consent to Service of Process (Form U-2).
(C) Uniform Form of Corporate Resolution
(Form U-2A).
(D) Small Corporate
Offering Registration (Form U-7).
(E) Registration Statement under the
Securities Act of 1933 (Form S-1).
(F) Notice of Sales of Securities Pursuant to
Regulation D, Section
4(6), and/or
Uniform Limited Offering Exemption (Form D).
(5) NOTICE FILINGS.
(A) Uniform Investment Company Notice Filing
(Form NF).
(B) Uniform Application
for Investment Adviser Registration (Form ADV).
RULE 205
INVESTIGATIONS.
[RESERVED]
RULE 206
RECORDS OF SECURITIES
COMMISSIONER - GENERALLY - INTERPRETIVE OPINIONS.
206.01
GUIDELINES FOR INTERPRETIVE
OPINIONS AND NO-ACTION LETTERS.
(a)
GENERAL. In most circumstances persons requesting informal advice
from the Staff should submit a request for an interpretive opinion or no-action
letter. In an interpretive opinion, the Staff provides its views on the
interpretation of a specific statute or rule in the context of an actual and
narrow fact situation. A no-action letter is one in which the Staff indicates
that it will not recommend enforcement action to the Commissioner if a proposed
course of action described in the request occurs just as described in the
request. In some instances, the Staff may indicate that it is unable to assure
the requesting party that it will not recommend enforcement action and may
allow the requesting party to withdraw the request. A no-action letter
expresses the Staff's position on enforcement action only and does not
represent any legal conclusion on the question presented. Requests for
no-action letters or interpretive opinions should comply with the following:
(1) Each request for no-action letter or an
interpretive opinion shall be in writing. The requesting party must submit an
original and one (1) copy of each request.
(2) The specific subsection of the particular
statute to which the request pertains must be indicated in the request. Thus,
for example, a letter requesting an interpretation of the Section
23-42-504(a)(9)
exemption would be captioned "Section
23-42-504(a)(9)
Exemption" and a letter requesting an interpretation of Rule
504.01(a)(9)
under the Act would be captioned "Rule 504.01(a)(9)."
(3) The request must contain the names of
each person and entity involved in the underlying facts. Requests relating to
unnamed persons or entities, or to hypothetical situations, will not be
answered.
(4) The request must be
limited to the particular situation involving the problem at hand and should
not attempt to include every possible type of situation which may arise in the
future. The facts and representations must be specific, not general.
(5) While it is essential that the request
contain all of the facts necessary to reach a conclusion in the matter, the
request should be concise and to the point.
(6) The requesting party must indicate why he
thinks a problem exists, his own opinion in the matter and the basis for that
opinion. If the requesting party seeks confidential treatment, a separate
letter requesting confidential treatment and stating the basis for confidential
treatment must be submitted with the interpretive request. Confidential
treatment will generally not be available unless necessary to protect bona fide
trade secrets or unless clearly authorized by some other provision of
law.
(7) In responding to a
properly submitted request for interpretive opinion or no- action letter, the
Staff will use an endorsement to the incoming request. The Staff will state its
position on a separate page attached to the incoming request. Both the incoming
letter and the Staff's endorsement response will be sent to the requesting
party, made publicly available, and posted to the Department's
website.
(b)
LIMITATIONS. All forms of informal advice, including no-action
letters and interpretive opinions, are subject to substantial limitations.
These limitations include the following:
(1)
All informal advice is subject to reconsideration and is not precedent binding
on the Commissioner. Informal advice sets forth the Staff's position only with
respect to the particular facts posed by the particular requesting party and
does not constitute an official expression of the Commissioner's
views.
(2) In responding to any
request for informal advice, the advice given will be limited to and
conditional upon the specific representations made to the Staff by the
requesting party. The Staff's position will be based solely upon the facts and
representations provided by the requesting party. These facts and
representations must be specific rather than general. Any different facts,
representations, or circumstances might require the Staff to reach a different
conclusion.
(3) All informal advice
applies only to the requesting party. Persons in similar circumstances should
not rely on previous no-action letters or interpretive opinions, but submit
their own request for informal advice.
(4) All informal advice shall be limited to
the specific law administered by the Department as stated in the Staff's
response, and will not address the applicability of any other federal, state,
or local law, rule, or regulation.
(5) The Staff may decline to express any view
on the application of law to a particular set of facts. There are several
reasons why the Staff may feel it inappropriate in a particular instance to
express an opinion. For example, (i) the Staff may be in no position to verify
the facts and circumstances which are the basis of the request, (ii) the Staff
may be concerned that its position may be misconstrued in somewhat different
factual circumstances, and (iii) in some areas policy concerns dictate that the
Staff may not express a view.
RULE 207
PUBLIC INSPECTION OF
RECORDS-EXCEPTIONS.
[RESERVED]
RULE 208
COOPERATION WITH OTHER
REGULATORY AGENCIES.
[RESERVED]
RULE 209
INJUNCTION, MANDAMUS, OR OTHER
ANCILLARY RELIEF.
[RESERVED]
RULE 210
JUDICIAL REVIEW.
[RESERVED]
RULE 211
DISPOSITION OF FEES.
[RESERVED]
RULE 212
REGISTRATION OR AVAILABILITY
OF EXEMPTION NOT CONSTRUED AS APPROVAL BY COMMISSIONER - INCONSISTENT
REPRESENTATION.
[RESERVED]
RULE 213
DISPOSITION OF FINES-INVESTOR
EDUCATION FUND.
213.01
INVESTOR
EDUCATION PROGRAM.
(a)
GENERAL. Utilizing the Investor Education Fund described in
Section
23-42-213
of the Act, the Commissioner may administer an investor education program for
the citizens of the State of Arkansas. The purpose of the program will be to
inform and educate the public regarding investments in securities in order to
help investors and potential investors evaluate their investment decisions;
protect themselves from unfair, inequitable and fraudulent offerings; choose
their broker-dealers, agents, and investment advisers more carefully; be alert
for false or misleading advertising or other harmful practices; and know their
rights as investors.
(b)
GRANT PROGRAM. Utilizing the Investor Education Fund described in
Section
23-42-213
of the Act, the Commissioner may administer a grant program to solicit grant
proposals from public schools and non-profit organizations (Internal Revenue
Code Section
501(c)(3),
tax-exempt organizations) for the purpose of providing securities/investment
education to teachers and students about the securities industry, securities
markets, and investment decisions.
(1)
Eligible applicants are public schools and non-profit groups that provide
investment education to Arkansas students in grades five (5) through twelve
(12).
(2) The Commissioner may
establish the number of grant awards available as well as the amount of monies
available for award through the grant program.
(3) Grant funds awarded may be used to
procure any appropriate educational, resource, software materials and equipment
consistent with the purpose of the grant program, this Rule and Section
23-42-213
of the Act.
(4) The Commissioner
may establish a grant proposal process by which eligible applicants may submit
an application for a grant award.
(5) A grant award by the Commissioner will be
based upon the merit of the grant proposal considering:
(A) Educational need for the
project;
(B) Learning objectives to
be accomplished by the project;
(C)
Specific description of the project;
(D) Number of students educated;
(E) Description of measurable project
outcomes; and
(F) Other school
resources dedicated to the project.
(6) Each grant recipient shall file a final
grant report detailing the measurable project outcomes and a financial
accounting of actual program
expenditures.
CHAPTER 3 BROKER-DEALERS AND INVESTMENT ADVISERS
RULE 301
REGISTRATION
REQUIRED.
301.01
GENERAL
PROVISIONS
(a)
ELIGIBILITY
REQUIREMENTS
(1) Each non-resident
broker-dealer, agent, investment adviser, or representative must be registered,
exempt, excepted from registration, or qualified to engage in business as a
broker-dealer, agent, investment adviser, or representative in the state of the
registrant's primary residence or, in the case of broker-dealers or investment
advisers that are not natural persons, in the state in which the broker-dealer
or investment adviser has its principal place of business.
(2) Each partner or officer of a registered
broker-dealer or issuer may act as an agent only if registered as an agent as
required by the Act.
(3) Except
upon approval of the Commissioner, an agent may not be registered with more
than one broker-dealer, investment adviser, issuer, or any combination thereof,
unless the business entities are affiliated. An Agreement of Joint Supervision
for Dual Registration from all unaffiliated firms shall be submitted to the
Commissioner for approval.
(4) Each
registered broker-dealer shall have at least one (1) registered agent and each
registered investment adviser shall have at least one (1) registered
representative.
(b)
EXPIRATION AND RENEWAL OF REGISTRATION All broker-dealer, agent,
investment adviser, and representative registrations hereunder, and SEC
registered investment adviser notice filings, shall automatically expire on
December 31 of each year without notification by the Commissioner, unless the
registration or notice filing has been properly renewed, or is withdrawn,
terminated or cancelled.
(1) When a
registration or notice filing expires without the filing of a renewal, a
subsequent application shall be considered in all respects as an original
application or notice filing unless an extension has been requested and granted
in writing by the Commissioner prior to expiration.
(2) The registration of an agent or
representative terminates upon the termination of the registrant's employment
with the broker-dealer or investment adviser. A Form U5 must be used to report
a termination of an agent or representative. If a Form U4 is received from the
agent or representative whose employment has terminated and is processed by the
Commissioner prior to the receipt of the Form U5 from the broker-dealer or
investment adviser with which the registrant was formerly employed, the Form U4
shall be considered not only an application for initial registration with the
new broker-dealer or investment adviser, but also notification of termination
or withdrawal of the previous registration or application unless pursuant to
Rule 301.01(a)(3), the agent or representative is dually registered.
(3) Termination of a broker-dealer or
investment adviser registration for any reason shall automatically constitute a
termination of all underlying agent or representative registrations.
(c)
SUPERVISION
REQUIREMENTS
(1) Supervisor.
(A) Broker-dealer. An agent of a
broker-dealer appointed to carry out supervisory responsibilities for a
broker-dealer, pursuant to Section
23-42-301
of the Act, shall be registered in this state and comply with the examination
requirements of Rule
302.01(c)(1)(C).
(B) Investment adviser. A representative of
an investment adviser appointed to carry out supervisory responsibilities for
an investment adviser, pursuant to Section
23-42-301
of the Act, shall be registered in this state as a
representative.
(2)
Written Procedures. As evidence of compliance with the supervisory obligations
imposed by Section
23-42-301
of the Act, every broker-dealer and investment adviser shall implement written
procedures, a copy of which shall be kept in each location at which the
broker-dealer or investment adviser conducts business, and shall establish,
maintain and enforce those written procedures designed to achieve compliance
with the Act and to detect and prevent violations. With consideration for the
size and number of locations of the broker-dealer or investment adviser, the
written procedures, at a minimum, shall address the following:
(A) The supervision of every agent or
investment adviser representative, by a designated supervisor. This shall
include the following: names, titles, registration status, and locations of all
supervisors; the names of the agents or investment adviser representatives the
supervisor will supervise, and the responsibilities of each
supervisor.
(B) Methods to be used
to determine that all supervisors are qualified by virtue of character,
experience and training to carry out their assigned responsibilities.
(C) Methods to be used to determine the good
character, business repute, qualifications, and experience of any applicant
prior to making application for registration of that person with the
Commissioner and hiring that person.
(D) The review and written approval by a
supervisor of the opening of each new customer account.
(E) The frequent examination of customer
accounts to detect and prevent violations, irregularities or abuses.
(F) The prompt review and documentation of
the handling of customer complaints.
(G) The prompt review and written approval by
a supervisor of all securities transactions, investment advice, and
correspondence pertaining to the securities business of registrants.
(H) The review and written approval by a
supervisor of the delegation by a customer of discretionary authority with
respect to the customer's account and frequent examination of discretionary
accounts to prevent violations, irregularities or abuses.
(I) The participation of each registrant
either individually or collectively, no less than annually, in an interview or
meeting conducted by a supervisor at which compliance matters relevant to the
activities of the registrant are discussed. Written records shall be maintained
reflecting the interview or meeting.
(J) Periodic Inspections.
(i) Each place of business shall be
periodically inspected to ensure that the written procedures and systems are
enforced.
(a) An office of supervisory
jurisdiction of a broker-dealer shall be inspected at least annually. For the
purposes of this section, the term "office of supervisory jurisdiction" shall
have the same meaning as that term is defined in FINRA Rules
3010(g).
(b) The principal place of business of each
investment adviser shall be inspected at least annually.
(c) In establishing an inspection cycle, the
broker-dealer and investment adviser shall give consideration to:
(1) The size of the broker-dealer or
investment adviser;
(2) The number
and location of the offices;
(3)
The volume of business and the number of agents or investment adviser
representatives assigned to the location;
(4) The nature and complexity of the
securities products and services offered from the location; and
(5) The disciplinary history of the
registered agents and investment adviser representatives working at the
location.
(ii)
The obligation of diligent supervision required by this Rule may require that
one (1) or more locations of a broker-dealer or investment adviser in this
state receive more inspections or be on a periodic inspection cycle different
than other locations of the broker-dealer or investment adviser, and that
inspections be unannounced. Unannounced visits may be appropriate when there
are indicators of misconduct such as receipt of significant customer
complaints, personnel with disciplinary records, or excessive trade
corrections.
(K) A
business continuity plan generally providing for, but not limited to, the
protection, back-up, and recovery of books and records; establishing alternate
means of communications with customers, employees, and regulators; office
relocation in the event of a loss of principal place of business; and a
designation of duties to responsible person(s) in the event of the death or
disability of a key individual, principal, owner, or other such
personnel.
(3) All written
procedures and evidence of compliance with written procedures shall be
maintained for three (3) years, the first two (2) years being in an easily
accessible place. The retention and preservation of records may be on
electronic medium if adequate facilities are maintained for
examination.
(4) To the extent that
this Rule imposes any recordkeeping requirement on an investment adviser
registered under Section
23-42-301
of the Act, the recordkeeping requirement does not apply if the investment
adviser meets the following conditions:
(A)
Has its principal place of business in a state other than this state;
(B) Is licensed as an investment adviser in
the state where it has its principal place of business; and
(C) Is in compliance with the recordkeeping
requirements of the state in which it has its principal place of
business.
(5) Final
responsibility for proper supervision shall rest with the broker-dealer or
investment adviser. It is the responsibility of the broker-dealer or investment
adviser to ensure through inspections of each location in this state that the
written procedures are enforced and the supervisory obligations imposed by this
Rule are being honored.
RULE 302
REGISTRATION PROCEDURE
302.01
BROKER-DEALER OR AGENT.
(a)
FILINGS MADE THROUGH CRD.
Pursuant to Sections
23-42-208
and
23-42-302
of the Act, the Commissioner designates the CRD to receive and store filings
and collect related fees from broker-dealers and broker-dealer agents on behalf
of the Commissioner.
(b)
APPLICATION. Each filing for initial and renewal registration
shall be complete only if it contains the information set forth in Sections
23-42-302
through
23-42-305
of the Act in the manner prescribed by the Commissioner. The requirements
listed below are subject to change pursuant to Section
23-42-208
of the Act.
(1) BROKER-DEALER APPLICATIONS.
An applicant for initial broker-dealer registration shall:
(A) Submit to the CRD a completed Form BD and
Form BR designating Arkansas as a state in which the applicant requests to be
registered, along with the fees set forth in Section
23-42-304
of the Act and any other fee required by FINRA; and
(B) Submit the following to the Commissioner:
(i) Audited financial statements for the most
recently ended fiscal year, if the applicant has been in existence for twelve
(12) months or more. If the applicant has been in existence less than twelve
(12) months and no audited financial statement has been prepared within thirty
(30) days of filing the application, the most recent unaudited balance sheets
certified as correct by the president, chief financial officer, or similar
executive officer. All financial statements, unless otherwise permitted, shall
be prepared in accordance with generally accepted accounting principles and
practices. All audited financial statements shall be prepared by an independent
certified public accountant in accordance with generally accepted auditing
standards and in conformity with generally accepted accounting
principles;
(ii) Proof of bonding
coverage as prescribed by FINRA;
(iii) Independent Contractor Acknowledgement
Form acknowledging responsibility for registered agents, employees, and
independent contractors; and
(iv)
Any other information deemed necessary by the Commissioner to determine whether
the applicant should be registered.
(2) AGENT APPLICATIONS.
(A) Initial agent applications for a
broker-dealer registered or to be registered with FINRA must be submitted
directly to the CRD system and shall include the following:
(i) A Form U4;
(ii) The initial agent registration fee as
set forth in Section
23-42-304
of the Act and any other fee required by FINRA;
(iii) Any attachments as required by the
instructions on the Form U4; and
(iv) Compliance with the examination
requirements of Rule
302.01(c).
(B) Initial agent applications for an agent
of an issuer must be submitted directly to the Commissioner and shall include
the following:
(i) A Form U4;
(ii) The initial agent registration fee as
set forth in Section
23-42-304
of the Act;
(iii) Proof of
processed Federal Bureau of Investigation (FBI) fingerprint background
check;
(iv) A surety bond in the
amount of twenty-five thousand dollars ($25,000.00);
(v) Any attachments as required by the
instructions on the Form U4; and
(vi) Submission of Form U10 in accordance
with the form instructions and compliance with the examination requirements of
Rule 302.01(c).
(C) An
application for registration as an agent of a broker-dealer or an agent of an
issuer shall not be complete until the applicant has furnished, in addition to
the requirements set forth in Rule
302.01(b)(2),
any other information not specifically required by the Act or the Rules that
the Commissioner may reasonably require, including, but not limited to, copies
of any litigation, regulatory proceedings, and customer complaints.
(D) Each applicant for registration as an
agent of a broker-dealer or issuer shall as a part of his application, be
properly fingerprinted.
(i) Any applicant
subject to the fingerprinting requirements of the Securities Exchange Act of
1934 shall submit to the CRD system a fingerprint card along with a fingerprint
record transmittal form (both supplied by the CRD) which will be processed by
the Federal Bureau of Investigation (FBI) by the CRD system. The applicant may
be registered after submission of the fingerprint card and completion of all
other registration requirements. Notification of the results of the processed
card will be made available to the Department via the CRD system.
(ii) An agent of the issuer applicant shall
submit an identification record request with fingerprints directly to the FBI.
Proof of submission of the request with the FBI and a copy of the results of
the processed identification request shall be submitted directly to the
Commissioner.
(3) BROKER-DEALER RENEWAL APPLICATIONS.
(A) An applicant for the renewal of a
registration as a broker-dealer shall, prior to expiration of its current
registration, submit to the CRD all appropriate amendments and fees.
(B) No documents are required to be filed
directly with the Commissioner; however, the Commissioner may request other
information not specifically required by the Act or the Rules, including, but
not limited to, copies of any litigation, regulatory proceedings, and customer
complaints.
(4) AGENT
RENEWAL APPLICATIONS.
(A) Renewal
registration of agents of a broker-dealer shall be submitted to the CRD along
with the fee set forth in Section
23-42-304
of the Act and any other fee required by FINRA prior to expiration of
registration.
(B) For agents
renewing registration with a broker-dealer, no documents are required to be
filed directly with the Commissioner; however, the Commissioner may request
other information not specifically required by the Act or the Rules, including,
but not limited to, copies of any litigation, regulatory proceedings, and
customer complaints.
(C) Renewal
registration of agents of an issuer shall be submitted to the Commissioner
prior to the expiration of registration and shall include the following:
(i) A completed Agent of the Issuer Renewal
Application;
(ii) The agent renewal
registration fee as set forth in Section
23-42-304
of the Act;
(iii) Proof of
continued surety bond coverage;
(iv) Any amendments to the documents on file;
and
(v) Any other information not
specifically required by the Act or the Rules that the Commissioner may
reasonably require, including, but not limited to, copies of any litigation,
regulatory proceedings, and customer complaints.
(5) Additional exhibits or
information not specifically required by the application but essential to a
full presentation of all material facts relating to the applicant's
qualifications shall be furnished and properly identified.
(c)
EXAMINATION OF AGENTS AND
SUPERVISORS. The Commissioner requires that written examinations on
general securities knowledge and state securities law be taken and passing
scores achieved within a two (2) year period immediately preceding the filing
date of the application before an applicant will be considered eligible for
registration.
(1) Agent. Applicants to be
agents must achieve passing scores for the following examinations:
(A) Series 1 - Registered Representative or
Series 7 - General Securities Representative; and
(B) Series 63 -Uniform Securities
Agent State Law, or
Series 66 - Uniform Combined State Law
(2) Limited Agent. Applicants successfully
completing a limited knowledge examination will only be eligible for
registration to effect transactions in those securities that were covered by
the limited examination. Applicants shall satisfy the state law examination
requirement by passing the Series 63 or Series 66 examination and the knowledge
requirement by passing at least one (1) of the following limited knowledge
securities examinations:
(A) Series 6 -
Investment Company Products;
(B)
Series 17, 37, or 38 - All General Securities Except Municipal;
(C) Series 22 - Direct Participation
Programs;
(D) Series 42 -
Registered Options Representative;
(E) Series 52 - Municipal
Securities;
(F) Series 55 - Equity
Trader;
(G) Series 62 - Corporate
Securities;
(H) Series 72 -
Government Securities;
(I) Series
79 - Investment Banking; and
(J)
Series 82 - Private Securities.
(3) Supervisor. Agents designated as a
supervisor must achieve passing scores for the following examinations:
(A) The agent examination requirements in
Rule 302.01(c)(1); and
(B) Series
24 - General Securities Principal (formerly Series 40 or Series 00), or
Series 9 and Series 10 - General Securities Sales Supervisor (formerly Series 8), combined with the
Series 23 - General Securities Principal Qualification
(4) Limited Supervisor.
If the firm is limited in its scope of business and provides verification of
the same to the Commissioner then at least one (1) agent designated as a
limited supervisor must achieve passing scores in the following examinations:
(A) The agent examination requirement in Rule
302.01(c)(2); and
(B) At least one
(1) limited scope securities principal examination that is appropriate for the
supervision of agents with a limited registration. The following limited scope
securities principal examinations are recognized:
(i) Series 4 - Options Principal;
(ii) Series 26 - Investment Company
Products;
(iii) Series 39 - Direct
Participation Programs;
(iv) Series
51 - Municipal Fund Securities; and
(v) Series 53 - Municipal
Securities.
(5)
Any individual who has been registered as a general securities agent, or
general securities principal in any state, commonwealth, territory, district,
or province in the United States or Canada within the two (2) years immediately
preceding the filing of a completed application and who has at any time in the
past met the requirements of Rule 302.01(c) shall not be required to repeat the
examinations in order to become registered.
(6) Solely in those cases where circumstances
warrant because of the limited time; amount; nature of the issue or transaction
involved; or the specific circumstances unique to the applicant, the
Commissioner may, upon petition and good cause shown by the applicant, waive
any or all of the examination requirements set forth above.
(d)
REGISTRATION. Upon
completion of the application, compliance with the examination(s) requirement,
payment of the fees and acceptance by the Commissioner, initial registration
will become effective.
(1) For agents and
broker-dealers filing an application as set forth in Rule
302.01(b), the
Commissioner will either accept the application or notify the applicant of the
matters that need to be resolved.
(2) Broker-dealers may access the
registration status of the broker-dealer or agents through the
CRD.
(e)
POST-REGISTRATION REQUIREMENTS.
(1)
Registered broker-dealers and agents shall file amendments to Form BD and Form
U4 with the CRD in the manner required by the forms and the CRD. Changes
necessitating a filing shall include, but may not be limited to, the following:
(A) Change in firm name, ownership,
management or control of a broker-dealer, or a change in any of its partners,
officers or persons in similar positions, or its businesses address, or the
creation or termination of a branch office in Arkansas.
(B) Change in type of entity, general plan or
character of a broker-dealer's business, method of operation or type of
securities in which the registrant is dealing or trading.
(C) Insolvency, dissolution or liquidation,
or a material adverse change or impairment of working capital, or noncompliance
with the minimum capital or bond requirements hereinabove provided.
(D) The filing of a criminal charge or civil
action against a registrant, or a partner or officer, in which an alleged
violation of a securities law, threats of violence against any person,
dishonesty, wrongful taking of any property or any manner of fraud is involved,
and the result of any hearing, proceeding, or action in the matter, as well as
any subsequent action taken on appeal by any reviewing agency or
court.
(E) The filing of a
complaint or the commencement of a proceeding by an administrative agency,
regulatory agency, self-regulatory agency, or court, or a written notice of
intention to do so, to consider whether to deny, suspend or revoke a
registration, impose a fine or other penalty upon the registration, or to
enjoin the registrant from engaging in or continuing any conduct or practice in
the securities business, the results of the hearing or proceeding, as well as
any subsequent actions taken by any reviewing agency or court.
(F) The registrant shall be deemed to have
complied with immediate notification pursuant to this subsection if the
information has been filed with CRD as soon as possible but in no event more
than thirty (30) calendar days after the registrant has knowledge of the
circumstances requiring the notification.
(2) Any broker-dealer registered under the
Act shall give timely notice to each agent registered with the broker-dealer of
the results of any hearing or proceeding referred to in Rule
302.01(e)(1) to
the extent the agent is required to disclose the matters on his
application.
302.02
INVESTMENT ADVISER.
(a)
FILINGS MADE THROUGH IARD.
Pursuant to Sections
23-42-208
and 23-43-302 of the Act, the Commissioner designates the IARD to receive and
store filings and collect related fees from investment advisers and investment
adviser representatives on behalf of the Commissioner.
(b)
APPLICATION FOR INVESTMENT ADVISER
REGISTRATION.
(1) INITIAL APPLICATIONS.
The application for initial registration as an investment adviser pursuant to
Section
23-42-302(a)
of the Act shall be made by doing the following:
(A) Completing and filing Form ADV, in
accordance with the form instructions, along with the fee as set forth in
Section
23-42-304(a)
of the Act, with the IARD; and
(B)
Submitting directly to the Commissioner the following:
(i) Financial Statements. Each investment
adviser applying for initial registration must submit an unaudited balance
sheet in a form prepared in accordance with generally accepted accounting
principles dated within thirty (30) days of the filing. The balance sheet shall
be certified as true and accurate by the chief financial officer of the
applicant as indicated on the Form ADV, or, if there is no chief financial
officer, the person executing the Form ADV. If the applicant has been engaged
in business for one (1) year or more preceding the filing of the applicant, the
applicant may submit audited financial statements for the last fiscal period
along with an unaudited balance sheet in a form acceptable to the Commissioner
dated within thirty days of the filing;
(ii) For an investment adviser applicant that
maintains a principal place of business in a state other than Arkansas, the
requirements of Rule
302.02(b)(1)(B)(i)
above may be satisfied by filing with the commissioner a copy of any financial
reports required by and filed with the securities commissioner or director in
the other state. When deemed necessary, the applicant shall furnish any further
information required by the Commissioner;
(iii) A corporate surety bond of fifty
thousand dollars ($50,000.00) covering the applicant and each representative if
the applicant has custody of any customer funds or securities. However, no
surety bond is required if an applicant maintains its principal place of
business in a state other than Arkansas and is the following:
(a) Registered or licensed as an investment
adviser in that state; and
(b) Is
in compliance with the applicable bonding requirements of that
state;
(iv) Copies of
investment advisory contracts to be used by the investment adviser;
(v) Independent Contractor Acknowledgement
Form; and
(vi) Any other
information not specifically required by the Act or the Rules that the
Commissioner may reasonably require, including, but not limited to, copies of
orders, pleadings, or documents relating to any past or present litigation,
regulatory proceedings, and customer complaints.
(2) ANNUAL RENEWAL. The application for
annual renewal registration as an investment adviser shall be accomplished by
filing for renewal with the IARD in accordance with the form instructions,
along with the fee as set forth in Section
23-42-304(a)
of the Act.
(3) UPDATES AND
AMENDMENTS.
(A) Each year, an investment
adviser must file an annual updating amendment for Form ADV with IARD within
ninety (90) days after the end of the registrant's fiscal year. In addition to
the annual updating amendment, any material information that becomes inaccurate
must be filed promptly according to the Form ADV general
instructions.
(B) Each year, an
investment adviser must file directly with the Commissioner a copy of its
current corporate surety bond and any amendments to its investment advisory
contracts.
(C) An investment
adviser must file directly with the Commissioner annual financial statements
not later than ninety (90) days after the close of the fiscal year unless
written permission to file at some other date is granted by the Commissioner in
advance of the date for filing the report.
(i)
Investment advisers with custody of client funds or securities, or that require
prepayment of client fees of more than five hundred dollars ($500) per client
and more than six (6) months in advance, shall submit audited financial
statements with the Commissioner. All audited financial statements shall be
prepared by an independent certified public accountant in accordance with
generally accepted auditing standards and in conformity with generally accepted
accounting principles.
(ii)
Investment advisers that do not maintain client funds or securities in their
custody, nor require prepayment of client fees of more than five hundred
dollars ($500.00) per client and more than six (6) months in advance, shall
submit an unaudited balance sheet in a form prepared in accordance with
generally accepted accounting principles dated within thirty (30) days of the
filing. The unaudited balance sheet shall be certified as true and accurate by
the chief financial officer of the registrant as indicated on the Form ADV, or,
if there is no chief financial officer, by the person executing the Form
ADV.
(iii) For an investment
adviser registrant that maintains a principal place of business in a state
other than Arkansas, the requirements of Rule
302.02(b)(3)(C)
above may be satisfied by filing with the Commissioner a copy of any financial
reports required by and filed with the securities commissioner in the other
state. When deemed necessary, the registrant shall furnish any further
information as required by the Commissioner.
(D) An amendment will be considered to be
filed promptly if the amendment is filed within thirty (30) days of the event
that requires the filing of the amendment;
(4) COMPLETION OF FILING. An application for
initial or renewal registration is not considered filed for purposes of Section
23-42-302(a)
of the Act until the required fee and all required sections of Form ADV are
received and accepted by the IARD and all other required submissions have been
received and accepted by the Commissioner.
(c)
APPLICATION FOR INVESTMENT ADVISER
REPRESENTATIVE REGISTRATION.
(1)
Initial Applications. The application for initial registration as an investment
adviser representative pursuant to Section
23-42-302(a)
of the Act shall be made by completing Form U4 in accordance with the form
instructions and filing the Form U4 with the IARD. The application for initial
registration shall also include the following:
(A) The fee required by Section
23-42-304
of the Act;
(B) Compliance with the
examination requirements of Rule
302.02(f);
and
(C) Any additional exhibits or
information not specifically required by the Rules but essential to a full
presentation of all material facts relating to an applicant's qualifications or
registration.
(2) Annual
Renewal. The application for annual renewal of registration for a registered
representative shall be made by filing necessary amendments to Form U4, in
accordance with the form instructions, with the IARD. The application for
annual renewal of registration shall include the fee required by Section
23-42-304
of the Act.
(3) Updates and
Amendments. The registered representative is under a continuing obligation to
update information required by the Form U4 as changes occur. Any amendments to
the representative's Form U4 must be filed promptly with the IARD. An amendment
will be considered promptly filed if received by the IARD within thirty (30)
days of the event that requires the filing of the amendment.
(4) Completion of Filing. An application for
initial or renewal registration is not considered filed for purposes of Section
23-42-302(a)
until the required fee and all required submissions have been received and
accepted by IARD and all other required submissions have been received and
accepted by the Commissioner.
(d)
ACCEPTANCE OF REGISTRATION.
(1) Promptly upon the filing of an
application for registration the Commissioner will either accept the
application or notify the applicant of any information, documents, or other
matters necessary to complete the application.
(2) The date of effectiveness of registration
shall be governed by Section
23-42-302(f)
of the Act.
(3) Notification of the
effectiveness of registration shall be available to an applicant through
IARD.
(e)
NOTICE
FILING REQUIREMENTS FOR SEC REGISTERED INVESTMENT ADVISERS.
(1) Notice Filing. The notice filing for an
SEC registered investment adviser pursuant to Section
23-42-301(c)
of the Act shall be filed with IARD on an executed Form ADV. A notice filing of
an SEC registered investment adviser shall be deemed filed when the fee
required by Section
23-42-304
of the Act and the Form ADV are filed with and approved by SEC.
(2) Annual Renewal. The annual renewal of the
notice filing for an SEC registered investment adviser pursuant to Section
23-42-301(c)
of the Act shall be filed with IARD. The renewal of the notice filing for an
SEC registered investment adviser shall be deemed filed when the fee required
by Section
23-42-304
of the Act is filed with and approved by SEC.
(3) Updates and Amendments. An SEC registered
investment adviser must file with IARD, in accordance with the instructions in
the Form ADV, any amendments to the SEC registered investment adviser's Form
ADV.
(f)
EXAMINATION
OF INVESTMENT ADVISER REPRESENTATIVE.
(1) Examination Requirements. An individual
applying to be registered as an investment adviser representative under the Act
shall provide the Commissioner with proof of knowledge of the investment
advisory business and the Act by obtaining a passing score(s) within the two
(2) year period immediately preceding the filing date of the application, on
either of the following examinations:
(A)
Series 65 - Uniform Investment Adviser Law; or
(B) Series 7 - General Securities
Representative, combined with Series 66 - Uniform Combined State
Law
(2) Waivers. The
examination requirements under Rule
302.02(g)(1)
shall not apply to an individual who currently holds and maintains in good
standing one (1) of the following professional designations:
(A) Certified Financial Planner (CFP) awarded
by the Certified Financial Planner Board of Standards;
(B) Chartered Financial Consultant (ChFC)
awarded by the American College, Bryn Mawr, Pennsylvania;
(C) Personal Financial Specialist (PFS)
awarded by the American Institute of Certified Public Accountants;
(D) Chartered Financial Analyst (CFA) awarded
by the CFA Institute;
(E) Chartered
Investment Counselor (CIC) awarded by The Investment Adviser Association;
or
(F) Any other professional
designation as the Commissioner may by rule or order
accept.
(3) Any
individual who has been registered as an investment adviser representative in
any state, commonwealth, territory, district, or province in the United States
or Canada within the two years immediately preceding the filing of a completed
application and who has at any time in the past met the requirements of Rule
302.02(f)(1)
shall not be required to repeat the examinations in order to become registered
as an investment adviser representative.
(4) Solely in those cases where circumstances
warrant because of the limited time; amount; or nature of the issue or
transaction involved; or the specific circumstances unique to the applicant,
the Commissioner may, upon petition and good cause shown by the applicant,
waive, any or all of the examination requirements set forth above.
(5) An applicant who is an agent for a
broker-dealer/investment adviser and who is not required by the agent's home
jurisdiction to make a separate filing on CRD as an investment adviser
representative but who has previously met the requirements of Rule
302.02
(f)(1) shall not be required to repeat the examinations in order to become
registered as an investment adviser representative in this state.
(g)
BROCHURE
REQUIREMENT. Unless otherwise provided in this Rule, an investment
adviser registered or required to be registered pursuant to Section
23-42-301
of the Act shall furnish each advisory client and prospective advisory client
with a written disclosure statement that shall be Form ADV Part
2 A, the brochure, Part 2B, the
brochure supplement, and any other information as the Commissioner may require.
(1) Delivery.
(A) An investment adviser shall deliver the
brochure to an advisory client or prospective advisory client either:
(i) At a time not less than forty-eight (48)
hours prior to entering into any investment advisory contract with the
prospective client, or
(ii) At the
time of entering into the contract so long as the advisory client has a right
to terminate the contract without penalty within five (5) business days after
entering into the contract.
(B) Delivery of the brochure need not be made
in connection with entering into a contract for impersonal advisory
services.
(2) Offer to
Deliver.
(A) An investment adviser shall
annually, within one hundred and twenty (120) days of its fiscal year end,
without charge, deliver or offer in writing to deliver, upon written request,
brochure to its advisory clients.
(B) The delivery or offer required by
subdivision (A) need not be made to advisory clients receiving advisory
services solely pursuant to a contract for impersonal advisory services of less
than five hundred dollars ($500).
(C) With respect to an advisory client
entering into a contract or receiving advisory services pursuant to a contract
for impersonal advisory services that requires a fee of five hundred dollars
($500) or more, an offer of the type specified in subdivision (a), shall also
be made at the time of entering into an advisory contract.
(3) Receipt of Request. Any statement
requested in writing by an advisory client or prospective advisory client
required by this subsection must be mailed or delivered within seven (7) days
of the receipt of the request.
(4)
Omission of Inapplicable Information. If an investment adviser renders
substantially different types of investment advisory services to different
advisory clients, any information required by Form ADV Part 2A, the brochure,
and Part 2B, the brochure supplement, may be omitted from the statement
furnished to an advisory client or prospective advisory client if the
information is not applicable to the type of investment advisory service or fee
that is rendered or charged, or proposed to be rendered or charged, to that
client or prospective client.
(5)
Other Disclosures. Nothing in this Rule shall relieve any investment adviser
from any obligation pursuant to any provision of the Act or Rules or other
federal or state law to disclose any information to its advisory clients or
prospective advisory clients not specifically required by this
Rule.
RULE
303
MINIMUM NET CAPITAL REQUIREMENT.
303.01
CAPITAL REQUIREMENTS FOR
BROKER-DEALER.
GENERAL REQUIREMENT. All broker-dealers registered under the Act shall at all times have and maintain net capital of no less than the required amount for each broker-dealer as established by SEC Rule 15 c3-1 promulgated pursuant to the Securities Exchange Act of 1934, which is hereby incorporated by reference.
303.02
CAPITAL REQUIREMENTS FOR INVESTMENT ADVISERS.
(a) Except as otherwise provided in the Act
or in the Rules, each registered investment adviser shall at all times have and
maintain not less than the minimum net capital required by Section
23-42-303(a)
of the Act.
(b) Net capital for
purposes of Rule
303.02 shall
mean the net worth of an applicant or registrant calculated in accordance with
generally accepted accounting principles.
(c) The provisions of this Rule shall not
apply to an investment adviser whose principal place of business is located in
a state other than Arkansas, provided that the investment adviser is registered
or licensed as an investment adviser in that state and is in compliance with
the net capital requirements of that state.
RULE 304
FILING FEES.
[RESERVED]
RULE 305
CORPORATE SURETY BONDS.
305.01
SURETY BONDS.
A surety bond, as required by Section 23-42-305 of the Act, for a registered broker-dealer, investment adviser, or agent of the issuer shall be maintained and in effect at all times as follows:
(a) A broker-dealer shall satisfy the
fidelity bond requirements imposed by FINRA.
(b) An investment adviser that has custody of
customer funds or securities shall have a surety bond in the amount of fifty
thousand dollars ($50,000).
(c) An
agent of the issuer shall maintain a surety bond in the amount of twenty-five
thousand dollars ($25,000).
RULE 306
RECORDS AND REPORTS -
EXAMINATIONS.
306.01
RECORDS AND
REPORTS OF BROKER-DEALERS.
(a) Each
broker-dealer shall make, maintain, and preserve books and records as required
for brokers or dealers under the rules promulgated under the Securities
Exchange Act of 1934, as amended.
(b) The Commissioner may, by order, upon
written request and for good cause shown, waive any of the requirements of this
Rule.
306.02
RECORDS AND REPORTS OF INVESTMENT ADVISERS.
(a)
GENERAL. All registered
investment advisers shall make and keep true, accurate and current books and
records relating to their investment advisory business. The records required to
be maintained shall be maintained for a minimum of five (5) years from the date
on which the transaction occurred shall include the specific records set forth
below. The provisions of this Rule shall not apply to an investment adviser
whose principal place of business is located in a state other than Arkansas,
provided that the investment adviser is registered or licensed as an investment
adviser in that other state and is in compliance with the applicable books and
records requirements of that other state.
(b)
BUSINESS RECORDS. The
business records required to be maintained shall include:
(1) A journal or journals, including cash
receipts and disbursements records, and any other records of original entry
forming the basis of entries in any ledger.
(2) General and auxiliary ledgers (or other
comparable records) reflecting asset, liability, reserve, capital, income, and
expense accounts.
(3) A memorandum
of each order given by the investment adviser for the purchase or sale of any
security, of any instruction received by the investment adviser from the client
concerning the purchase, sale, receipt of delivery of a particular security,
and of any modification or cancellation of any such order or instruction. Such
memoranda shall show the term and conditions of the order, instruction,
modification, or cancellation; shall identify the person connected with the
investment adviser who recommended the transaction to the client and the person
who placed the order; and shall show the account for which entered, the date of
entry, and the bank or broker-dealer by or through whom executed where
appropriate. Orders entered pursuant to the exercise of discretionary power
shall be so designated.
(4) All
checkbooks, bank statements, canceled checks, and cash reconciliations of the
investment adviser.
(5) All bills
or statements (or copies thereof) paid or unpaid, relating to the business of
the investment adviser as such.
(6)
All trial balances, financial statements prepared in accordance with generally
accepted accounting principles, and internal audit working papers relating to
the business of the investment adviser. For purposes of this Rule, "financial
statements" shall mean a balance sheet prepared in accordance with generally
accepted accounting principles, and income statement, a cash flow statement,
and a net worth computation as required by Rule
303.02.
(7) Originals of all written communications
received and copies of all written communications sent by such investment
adviser relating to the following:
(A) Any
recommendation made or proposed to be made and any advice given or proposed to
be given;
(B) Any receipt,
disbursement, or delivery of funds or securities; or
(C) The placing or execution of any order to
purchase or sell any security.
(D)
Notwithstanding the provisions of Rule
306.02, an investment adviser
shall not be required to keep the following:
(i) Any unsolicited market letters and other
similar communications of general public distribution not prepared by or for
the investment adviser; and
(ii) A
record of the names and addresses of the persons to whom any notice, circular
or other advertisement offering any report, analysis, publication, or other
investment advisory service to more than ten (10) persons was sent, unless the
notice, circular or other advertisement is distributed to persons named on any
list, in which case, the investment adviser shall retain with the copy of the
notice, circular or other advertisement, a memorandum describing the list and
the source thereof.
(8) A list or other record of all accounts in
which the investment adviser is vested with custody or any discretionary power
with respect to the funds, securities, or transactions of any client.
(9) All powers of attorney and other
evidences of the granting of any discretionary authority by any client to the
investment adviser, or copies thereof.
(10) All investment advisory contracts and
other written agreements (or copies thereof) entered into by the investment
adviser with any client or otherwise relating to the business of the investment
adviser. The contracts shall indicate the customer's risk tolerance, investment
objectives, annual income, net worth, and liquid net worth, and shall be signed
by all persons having an interest in the account.
(11) A copy of each notice, circular,
advertisement, newspaper article, investment letter, bulletin, or other
communication recommending the purchase or sale of a specific security, which
the investment adviser circulates or distributes, directly or indirectly, to
two (2) or more persons (other than persons connected with the investment
adviser), and if the communication does not state the reasons for the
recommendation, a memorandum of the investment adviser indicating the reasons
therefore.
(12) A record of every
transaction in a security in which the investment adviser or any advisory
representative of the investment adviser has, or by reason of the transaction
acquires, any direct or indirect beneficial ownership. These records shall
state the title and amount of the security involved, the date and nature of the
transaction (including the purchase, sale, acquisition, or disposition), the
price at which it was effected, and the name of the broker-dealer through which
the transaction was effected. These records may also contain a statement
declaring that the reporting or recording of a transaction shall not be
construed as an admission that the investment adviser or representative has any
direct or indirect beneficial ownership in the security. A transaction shall be
recorded not later than ten (10) days after the end of the calendar quarter in
which the transaction was effected. The records required by this subsection
shall not include the following:
(A)
Transactions effected in any account over which neither the investment adviser
nor any representative of the investment adviser has any direct or indirect
influence or control; and
(B)
Transactions in securities which are direct obligations of the United
States.
(13) A copy of
each written statement and each amendment or revision, given or sent to any
client or prospective client of the investment adviser in accordance with the
provisions of Rule
302.02(g), and a
record of the dates that each written statement, and each amendment or
revision, was given, or offered to be given, to any client or prospective
client who subsequently becomes a client.
(14) For each client that was obtained by the
adviser by means of a referral from a third party to whom a cash fee was paid
by the adviser, the following is required:
(A)
Evidence of a written agreement, to which the adviser is a party, related to
the payment of the fee;
(B) A
signed and dated acknowledgement of receipt from the client evidencing the
client's receipt of the investment adviser's disclosure statement;
and
(C) A copy of a written
disclosure statement from the referring party.
(15) All accounts, books, internal working
papers, and any other records or documents that are necessary to form the basis
for or demonstrate the calculation of the performance or rate of return of all
management accounts or securities recommendations in any notice, circular,
advertisement, newspaper article, investment letter, bulletin, or other
communication, including, but not limited to, electronic media that the
investment adviser circulates or distributes, directly or indirectly, to two
(2) or more persons (other than persons connected with the investment adviser);
provided, however, that, with respect to the performance of management
accounts, the retention of all account statements, if they reflect all debits,
credits, and other transactions in a client's account for the period of the
statement, and all worksheets necessary to demonstrate the calculation of the
performance or rate of return of all managed accounts shall be deemed to
satisfy the requirements of this paragraph.
(16) A file containing a copy of all written
communications received or sent regarding any litigation involving the
investment adviser, any investment adviser representative, or employee, and
regarding any written customer or client complaint.
(17) Written information about each
investment advisory client that is the basis for making any recommendation or
providing any investment advice to the client.
(18) Written procedures to supervise the
activities of employees and investment adviser representatives that are
reasonably designed to achieve compliance with applicable securities laws and
regulations.
(19) A file containing
a copy of each document (other than any notices of general dissemination) that
was filed with or received from any state or federal agency that pertains to
the registrant or its investment adviser representatives, which file should
contain, but is not limited to, all applications, amendments, renewal filings,
and registration-related correspondence.
(20) Where the adviser inadvertently held or
obtained a client's securities or funds and returned them to the client within
three (3) business days, or has forwarded checks to a third party within
twenty-four (24) hours, the adviser will be considered as not having custody
but shall keep for all securities or funds inadvertently held a ledge
containing the following information:
(A)
Issuer;
(B) Type of security and
series;
(C) Date of
issue;
(D) For debt instruments,
the denomination, interest rate, and maturity date;
(E) Certificate number, including
alphabetical prefix or suffix;
(F)
Name in which registered;
(G) Date
given to the adviser;
(H) Date sent
to client or sender;
(I) Form of
delivery to client or sender, or copy of the form of delivery to client or
sender; and
(J) Mail confirmation
number, if applicable, or confirmation by client or sender of the fund's or
security's return.
(21)
If an investment adviser obtains possession of securities that are acquired
from the issuer in a transaction or chain of transactions not involving any
public offering that comply with the exception from custody under Rule
307.02(b)(2),
the adviser shall keep the following records:
(A) A record showing the issuer or current
transfer agent's name, address, phone number, and other applicable contract
information pertaining to the party responsible for recording client interests
in the securities; and
(B) A copy
of any legend, shareholder agreement, or other agreement showing that those
securities that are transferable only with prior consent of the issuer or
holders of the outstanding securities of the issuer.
(22) For an investment adviser that has
custody of a client's funds or securities, all records and evidence of
compliance required by Rule
307.02.
(23) If an investment adviser has custody,
the records required to be made and kept shall include the following:
(A) A copy of any and all documents executed
by the client (including a limited power of attorney) under which the adviser
is authorized or permitted to withdraw a client's funds or securities
maintained with a custodian upon the adviser's instruction to the
custodian;
(B) A journal or other
record showing all purchases, sales receipts and deliveries of securities
(including certificate numbers) for the accounts and all other debits and
credits to the accounts;
(C) A
separate ledger account for each client showing all purchases, sales, receipts,
and deliveries of securities, the date and price of each purchase and sale, and
all debits and credits;
(D) Copies
of confirmations of all transactions effected by or for the account of any
client;
(E) A record for each
security in which any client has a position, which record shall show the name
of each client having any interest in each security, the amount of interest of
each client, and the location of each security;
(F) A copy of each of the client's quarterly
account statements, as generated and delivered by the qualified custodian. If
the adviser also generates a statement that is delivered to the client, the
adviser shall also maintain copies of the statements along with the date the
statements were sent to the clients;
(G) If applicable to the adviser's situation,
a copy of the special examination report verifying the completion of the
examination by an independent certified public accountant and describing the
nature and extent of the examination;
(H) A record of any finding by the
independent certified public accountant of any material discrepancies found
during the examination; and
(I) If
applicable, evidence of the client's designation of an independent
representative.
(24) If
an investment adviser has custody because it advises a pooled investment
vehicle, the adviser shall also keep the following records:
(A) True, accurate, and current account
statements;
(B) Where the adviser
complies with Rule
307.02(b)(4),
the records required to be made and kept shall include the following:
(i) The date(s) of the audit;
(ii) A copy of the audited financial
statements; and
(iii) Evidence of
the mailing of the audited financial to all limited partners, members, or other
beneficial owners within one hundred twenty (120) days of the end of its fiscal
year.
(25)
All payroll records, corporate charters, certificates of incorporation,
partnership articles, minute books and other records routinely kept in the
course of operating a business.
(c)
LENGTH OF TIME RECORDS KEPT.
Unless specifically provided otherwise, all books and records shall be
maintained and preserved in an easily accessible place for a period of not less
than five (5) years from the end of the fiscal year during which the last entry
was made on the record.
(d)
SEGREGATED ACCOUNTS. Registered investment advisers shall at all
times keep their customers' securities and funds in trust and segregated from
their own securities and funds.
(e)
SUPERVISED OR MANAGED ACCOUNTS. Every registered investment
adviser who renders any investment supervisory or management service to any
client shall, with respect to the portfolio being supervised or managed and to
the extent that the information is reasonably available to or obtainable by the
investment adviser, make and keep true, accurate, and current, the following:
(1) Records showing separately for each
client the securities purchased and sold, and the date, amount and price of
each purchase and sale.
(2) For
each security in which any client has a current position, information from
which the investment adviser can promptly furnish the name of each client, and
the current amount or interest of the client.
(f)
COMMINGLING OF ACCOUNTS
PROHIBITED. When a registered investment adviser is engaged in more than
one enterprise or activity, it shall maintain separate books of accounts and
records relating to its securities business and the assets shall not be
commingled with those of other businesses, and there shall be a clearly defined
division with respect to income and expenses.
(g)
COMPLAINT FILE. Every
registered investment adviser shall keep and maintain for a period of five (5)
years a complaint file or compliance file which shall contain all complaints
made against the firm or its representatives by individuals, financial
institutions and other investors. The complaint file should disclose any legal
action in process, settled, or threatened against the investment adviser. If
the original documents are not maintained in the complaint file, the copy of
the document should show the disposition of the original document. If the home
office of the investment adviser is not in Arkansas, then branch office located
in Arkansas shall maintain this complaint file for any complaints involving
Arkansas agents or customers.
(h)
RECORD SYSTEM. In accordance with Section
23-42-205(d)(2)
of the Act, any books or records required by this Rule may be maintained by the
investment adviser in a manner that the identity of any client to whom such
investment adviser renders investment supervisory services is indicated by
numerical or alphabetical code or some similar designation.
306.03
FINANCIAL STATEMENTS.
(a) Unless otherwise provided herein, audited
financial statements shall be prepared by an independent certified public
accountant in accordance with generally accepted auditing standards in
conformity with generally accepted accounting principles and accompanied by an
opinion acceptable to the Commissioner.
(b) An unaudited balance sheet shall be
prepared in accordance with generally accepted accounting principles
(c) All financial statements filed with the
Commissioner as part of a registration or annual filing requirement shall be
public when filed, except that if the balance sheet for a broker-dealer is in a
format which is separate from the remainder of the audited financial statements
and is identified as confidential, then it will be so
treated.
RULE
307
UNLAWFUL ACTS BY INVESTMENT ADVISERS.
307.01
PERFORMANCE - BASED COMPENSATION
EXEMPTION.
(a) It shall be unlawful for
an investment adviser to enter into, extend or renew an investment advisory
contract that provides for compensation to the investment adviser on the basis
of a share of capital gains upon or capital appreciation of the funds, or any
portion of the funds, of the client unless the following conditions of this
Rule are met.
(1) Nature of the Client. The
client entering into the contract must be the following:
(A) A natural person or a company who,
immediately after entering into the contract has at least one million dollars
($1,000,000) under the management of the investment adviser; or
(B) A person who the investment advisers and
their investment adviser representatives reasonably believe, immediately before
entering into the contract, is a natural person or a company whose net worth,
at the time the contract is entered into, exceeds two million dollars
($2,000,000). The net worth of a natural person may include assets held jointly
with that person's spouse.
(2) Compensation Formula. The compensation
paid to the investment adviser under this Rule with respect to the performance
of any securities over a given period shall be based on a formula that does the
following:
(A) Includes, in the case of
securities for which market quotations are readily available, the realized
capital losses and unrealized capital depreciation of the securities over the
period;
(B) Includes, in the case
of securities for which market quotations are not readily available:
(i) The realized capital losses of the
securities over the period; and
(ii) If the unrealized capital appreciation
of the securities over the period is included, the unrealized capital
depreciation of the securities over the period; and
(C) Provides that any compensation paid to
the investment adviser under this Rule is based on the gains less the losses
computed in accordance with Rule
307.01(a)(2)(A) and
(B) in the client's account for a period of
not less than one (1) year.
(3) Disclosure. Before entering into the
advisory contract and in addition to the requirements of Form ADV Part
2 A, the brochure, and Part
2 B, the brochure supplement, the
investment adviser must disclose in writing to the client or the client's
independent agent all material information concerning the proposed advisory
arrangement, including the following:
(A) That
the fee arrangement may create an incentive for the investment adviser to make
investments that are riskier or more speculative than would be the case in the
absence of a performance fee;
(B)
Where relevant, that the investment adviser may receive increased compensation
with regard to unrealized appreciation as well as realized gains in the
client's account;
(C) The periods
that will be used to measure investment performance throughout the contract and
their significance in the computation of the fee;
(D) The nature of any index that will be used
as a comparative measure of investment performance, the significance of the
index, and the reason the investment adviser believes that the index is
appropriate, and
(E) Where the
investment adviser's compensation is based in part on the unrealized
appreciation of securities for which market quotations are not readily
available within the meaning of Rule
2 a-4(a)(1) under the Investment
Company Act of 1940, how the securities will be valued and the extent to which
the valuation will be independently determined.
(4) Contract. The investment adviser (and any
investment adviser representative) that enters into the contract must
reasonably believe, immediately before entering into the contract that the
contract represents an arm's length arrangement between the parties and that
the client, alone or together with the client's independent agent, understands
the proposed method of compensation and its risks. The representative of a
company may be a partner, director, officer or an employee of the company or
the trustee, where the company is a trust, or any other person designated by
the company or trustee.
(b)
INDEPENDENT AGENT. Nothing
in this Rule shall relieve a client's independent agent from any obligation to
the client under applicable law.
307.02
CUSTODY OF CLIENT FUNDS OR
SECURITIES BY INVESTMENT ADVISERS.
(a)
SAFEKEEPING REQUIRED. It is unlawful and deemed to be a
fraudulent, deceptive, or manipulative act, practice, or course of business for
an investment adviser, registered or required to be registered, to have custody
of client funds or securities unless the following occurs:
(1) Notice to Commissioner. The investment
adviser notifies the Commissioner promptly in writing that the investment
adviser has or may have custody. This notification is required to be given on
Form ADV;
(2) Qualified Custodian.
A qualified custodian maintains those funds and securities:
(A) In a separate account for each client
under that client's name; or
(B) In
accounts that contain only the investment adviser's clients' funds and
securities, under the investment adviser's name as agent or trustee for the
clients, or, in the case of a pooled investment vehicle that the investment
adviser manages, in the name of the pooled investment vehicle
(3) Notice to Clients. If an
investment adviser opens an account with a qualified custodian on behalf of a
client, under the client's name, under the name of the investment adviser as
agent, or under the name of a pooled investment vehicle, the investment adviser
must notify the client in writing of the qualified custodian's name, address,
and the manner in which the funds or securities are maintained, promptly when
the account is opened and following any changes to this information. If the
investment adviser sends account statements to a client to which the investment
adviser is required to provide this notice, the investment adviser must include
in the notification provided to that client and in any subsequent account
statement the investment adviser sends that client a statement urging the
client to compare the account statements from the custodian with those from the
investment adviser.
(4) Account
Statements. The investment adviser has a reasonable basis, after due inquiry,
for believing that the qualified custodian sends an account statement, at least
quarterly, to each client for which it maintains funds or securities,
identifying the amount of funds and of each security in the account at the end
of the period and setting forth all transactions in the account during that
period.
(5) Special Rule for
Limited Partnerships and Limited Liability Companies. If the investment adviser
or a related person is a general partner of a limited partnership (or managing
member of a limited liability company, or holds a comparable position for
another type of pooled investment vehicle), the account statements required
under Rule
307.02(a)(4)
must be sent to each limited partner (or member or other beneficial
owner).
(6) Independent
Verification. The client funds and securities of which the investment adviser
has custody are verified by actual examination at least once during each
calendar year, by an independent certified public accountant, pursuant to a
written agreement between the investment adviser and the independent certified
public accountant, at a time that is chosen by the independent certified public
accountant without prior notice or announcement to the investment adviser and
that is irregular from year to year. The written agreement must provide for the
first examination to occur within six (6) months of becoming subject to this
paragraph, except that, if the investment adviser maintains client funds or
securities pursuant to this Rule as a qualified custodian, the agreement must
provide for the first examination to occur no later than six (6) months after
obtaining the internal control report. The written agreement must require the
independent certified public accountant to do the following:
(A) File a certificate on Form ADV-E with the
Commissioner within one hundred and twenty (120) days of the time chosen by the
independent certified public accountant in Rule
307.02(a)(6),
stating that it has examined the funds and securities and describing the nature
and extent of the examination.
(B)
Upon finding any material discrepancies during the course of the examination,
notify the Commissioner within one (1) business day of the finding, by means of
a facsimile transmission or electronic mail, followed by first class mail,
directed to the attention of the Commissioner; and
(C) Upon resignation or dismissal from, or
other termination of, the engagement, or upon removing itself or being removed
from consideration for being reappointed, file within four (4) business days
Form ADV-E accompanied by a statement that includes the following:
(i) The date of the resignation, dismissal,
removal, or other termination, and the name, address, and contact information
of the independent certified public accountant; and
(ii) An explanation of any problems relating
to examination scope or procedure that contributed to the resignation,
dismissal, removal, or other termination.
(7) Investment Advisers Acting As Qualified
Custodians. If the investment adviser maintains, or if the investment adviser
has custody because a related person maintains, client funds or securities
pursuant to this Rule as a qualified custodian in connection with advisory
services the investment adviser provides to clients:
(A) The independent certified public
accountant the investment adviser retains to perform the independent
verification required by Rule
307.02(a)(6)
must be registered with, and subject to regular inspection as of the
commencement of the professional engagement period, and as of each calendar
year-end, by the Public Company Accounting Oversight Board in accordance with
its rules; and
(B) The investment
adviser must obtain, or receive from its related person, within six (6) months
of becoming subject to this paragraph and thereafter no less frequently than
once each calendar year a written internal control report prepared by an
independent certified public accountant:
(i)
The internal control report must include an opinion of an independent certified
public accountant as to whether controls have been placed in operation as of a
specific date, and are suitably designed and are operating effectively to meet
control objectives relating to custodial services, including the safeguarding
of funds and securities held by either the investment adviser or a related
person on behalf of the investment advisers clients, during the year;
(ii) The independent certified public
accountant must verify that the funds and securities are reconciled to a
custodian other than the investment adviser or the investment adviser's related
person; and
(iii) The independent
certified public accountant must be registered with, and subject to regular
inspection as of the commencement of the professional engagement period, and as
of each calendar year-end, by the Public Company Accounting Oversight Board in
accordance with its rules.
(8) Independent Representatives. A client may
designate an independent representative to receive, on his behalf, notices and
account statements as required under Rule
307.02(a)(3) and
(4).
(b)
EXCEPTIONS.
(1) Shares of Mutual Funds. With respect to
shares of an open-end company as defined in Section
5(a)(1) of the
Investment Company Act of 1940 ("mutual fund"), the investment adviser may use
the mutual fund's transfer agent in lieu of a qualified custodian for purposes
of complying with paragraph (a) of this Rule;
(2) Certain Privately Offered Securities.
(A) The investment adviser is not required to
comply with Rule
307.02(a)(2)
with respect to securities that are the following:
(i) Acquired from the issuer in a transaction
or chain of transactions not involving any public offering;
(ii) Uncertificated and ownership thereof is
recorded only on the books of the issuer or its transfer agent in the name of
the client; and
(iii) Transferable
only with prior consent of the issuer or holders of the outstanding securities
of the issuer.
(B)
Notwithstanding Rule
307.02(b)(2)
(A), the provisions of this Rule 307.02(b)(2) are available with respect to
securities held for the account of a limited partnership (or limited liability
company, or other type of pooled investment vehicle) only if the limited
partnership is audited, and the audited financial statements are distributed,
as described in Rule
307.02(b)(4) and
the investment adviser notifies the Commissioner in writing that the investment
adviser intends to provide audited financial statements, as described above.
The notification is required to be provided on Form ADV.
(3) Fee Deduction. Notwithstanding Rule
307.02(a)(6), an investment adviser is not required to obtain an independent
verification of client funds and securities maintained by a qualified custodian
if all of the following are met:
(A) The
investment adviser has custody of the funds and securities solely as a
consequence of its authority to make withdrawals from client accounts to pay
its advisory fee;
(B) The
investment adviser has written authorization from the client to deduct advisory
fees from the account held with the qualified custodian;
(C) Each time a fee is directly deducted from
a client account, the investment adviser concurrently:
(i) Sends the qualified custodian an invoice
or statement of the amount of the fee to be deducted from the client's account;
and
(ii) Sends the client an
invoice or statement itemizing the fee.
Itemi zation includes the formula used to calculate the fee, the amount of assets under management the fee is based on, and the time period covered by the fee.
(D) The investment adviser notifies the
Commissioner in writing that the investment adviser intends to use the
safeguards provided above. The notification is required to be given on Form
ADV.
(4) Limited
Partnerships Subject to Annual Audit. An investment adviser is not required to
comply with Rules 307.02(a)(3) and (a)(4) and shall be deemed to have complied
with Rule 307.02(a)(6) with respect to the account of a limited partnership (or
limited liability company, or another type of pooled investment vehicle) if
each of the following conditions are met:
(A)
At least annually the fund is subject to an audit and distributes its audited
financial statements prepared in accordance with generally accepted accounting
principles to all limited partners (or members or other beneficial owners) and
the Commissioner within one hundred and twenty (120) days of the end of its
fiscal year;
(B) The audit is
performed by an independent certified public accountant that is registered
with, and subject to regular inspection as of the commencement of the
professional engagement period, and as of each calendar year-end, by, the
Public Company Accounting Oversight Board in accordance with its
rules;
(C) Upon liquidation, the
adviser distributes the fund's final audited financial statements prepared in
accordance with generally accepted accounting principles to all limited
partners (or members or other beneficial owners) and the Commissioner promptly
after the completion of the audit;
(D) The written agreement with the
independent certified public accountant must require the independent certified
public accountant to, upon resignation or dismissal from, or other termination
of, the engagement, or upon removing itself or being removed from consideration
for being reappointed, notify the Commissioner within four (4) business days
accompanied by a statement that includes the following:
(i) The date of the resignation, dismissal,
removal, or other termination, and the name, address, and contact information
of the independent certified public accountant; and
(ii) An explanation of any problems relating
to audit scope or procedure that contributed to the resignation, dismissal,
removal, or other termination.
(E) The investment adviser must also notify
the Commissioner in writing that the investment adviser intends to employ the
use of the statement delivery and audit safeguards described above. Such
notification is required to be given on Form ADV.
(5) Registered Investment Companies. The
investment adviser is not required to comply with this Rule with respect to the
account of an investment company registered under the Investment Company Act of
1940.
(c)
DELIVERY
TO RELATED PERSONS. Sending an account statement under Rule
307.02(a)(5) or
distributing audited financial statements under Rule
307.02(b)(4)
shall not satisfy the requirements of this Rule if the account statements or
financial statements are sent solely to limited partners (or members or other
beneficial owners) that themselves are limited partnerships (or limited
liability companies, or another type of pooled investment vehicle) and are
related persons of the investment adviser.
(d)
DEFINITIONS. For purposes of
this Rule:
(1) Qualified Custodian means:
(A) A bank or savings association that has
deposits insured by the Federal Deposit Insurance Corporation under the Federal
Deposit Insurance Act;
(B) A
broker-dealer registered in this jurisdiction and with the SEC holding the
client assets in customer accounts;
(C) A registered futures commission merchant
registered under Section
4 f(a) of the Commodity Exchange
Act, holding the client assets in customer accounts, but only with respect to
clients' funds and security futures, or other securities incidental to
transactions in contracts for the purchase or sale of a commodity for future
delivery and options thereon; and
(D) A foreign financial institution that
customarily holds financial assets for its customers, provided that the foreign
financial institution keeps the advisory clients' assets in customer accounts
segregated from its proprietary assets.
(2) Related Person means:
(A) Individual control. The person is
controlled or significantly influenced by a member of key management personnel
or by a person who controls the entity;
(B) Common control. The person is, directly
or indirectly, either under common control with the entity or has significant
or joint control over the entity;
(C) Associate. The person is an associate of
the entity; or
(D) Family member.
The person is a close family member of a person who is part of key management
personnel or who controls the entity. A close family member is an individual's
domestic partner and children, children of the domestic partner, and dependents
of the individual or the individual's domestic
partner.
(e)
Rule 307.02 shall not apply to an
investment adviser also registered as a broker-dealer in Arkansas who is the
following:
(1) Subject to and in compliance
with SEC Rule
15 c3-1 (Net Capital Requirements
for Brokers or Dealers), promulgated under the Securities Exchange Act of 1934;
or
(2) A member of an exchange
whose members are exempt from SEC Rule
15 c3-1, under the provisions of
paragraph (b)(2) thereof, and the broker-dealer is in compliance with all rules
and settled practices of the exchange imposing requirements with respect to
financial responsibility and the segregation of funds or securities carried for
the account of customers.
RULE 308
DENIAL, SUSPENSION,
REVOCATION, OR WITHDRAWAL OF REGISTRATION.
308.01
UNFAIR, MISLEADING, AND
UNETHICAL PRACTICES OF BROKER-DEALER OR AGENT.
Each broker-dealer and agent shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business. The following conduct shall be considered grounds for denial, suspension or revocation of a broker-dealer or agent registration, in addition to other unethical practices within the meaning of Sections 23-42-308 and 23-42-507 of the Act:
(a)
FAILURE TO
TIMELY COMPLETE THE TRANSACTION. Engaging in a pattern of unreasonable
delays in delivery of securities or remittance of funds necessary to complete
the transaction within the time frame customary in the trade.
(b)
MISREPRESENTATIONS.
Guaranteeing a customer against loss in any securities account of the customer
carried by the broker-dealer or in any securities transaction effected by the
broker-dealer with or for the customer, or making unjustified or untruthful
representations that securities sold will subsequently become listed or traded,
or making representations that a market will be established or that the
securities will be subject to an increase in value.
(c)
UNDISCLOSED FEES. Charging
undisclosed, unreasonable and inequitable fees for services performed,
including miscellaneous services such as collection of monies due for
principal, dividends or interest, exchange or transfer of securities,
appraisals, safekeeping, or custody of securities and other services related to
its securities business, except where the fees are negotiated or have been
previously disclosed to the customer.
(d)
RECOMMENDATIONS TO
CUSTOMERS. Recommending to a customer the purchase, sale or exchange of
any security when a broker-dealer or agent does not have reasonable grounds for
believing that the recommendation is suitable for the customer upon the basis
of the facts, if any, disclosed by the customer as to his other security
holdings and as to his financial situation and needs, or encouraging a customer
to invest beyond his immediate financial resources.
(e)
EXCESSIVE TRADING. 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 exclusively for the
purpose of accumulating profits.
(f)
BOND PRE-SALES.
(1) Entering into a pre-sale contract with
respect to any bond that is required by laws of the State of Arkansas to be
sold at public sale, or to obtain any beneficial interest, direct or indirect,
in the initial purchase of any bonds with respect to which the broker-dealer
has acted as fiscal agent. This section shall not apply to industrial bonds
issued under the Municipalities and Counties Industrial Development Revenue
Bond Law, Ark. Code Ann. Section
14-164-201
through 224, to school bonds for school districts if the requirements set forth
in Rule 308.01(f)(2) are met, or to any other bonds provided that it is shown
to the satisfaction of the Commissioner in the case of the other bonds that
such an arrangement is to the benefit of the issuer. For the purposes of this
section the following terms shall have the indicated meanings, unless the
context requires otherwise:
(A) "Bonds" means
bond, notes and other evidence of indebtedness, both in definitive and in
temporary form, whether as notes or bonds, issued by or in the name of any
county, city, town, school district, improvement district, state educational
institution, or other public issuer.
(B) "Pre-Sale Contract means any contract for
the sale and purchase of bonds entered into prior to the date advertised for
the public sale of the bonds.
(C)
"Fiscal Agent means any broker-dealer employed for compensation to advise and
assist in the sale of an issuer's bonds.
(2) The prohibition set forth in Rule
308.01(f)(1)
shall not apply to school bonds for a school district for which a broker-dealer
serves as fiscal agent if each of the following conditions are met:
(A) The broker-dealer shall disclose in the
preliminary official statement for each bond issue that it has reserved the
right to submit a competitive bid;
(B) The broker-dealer shall advise the school
district prior to the date bids are to be received whether it will submit a
bid;
(C) In the event that the only
bid received by the school district is from the broker-dealer, acceptance of
the bid by the school district is subject to same day review and approval by
the Commissioner;
(D) The
broker-dealer will receive prior to the date bids are received, written
authorization from the issuer in compliance with MSRB Rule G-23; and
(E) All bids shall be submitted by electronic
or sealed bid only.
(g)
FISCAL AGENT OR UNDERWRITER.
Encouraging a person to issue bonds in amount exceeding those not reasonable
within its ability to repay, falsely and willfully leading a person to believe
the broker-dealer will see that all bonds will be sold or failing to reveal to
the person with which it is doing business a financial interest in other
enterprises, such as construction companies, who may receive proceeds from the
sale of the bonds.
(h)
ADJUSTED TRADING.
(1) Utilizing a
trading technique whereby a transaction or a series of transactions is executed
wherein a party to the transaction or series of transactions attempts to defer
the recognition of a decrease in the value of a security by the following:
(A) The sale of a security at a price other
than at market value;
(B) The
purchase of a security at a price other than at market value; or,
(C) The use of fees, payments or other
consideration in such a manner that the composite design of the related
transactions is to defer the recognition of a loss or decrease.
(2) Adjusted trading may occur if
more than one (1) broker-dealer or more than one (1) customer is involved in
the transaction. Adjusted trading may occur whether the security is for future
delivery, current delivery or if the security is not yet issued. If any
consideration is given, other than normal payment for the security at its
market value, by any party to the series of purchases or sales, the
consideration shall be considered in determining if the trading technique as a
whole constitutes adjusted trading.
(i)
MARKUPS. Charging excessive
markups or entering into a transaction with or for a customer at a price not
reasonably related to the current market price of the security. Bids and offers
should correspond with the actual market. Markups may vary, for among other
reasons, as a result of such factors as quantity, quality, market conditions,
risk to the broker-dealer and maturity, but should in all transactions be
reasonable and fully competitive.
(j)
MARKET VALUE. Representing
that a security is being offered to a customer "at the market" or a price
relevant to the market price unless the broker-dealer knows or has reasonable
grounds to believe that a market for the security exists other than that made,
created or controlled by the broker-dealer, or by any person for whom the
broker-dealer is acting or with whom the broker-dealer is associated in the
distribution, or any person controlled by, controlling or under common control
with the broker-dealer; or offering to buy from or sell to any person any
security at a stated price unless such broker-dealer is prepared to purchase or
sell, as the case may be, at such price and under such conditions as are stated
at the time of such offer to buy or sell.
(k)
FAVORABLE PRICE. Effecting a
transaction for or with a customer without exercising reasonable diligence to
ascertain the best market price for the subject security so that the resultant
price to the customer is as favorable as possible under prevailing market
conditions.
(l)
INTERPOSITIONING. Interjecting a third party between the
broker-dealer and the best available market or the broker-dealer and the
customer except in cases where the broker-dealer can demonstrate that based on
knowledge at the time of the transaction, the total cost of proceeds of the
transaction, was equal to or better than the prevailing inter-dealer market for
the security.
(m)
CONTROLLING
PERSONS OR AFFILIATES. Failing to disclose that the broker-dealer is
controlled by, controlling, affiliated with or under common control with the
issuer of any security before entering into any contract with or for a customer
for the purchase or sale of a security, the existence of the control to the
customer, and if the disclosure is not made in writing, it shall be
supplemented by the giving or sending of written disclosure at or before the
completion of the transaction.
(n)
FICTITIOUS ACCOUNTS. Establishing or maintaining an account
containing fictitious or disguised information.
(o)
UNAUTHORIZED TRANSACTIONS.
Causing the execution of a transaction which is unauthorized by a customer or
the sending of a confirmation in order to cause a customer to accept
transactions not actually agreed upon or exercising any discretionary power in
effecting a transaction for a customer's account without first obtaining
written discretionary authority from the customer, unless the discretionary
power relates solely to the time and/or price for the execution of
orders.
(p)
MISUSE OF
CUSTOMERS' FUNDS OR SECURITIES. Borrowing or unauthorized use of
customers' funds or securities.
(q)
MISLEADING ADVERTISING. Using any advertising or sales material in
such a fashion as to be deceptive or misleading.
(r)
OUTSIDE SALES ACTIVITIES.
Effecting securities or non-securities transactions not recorded on the regular
books or records of the broker-dealer unless the activity is authorized in
writing by the broker-dealer and the authorization is maintained in the
broker-dealer's records.
(s)
SHARING PROFITS. Sharing directly or indirectly in profits or
losses in the account of any customer without the written authorization of the
customer and the broker-dealer which the agent represents; or without notice to
the customer dividing or otherwise splitting the agent's commission, profits or
other compensation from the purchase or sale of securities.
(t)
FURNISHING INFORMATION.
Failing or refusing to furnish a customer, upon reasonable request, information
to which he is entitled, or to respond to a formal written demand or
complaint.
(u)
MISUSE OF FIRM
NAME. Implying that a broker-dealer is a bank or other kind of financial
institution, provided this does not prohibit the use of the term "investment
banker."
(v)
FURNISHING
DOCUMENTS. Unreasonably failing to promptly deliver or provide documents
or information in possession of or under control of the registrant to the
Commissioner after receipt of a written request from the
Commissioner.
(w)
DISHONEST
USE OF CERTIFICATIONS, PROFESSIONAL DESIGNATIONS, SENIOR-SPECIFIC
CERTIFICATIONS, OR SENIOR-SPECIFIC PROFESSIONAL DESIGNATIONS.
(1) The use of a certification, professional
designation, senior-specific certification, or senior-specific professional
designation by any person in connection with the offer, sale, or purchase of
securities, or the provision of advice as to the value of or the advisability
of investing in, purchasing, or selling securities, either directly or
indirectly or through publications or writings, or by issuing or promulgating
analyses or reports relating to securities, that indicates or implies that the
user has special certification or training in advising or servicing clients, in
such a way as to mislead any person shall be a dishonest and unethical practice
within the meaning of Rule
308.01.
(2) The prohibited use of certifications or
professional designations includes, but is not limited to, the following:
(A) Use of a certification or professional
designation by a person who has not actually earned or is otherwise ineligible
to use the certification or designation;
(B) Use of a nonexistent or self-conferred
certification or professional designation;
(C) Use of a certification or professional
designation that indicates or implies a level of occupational qualifications
obtained through education, training, or experience that the person using the
certification or professional designation does not have; and
(D) Use of a certification or professional
designation that was obtained from a designating or certifying organization
that meets the following:
(i) Is primarily
engaged in the business of instruction in sales and/or marketing;
(ii) Does not have reasonable standards or
procedures for assuring the competency of its designees or
certificants;
(iii) Does not have
reasonable standards or procedures for monitoring and disciplining its
designees or certificants for improper or unethical conduct; or
(iv) Does not have reasonable continuing
education requirements for its designees or certificants in order to maintain
the designation or certificate.
(3) There is a rebuttable presumption that a
designation or certifying organization is not disqualified solely for purposes
of Rule 308.01(w)(2)(D)
when the organization has been accredited by the following:
(A) The American National Standards for
Certifying Institute;
(B) The
National Commission for Certifying Agencies; or
(C) An organization that is on the United
States Department of Education's list entitled "Accrediting Agencies Recognized
for Title IV Purposes" and the designation or credential issued there from does
not primarily apply to sales and/or marketing.
(4) In determining whether a combination of
words (or an acronym standing for a combination of words) constitutes a
certification or professional designation indicating or implying that a person
has special certification or training in advising or servicing clients, factors
to be considered shall include the following:
(A) Use of one (1) or more words such as
"senior," "retirement," "elder," or like words, combined with one (1) or more
words such as "certified," "registered," "chartered," "adviser," "specialist,"
"consultant," "planner," or like words, in the name of the certification or
professional designation; and
(B)
The manner in which those words are combined.
(5) For purposes of this Rule, a
certification or professional designation does not include a job title within
an organization that is licensed or registered by a state or federal financial
services regulatory agency, when that job title indicates seniority or standing
within the organization, or specifies an individual's area of specialization
within the organization. For purposes of this subsection, financial services
regulatory agency includes, but is not limited to, an agency that regulates
broker-dealers, investment advisers, or investment companies as defined under
the Investment Company Act of 1940.
(6) Nothing in this Rule shall limit the
Commissioner's authority to enforce existing provisions of
law.
(x)
FAILING TO
COMPLY WITH LAWS OR RULES. Failing to comply with any applicable
provision of conduct rules, any applicable fair practice or ethical standard,
or any other applicable law or rule related to conducting business involving
securities promulgated by the SEC or any self-regulatory
organization.
(y)
OTHER
UNFAIR, MISLEADING AND UNETHICAL PRACTICES. The unfair, misleading or
unethical practices set forth above are not exclusive of other activities, such
as forgery, embezzlement, non-disclosure or misstatement of material facts,
manipulations and various deceptions, which shall be considered grounds for
suspension or revocation and the Commissioner may suspend or revoke a
registration when necessary or appropriate in the public
interest.
308.02
FRAUDULENT, DECEPTIVE, DISHONEST OR UNETHICAL PRACTICES OF INVESTMENT
ADVISERS.
Investment advisers have a duty to act primarily for the benefit of their clients. All investment advisers and representatives shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business. The following conduct shall constitute fraudulent or deceptive practices and shall be considered grounds for denial, suspension or revocation of an investment adviser or representative registration, or for the issuance of a cease and desist order or other action under Section 23-42-209 of the Act, in addition to other dishonest or unethical practices within the meaning of Sections 23-42-307 and 23-42-308 of the Act. The provisions of this Rule shall apply to an investment adviser that is neither registered nor required to register pursuant to Section 23-42-301(c) of the Act only to the extent permitted by the National Securities Markets Improvement Act of -1996.
(a)
Recommending to a client to whom investment supervisory, management or
consulting services are provided the purchase, sale or exchange of any security
without reasonable grounds to believe that the recommendation is suitable for
the client on the basis of information furnished by the client after reasonable
inquiry concerning the client's investment objectives, financial situation and
needs, and any other information known or acquired by the investment adviser
after reasonable analysis of the client's information and records as may be
provided to the investment adviser.
(b) Placing an order to purchase or sell a
security for the account of a client without authority to do so.
(c) Placing an order to purchase or sell a
security for the account of a client upon instruction of a third party without
first having obtained a written third-party trading authorization from the
client.
(d) Exercising any
discretionary authority 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 authority 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.
(e) Inducing trading in a client's account
that is excessive in size or frequency in view of the financial resources,
investment objectives and character of the account.
(f) Borrowing money, securities, or anything
of value from a client unless the client is a broker-dealer, an affiliate of
the investment adviser, or a financial institution engaged in the business of
loaning funds or securities.
(g)
Loaning money to a client unless the investment adviser is a financial
institution engaged in the business of loaning funds, a broker-dealer, or the
client is an affiliate of the investment adviser.
(h) Misrepresenting to any client, or
prospective advisory client, the qualifications of the investment adviser or
any employee of the investment adviser, or misrepresenting the nature of the
advisory services being offered or fees to be charged for the service, or
omitting to state a material fact necessary to make the statements made
regarding qualifications, services or fees, in light of the circumstances under
which they are made, not misleading.
(i) Providing a report or recommendation to
any advisory client prepared by someone other than the adviser without
disclosing that fact. (This prohibition does not apply to a situation where the
adviser uses published research reports or statistical analyses to render
advice or where an adviser orders a report in the normal course of providing
service.)
(j) Charging a client an
advisory fee that is unreasonable in light of the type of service to be
provided; the experience and expertise of the investment adviser; or the
bargaining power of the client; or, without notice to the client, dividing or
otherwise splitting the advisory fee or other compensation derived from the
advisory services.
(k) Failing to
disclose to a client in writing before entering into or renewing an advisory
agreement with that client any material conflict of interest relating to the
adviser or any of its employees that could reasonably be expected to impair the
rendering of unbiased and objective advice including, but not limited to, the
following:
(1) Compensation arrangements
connected with advisory services to clients which are in addition to
compensation from the clients for the services; and
(2) The fact that an advisory fee for
rendering advice will be charged to the client when a commission for executing
securities transactions pursuant to the advice will be received by the adviser
or its employees.
(l)
Guaranteeing a client that a specific result will be achieved (gain or no loss)
as a result of the advice that will be rendered.
(m) Publishing, circulating, or distributing
any advertisement that does the following:
(1) Refers, directly or indirectly, to any
testimonial of any kind concerning the investment adviser or concerning any
advice, analysis, report or other service rendered by the investment
adviser;
(2) Refers, directly or
indirectly, to past specific recommendations of the investment adviser that
were or would have been profitable to any person; provided, however, that this
shall not prohibit an advertisement that sets out or offers to furnish a list
of all recommendations made by the investment adviser within the immediately
preceding period of not less than one (1) year if the advertisement and the
list, if it is furnished separately, does the following:
(A) States the name of each security
recommended, the date and nature of each recommendation (for example, whether
to buy, sell or hold), the market price at that time, the price at which the
recommendation was to be acted upon, and the market price of the security as of
the most recent practicable date; and
(B) Contains the following cautionary legend
on the first page thereof in print or type used in the body or text thereof:
"it should not be assumed that recommendations made in the future will be
profitable or will equal the performance of the securities in this
list";
(3) Represents,
directly or indirectly, that any graph, chart, formula or other device being
offered can in and of itself be used to determine which securities to buy or
sell, or when to buy or sell them; or which represents, directly or indirectly,
that any graph, chart, formula or other device being offered will assist any
person in making his own decisions as to which securities to buy or sell, or
when to buy or sell them, without prominently disclosing in the advertisement
the limitations thereof and the difficulties with respect to its use;
(4) Contains any statement to the effect that
any report, analysis, or other service will be furnished free or without
charge, unless the report, analysis or other service actually is or will be
furnished entirely free and without any condition or obligation, directly or
indirectly; or
(5) Contains any
untrue statement of a material fact, or which is otherwise false or
misleading.
(6) For the purposes of
this Rule the term "advertisement" shall include any notice, circular, letter
or other written communication addressed to more than one person, or any notice
or other announcement in any electronic publication, by radio or television, or
by any medium that offers any of the following:
(A) Any analysis, report, or publication
concerning securities, or that is to be used in making any determination as to
when to buy or sell any security, or that security to buy or sell;
(B) Any graph, chart, formula or other device
to be used in making any determination as to when to buy or sell any security,
or that security to buy or sell; or
(C) Any other investment advisory service
with regard to securities.
(n) Disclosing the identity, affairs, or
investment of any client to any third party unless required by law to do so, or
unless consented to by the client.
(o) Taking any action, directly or
indirectly, with respect to those securities or funds in which any client has
any beneficial interest, where the investment adviser has custody or possession
of securities or funds in the absence of compliance with the provisions of Rule
307.02.
(p) Entering into,
extending, or renewing any investment advisory
contract, other than a contract for impersonal advisory services, unless the
contract is in writing and discloses, in substance, the following:
(1) The services to be provided;
(2) The term of the contract;
(3) The investment objectives, risk tolerance
levels, annual income, net worth, and liquid net worth for the
client;
(4) The advisory fee or the
formula for computing the fee;
(5)
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;
(6) Whether the contract grants discretionary
power to the adviser; and
(7) That
no assignment of the contract shall be made by the investment adviser without
the consent of the other party to the contract.
(q) Limiting, attempting to limit, or
representing to a client the existence of any limitation on the client's
ability to execute recommended transactions through any broker-dealer he may
choose. An affiliate of the investment adviser may be recommended as long as
the affiliate relationship is fully disclosed to the client in writing, and
that the recommended affiliate is in the client's best interest.
(r) Unreasonably failing to deliver or
provide documents or information in possession of or under control of the
registrant to the Commissioner after receipt of a written request from the
Commissioner.
(s) Failing to
establish, maintain, and enforce written policies and procedures reasonably
designed to prevent the misuse of material nonpublic information contrary to
the provisions of Section
204 A of the Investment Advisers
Act of 1940.
(t) Entering into,
extending, or renewing any advisory contract contrary to the provisions of
Section 205 of the Investment Advisers
Act of 1940. This provision shall apply to all advisers and investment adviser
representatives registered or required to be registered under this Act,
notwithstanding whether the adviser or representative would be exempt from
federal registration pursuant to Section
203(b) of the
Investment Advisers Act of 1940.
(u) Indicating, in an advisory contract, any
condition, stipulation, or provisions binding any person to waive compliance
with any provision of the Act or of the Investment Advisers Act of 1940, or any
other practice contrary to the provisions of Section
215 of the Investment Advisers
Act of 1940.
(v) Engaging in any
act, practice, or course of business which is fraudulent, deceptive, or
manipulative and contrary to the provisions of Section
206(4) of the
Investment Advisers Act of 1940, notwithstanding the fact that the investment
adviser or investment adviser representative is not registered or required to
be registered under Section
203 of the Investment Advisers
Act of 1940.
(w) Engaging in
conduct or any act, indirectly or through or by any other person, which would
be unlawful for a person to do directly under the provisions of the Act or
Rules.
(x) Dishonest Use of
Certifications, Professional Designations, Senior-Specific Certifications, or
Senior-Specific Professional Designations.
(1)
The use of a certification, professional designation, senior-specific
certification, or senior-specific professional designation by any person in
connection with the offer, sale, or purchase of securities, or the provision of
advice as to the value of or the advisability of investing in, purchasing, or
selling securities, either directly or indirectly or through publications or
writings, or by issuing or promulgating analyses or reports relating to
securities, that indicates or implies that the user has special certification
or training in advising or servicing clients, in such a way as to mislead any
person shall be a dishonest and unethical practice within the meaning of Rule
308.02.
(2) The prohibited use of certifications or
professional designations includes, but is not limited to, the following:
(A) Use of a certification or professional
designation by a person who has not actually earned or is otherwise ineligible
to use such certification or designation;
(B) Use of a nonexistent or self-conferred
certification or professional designation;
(C) Use of a certification or professional
designation that indicates or implies a level of occupational qualifications
obtained through education, training, or experience that the person using the
certification or professional designation does not have; and
(D) Use of a certification or professional
designation that was obtained from a designating or certifying organization
that meets the following:
(i) Is primarily
engaged in the business of instruction in sales and/or marketing;
(ii) Does not have reasonable standards or
procedures for assuring the competency of its designees or
certificants;
(iii) Does not have
reasonable standards or procedures for monitoring and disciplining its
designees or certificants for improper or unethical conduct; or
(iv) Does not have reasonable continuing
education requirements for its designees or certificants in order to maintain
the designation or certificate.
(3) There is a rebuttable presumption that a
designation or certifying organization is not disqualified solely for purposes
of Rule 308.02(x)(2)(D)
when the organization has been accredited by the following:
(A) The American National Standards for
Certifying Institute;
(B) The
National Commission for Certifying Agencies; or
(C) An organization that is on the United
States Department of Education's list entitled "Accrediting Agencies Recognized
for Title IV Purposes" and the designation or credential issued there from does
not primarily apply to sales and/or marketing.
(4) In determining whether a combination of
words (or an acronym standing for a combination of words) constitutes a
certification or professional designation indicating or implying that a person
has special certification or training in advising or servicing clients, factors
to be considered shall include the following:
(A) Use of one (1) or more words such as
"senior," "retirement," "elder," or like words, combined with one (1) or more
words such as "certified," "registered," "chartered," "adviser," "specialist,"
"consultant," "planner," or like words, in the name of the certification or
professional designation; and
(B)
The manner in which those words are combined.
(5) For purposes of this Rule, a
certification or professional designation does not include a job title within
an organization that is licensed or registered by a state or federal financial
services regulatory agency, when that job title indicates seniority or standing
within the organization, or specifies an individual's area of specialization
within the organization. For purposes of this subsection, financial services
regulatory agency includes, but is not limited to, an agency that regulates
broker-dealers, investment advisers, or investment companies as defined under
the Investment Company Act of 1940.
(6) Nothing in this Rule shall limit the
Commissioner's authority to enforce existing provisions of
law.
(y) Other fraudulent,
deceptive, dishonest or unethical practices. The activities set forth above are
not all inclusive. Any other activities employing any device, scheme or
artifice to defraud or engaging in any act, practice or course of business that
operates or would operate as a fraud or deceit shall constitute grounds for
denial, suspension or revocation under Section
23-42-308
of the Act, or for the institution of a cease and desist order or other action
under Section
23-42-209
of the Act.
308.03
RULES OF PRACTICE AND PROCEDURE REGARDING DENIAL SUSPENSION, OR
REVOCATION.
The rules of practice and procedure to be followed in proceedings for the denial, suspension, or revocation of a broker-dealer, agent, or investment adviser application or registration are set forth in the APA and Chapter 6 of the Rules.
CHAPTER 4 REGISTRATION OF SECURITIES
RULE
401
REGISTRATION BY NOTIFICATION.
401.01
REQUIREMENTS.
A registration statement under Section 23-42-401 of the Act shall contain the following information to be accompanied by the following documents, in addition to the information specified in Section 23-42-401(b), 23-42-404(c), and the consent to service of process required by Section 23-42-107(a) of the Act:
(a) Statement
demonstrating eligibility of the issuer for registration by notification,
showing that the issuer has been in continuous operation for at least five (5)
years, has not been in default during the current fiscal years in the payment
of principal, interest, or dividends on any security of the issuer with a fixed
maturity or a fixed interest or dividend provision, and satisfied the average
net earnings requirements established by Section
23-42-401(a)(1)(B)
of the Act (identifying all securities subject to the average net earnings
requirements and compute the percentage limitations as necessary).
(b) One (1) copy of the latest form of
prospectus to be used in the offering.
(c) Underwriting agreement, agreement among
underwriters, and selected dealers agreement.
(d) Indenture or copy of any other instrument
covering the security to be registered.
(e) Signed or conformed copy of opinion of
counsel as to the legality of the security being registered.
(f) Specimen copy of security.
(g) Consent to service of process accompanied
by appropriate corporate resolution.
(h) One (1) copy of any pamphlet, circular,
form letter, advertisement, television, radio, or other sales literature
intended as of the effective date to be used in connection with the
offering.
(i) Method of
distribution in Arkansas, including the name of the registered broker-dealer or
registered agent of the issuer, as appropriate.
(j) Statement describing any stock options or
other security options outstanding, or to be created in connection with this
offering, together with the amount of any options held or to be held by any
director or officer of the issuer; and person owning of record or beneficially,
if known, ten percent (10%) or more of the outstanding shares of any class of
equity security of the issuer; or any person receiving underwriting and selling
discounts, commissions, or finder's fees.
(k) An undertaking to forward all amendments
to the registration statement and the final prospectus, or any further
amendments or supplements thereto.
(l) Any other information the Commissioner
may require or permit.
401.02
EFFECTIVENESS.
A registration statement shall not be considered as filed for purposes of automatic effectiveness under Section 23-42-401(c) of the Act until it contains all information, documents, fees, and other matters required by the Act and Rule 401.01. In appropriate instances, the Commissioner may waive any of the requirements of this Rule, provided the requirements are not specifically set forth in the Act.
RULE
402
REGISTRATION BY COORDINATION.
402.01
REQUIREMENTS.
A registration statement under Section 23-42-402 of the Act, shall contain the following information and be accompanied by the following documents, in addition to the information specified in Section 23-42-404(c) of the Act and the consent to service of process required by Section 23-42-107(a) of the Act:
(a) One (1) copy of the
latest form of prospectus filed under the Securities Act of 1933;
(b) A copy of the articles of incorporation
and bylaws or their substantial equivalents currently in effect, a copy of any
agreements with or among underwriters, a copy of any indenture or other
instrument governing the issuance of the security to be registered, and a
specimen or copy of the security;
(c) The maximum underwriting and selling
discounts or commissions;
(d) A
signed or conformed copy of an opinion of counsel as to the legality of the
security being registered;
(e) The
name of the broker-dealer or agent registered under the Act who will be
effecting transactions in the securities being registered in this
state;
(f) Any other information or
copies of any documents required to be filed under Form U-1;
(g) An undertaking to forward all amendments
to the federal registration statement, other than an amendment which merely
delays the effective date of the registration statement, not later than the
first business day after they are forwarded to or filed with the SEC or a
longer period as the Commissioner permits; and
(h) Any other information the Commissioner
may require or permit.
402.02
EFFECTIVENESS.
The Commissioner will certify the effectiveness of the registration statement by issuing a letter or electronic notification stating effectiveness, but the failure to issue notification shall not delay the effectiveness of a registration statement meeting the requirements of Section 23-42-402(c) of the Act.
RULE
403
REGISTRATION BY QUALIFICATION.
403.01
REQUIREMENTS.
A registration statement under Section 23-42-403 of the Act, shall contain the following information and be accompanied by the following documents, in addition to the information specified in Sections 23-42-403(b) and 23-42-404(c) of the Act and the consent to service of process required by Section 23-42-107(a) of the Act:
(a) A corporate surety
bond posted by the issuer in an amount equaling ten percent (10%) of the
maximum aggregate offering price at which the securities being registered are
to be offered in this State. Any investor, or security holder of the issuer,
having a right of action under the Act, shall have a right of action under the
bond; however, in any event, the total liability of the surety to all persons
shall not exceed the amounts specified in the bond. Every bond shall provide
that no suit may be maintained to enforce any liability on the bond unless suit
is brought within three (3) years after the date of the expiration of the
original or renewal registration. In the event the securities are never issued,
and once sufficient proof is provided to the Commissioner, the corporate surety
bond may be discontinued or canceled;
(b) The name of the broker-dealer or agent
registered under the Act who will be effecting transactions in the securities
being registered in this State;
(c)
The maximum underwriting and selling discounts or commissions; and
(d) Additional information as the
Commissioner may require or permit.
403.02
PROSPECTUS REQUIREMENTS.
(a) As a condition of registration by
qualification under Section
23-42-403
of the Act, a prospectus or offering circular meeting the requirements of the
Act and this Rule shall be sent or given to each person to whom an offer is
made concurrently with the earliest of the following:
(1) The first written offer made to him,
other than by means of public advertisement, by or on behalf of the issuer or
any other person offering the securities;
(2) The confirmation of the sale;
(3) The payment pursuant to the sale;
or
(4) The delivery of the security
pursuant to the sale;
(b)
The Commissioner may require that a subscription agreement be signed by each
purchaser, acknowledging that he has received a copy of the
prospectus.
(c) The prospectus
shall contain full disclosure of all material facts relating to the issuer and
the offering and sale of the securities being registered. The prospectus shall
be designated an exhibit to and constitute a part of the registration
statement. A prospectus meeting the requirements of Form S-1, Form U-7, or
other uniform forms deemed acceptable to the Commissioner, will ordinarily
satisfy the requirements of this Rule.
(d) Any information specified in Section
23-42-403(b)
of the Act or Rule
403.01 may be included in the
prospectus, if a cross-reference table is filed showing the location of the
information in the prospectus.
(e)
In the case of any material change relating to the issuer of the offering
subsequent to the filing of the prospectus, an amended or revised prospectus
shall be filed immediately that reflects the
changes.
RULE
404
REGISTRATION STATEMENTS GENERALLY.
404.01
GENERAL REQUIREMENTS.
(a)
GENERAL POLICY. Each
application for registration shall comply with the requirements set forth in
Rule 404 unless a request for a
deviation is granted by the Commissioner. All requests for deviation from
registration policies must be in writing and submitted to the Commissioner, who
shall set forth in writing the reason for granting any request, if a request is
granted. For a registration raising questions not herein covered, policies
adopted by NASAA will generally be used as a guideline.
(b)
FINANCIAL STATEMENTS.
(1) Preparation. Financial statements
required to be included in a registration statement shall be prepared, audited,
and certified by independent certified public accountants in accordance with
generally accepted accounting procedures and practices, applied on a consistent
basis and accompanied by an opinion acceptable to the Commissioner. Audited
financial reports may be waived if the financial reports meet the requirements
of Form U-7 or offerings under Regulation A promulgated under the Securities
Act of 1933.
(2) Annual Financial
Reports. The Commissioner may require as a condition for registration that
financial reports be filed to keep reasonably current the financial information
contained in any effective registration statement. Financial reports, when
required, shall be submitted annually within ninety (90) days after the close
of each fiscal year unless other arrangements are approved in advance by the
Commissioner.
(c)
PROMOTIONAL SECURITIES OR CHEAP STOCK. Promotional securities or
"Cheap Stock" securities that have been issued within three years of the date
of filing or are to be issued to underwriters, promoters, or insiders for an
amount less than the public offering price shall be in compliance with the
NASAA Statement of Policy Regarding Promotional Shares and the Guidelines for
the Model Promotional Shares Escrow Agreement.
(d)
IMPOUNDMENT OF PROCEEDS. The
Commissioner may require as a condition to registration, that all proceeds from
sales of securities be impounded in accordance with the NASAA Statement of
Policy Regarding the Impoundment of Proceeds.
(e)
COMMISSIONS AND EXPENSES.
Commissions and expenses allowable to broker-dealers and issuers must in every
instance be reasonable and justified and in compliance with the NASAA Statement
of Policy Regarding Underwriting Expenses, Underwriter's Warrants, Selling
Expenses, and Selling Security Holders.
(f)
OPTIONS AND WARRANTS.
Options or warrants to purchase securities must be justified by the applicant
and in compliance with the NASAA Statement of Policy Regarding Options and
Warrants.
(g)
PROMOTERS
EQUITY INVESTMENT. Where an issuer is in the promotional, exploratory,
or development stage, the ratio of investment by promoters or insiders must be
determined as reasonable and equitable in the light of the facts and
circumstances presented in each particular case, but will be considered
objectionable if not in compliance with the guidelines of the NASAA Statement
of Policy Regarding Promoters' Equity Investment.
(h)
NON-VOTING COMMON STOCK.
Securities of an issuer having more than one class of common stock must be in
compliance with the NASAA Statement of Policy Regarding Unequal Voting
Rights.
(i)
OFFERING
PRICE. In the case of an issuer that has been actually engaged in
business or operation, the amount for which a security is being offered to the
public must bear some reasonable relationship to the market value, if any, or
the price-earnings ratio, as reflected by its financial statements covering an
average of the preceding three (3) years, or a shorter duration of business or
operation as may be applied. In the absence of an established or determinable
market value or price-earnings ratio, the book value or asset value of the
issuer may be taken into consideration in justifying or substantiating the
reasonableness of the offering price.
(j)
PREFERRED STOCK. The
offering or sale of preferred stock of an issuer may be deemed unfair and
inequitable to purchasers if not in compliance with the NASAA Statement of
Policy Regarding Preferred Stock.
(k)
DEBT SECURITIES. The
offering or sale of debt securities, including debentures, notes, and bonds of
an issuer, may be deemed unfair and inequitable to purchasers if not in
compliance with the NASAA Statement of Policy Regarding Debt
Securities.
(l)
NON-EXEMPT
REORGANIZATIONS. In the case of any reorganization for which an
exemption from registration is not available under Sections
23-42-503 and
23-42-504
of the Act, and registration of any securities to be issued as a part of the
reorganization is required pursuant to Sections
23-42-401,
23-42-402,
or
23-42-403
of the Act, the Commissioner may waive all or any part of the standards of
review imposed upon registration by Rule
404.01, if the following are met:
(1) No constituent party to the
reorganization or any officer, director, or person owning ten percent (10%) or
more of the outstanding shares of any class of equity securities of the
constituent party is an affiliate, and
(2) The final prospectus or other comparable
document filed with the application for registration of the securities contains
a representation that the terms of the reorganization have been negotiated at
arms' length by all constituent parties.
(m)
ISSUER COMPLETION REPORT.
For registrants paying less than the maximum filing fee, a final report, which
may be in letter form or on a form provided by the Commissioner, specifying the
amount of securities sold in this State shall be provided to the Commissioner
within thirty (30) days after the earlier of the following:
(1) The expiration of the effectiveness of a
registration statement filed under the Act; or
(2) The termination of the offering through
which the securities offered by the registration statement have been fully sold
and distributed to the public.
(n)
UNSOUND FINANCIAL CONDITION.
The offer or sale of securities by an issuer may be deemed unfair and
inequitable to purchasers if not in compliance with the NASAA Statement of
Policy on Unsound Financial Condition.
(o)
SPECIFICITY IN USE OF
PROCEEDS. The prospectus shall disclose all information required to be
in compliance with the NASAA Statement of Policy on Specificity in Use of
Proceeds.
(p)
LOANS AND OTHER
MATERIAL AFFILIATED TRANSACTIONS. Loans and other material affiliated
transactions must be disclosed with the NASAA Statement of Policy on Loans and
other Material Affiliated Transactions.
(q)
MORTGAGE PROGRAM GUIDELINES.
Direct participation mortgage programs must follow the NASAA Statement of
Policy on Mortgage Program Guidelines.
(r)
REGISTRATION OF ASSET-BACKED
SECURITIES. Asset backed securities shall register and comply with the
NASAA Statement of Policy on Registration of Asset-Backed Securities.
(s)
REAL ESTATE INVESTMENT
TRUSTS. The offering or sale of real estate investment trusts may be
deemed unfair and inequitable to purchasers if not in compliance with the NASAA
Statement of Policy Regarding Real Estate Investment Trusts.
(t)
REAL ESTATE PROGRAMS. The
offering or sale of real estate programs may be deemed unfair and inequitable
to purchasers if not in compliance with the NASAA Statement of Policy Regarding
Real Estate Programs.
(u)
OMNIBUS GUIDELINES. The offering or sale of programs involving
omnibus by an issuer may be deemed unfair and inequitable to purchasers if not
in compliance with the NASAA Statement of Policy Omnibus Guidelines.
(v)
EQUIPMENT PROGRAMS. The
offering or sale of equipment programs of an issuer may be deemed unfair and
inequitable to purchasers if not in compliance with the NASAA Statement of
Policy Equipment Programs.
(w)
REGISTRATION OF COMMODITY POOL PROGRAMS. The offering or sale of
commodity pool programs must be properly registered by an issuer and may be
deemed unfair and inequitable to purchasers if not in compliance with the NASAA
Statement of Policy Regarding Registration of Commodity Pool
Programs.
RULE
405
STOP ORDER DENYING, SUSPENDING, OR REVOKING REGISTRATION
STATEMENT.
405.01
GENERAL
PROVISIONS.
(a)
GENERAL
POLICY. Each application for registration shall comply with the
requirements of the Act and Rules unless a request for deviation from a Rule is
requested and granted by the Commissioner. Any unauthorized deviation from the
requirements of the Act and Rules shall be grounds for the issuance of a stop
order denying, suspending, or revoking the registration statement.
(b)
OTHER CAUSES FOR DENIAL,
SUSPENSION, OR REVOCATION. In addition to an action pursuant to Rule
405.01(a), the
Commissioner may issue a stop order denying effectiveness to, or suspending or
revoking the effectiveness of, any registration statement for any cause stated
in Section
23-42-405(a)
of the Act, whether similar to or different from the causes enumerated in the
Rules, when necessary or appropriate in the public interest or for the
protection of purchasers.
(c)
RULES OF PRACTICE AND PROCEDURE REGARDING DENIAL, SUSPENSION, OR
REVOCATION. The rules of practice and procedure to be followed in
proceedings for the denial, suspension, or revocation of effectiveness of any
registration statement are set forth in Rule
601.
CHAPTER 5 REGULATION OF TRANSACTIONS
RULE
501
SALE OF UNREGISTERED NON-EXEMPT SECURITIES.
[RESERVED]
RULE 502
FILING OF PROSPECTUS, SALES
LITERATURE, ETC.
502.01
ADVERTISING.
(a)
GENERAL
PROVISIONS. Any public advertising in connection with the sale and
promotion of a public offering of registered securities or securities exempted
under Sections
23-42-503(a)(7)
and
23-42-503(c)
of the Act and Rule
503.01(B)(1)
shall be subject to the following requirements and restrictions.
(b)
FILING REQUIREMENT. All
sales literature or promotional material, other than that exempted by the Act
or this Rule, shall be governed by the following:
(1) The applicant shall submit to the
Commissioner, at least five (5) days prior to its intended use or
dissemination, one (1) copy of such the proposed material;
(2) If not disallowed by the Commissioner by
written notice or otherwise within three (3) days from the date filed, the use
of the material as submitted will be permitted; and
(3) The Commissioner will not issue formal
approval of the literature, and it is the responsibility of the user to
determine the accuracy and reliability of the statements and material so used
and in conformity with this Rule.
(c)
SPECIFIC PROHIBITIONS. The
following devices or sales presentations, and the use thereof, will be deemed
deceptive or misleading practices:
(1)
Comparison charts or graphs showing a distorted, unfair, or unrealistic
relationship between the issuer's past performance, progress, or success and
that of another company, business, industry, or investment media;
(2) Lay-out, format, size, kind, and color of
type used so as to attract attention to favorable or incomplete portions of the
advertising matter, or to minimize less favorable, modified, or modifying
portions necessary to make the entire advertisement a fair and truthful
representation;
(3) Statements or
representations that by themselves predict future profit, success,
appreciation, performance, or otherwise related to the merit or potential of
the securities that are positive or imperative in form; the statements or
representations should clearly indicate that they represent solely the opinion
of the publisher thereof;
(4)
Generalizations, generalized conclusions, opinions, representations, and
general statements based upon a particular set of facts and circumstances
unless those facts and circumstances are stated and modified or explained by
additional facts or circumstances as are necessary to make the entire
advertisement a full, fair, and truthful representation;
(5) Sales kits, film clips, displays, or
exposures, which alone or by sequence and progressive compilation tend to
present an accumulative or composite picture or impression of certain, or
exaggerated potential, profit, safety, return, or extraordinary investment
opportunity, or similar benefit to the prospective purchaser;
(6) Distribution of any non-factual or
inaccurate data or material by words, pictures, charts, graphs, or otherwise,
based on conjectural, unfounded, extravagant, or flamboyant claims, assertions,
predictions or excessive optimism; or
(7) Any package or bonus deal, prize, gift,
gimmick, or similar inducement, combined with or dependent upon the sale of
some other product, contract, or service, unless the unit or combination has
been fully disclosed and specifically described and identified in the
application as the security being offered.
(d)
EXEMPTION. Public
advertising by any means, including the forms and types set forth in Rule
502.01(E), of
securities being offered for sale in transactions exempted by Sections
23-42-504(a)(9)
of the Act is prohibited.
(e)
EXCEPTIONS. The following forms and types of advertising are
permitted without the necessity for filing or prior authorization by the
Commissioner, unless specifically prohibited:
(1) So-called "tombstone" advertising,
containing no more than the following information:
(A) Name and address of issuer;
(B) Identity of title of security;
(C) Per unit offering price, number of shares
and amount of offering;
(D) Brief,
general description of business;
(E) Name and address of underwriter, or
address where offering circular or prospectus can be obtained; and
(F) Date of issuance.
(2) Dividend notices, proxy statements, and
reports to shareholders, including investment company quarterly and semi-annual
reports.
(3) Sales literature,
advertising, or market letters prepared in conformity
with the applicable regulations and in compliance with the filing requirements
of the SEC, FINRA, or recognized securities exchanges.
(4) Factual or informative letters, bulletins
or releases, similar to "news letters," relating to issuer's progress or
activities, or current financial condition.
(5) Dissemination of any data incorporated in
the offering circular or prospectus, so long as the use of the material, out of
context, does not tend to detract from, distort, supersede, or express a
different meaning of the representations or disclosures contained
therein.
(f)
VIOLATIONS. Any person who prepares, distributes, or causes to be
issued or published any sales literature that is knowingly inaccurate, false,
misleading or tending to mislead in any material respect or otherwise in
violation of the provisions herein may be held responsible and accountable
therefor in any administrative or civil proceeding arising under the Act or the
Rules.
RULE 503
EXEMPTED SECURITIES.
These Rules do not exempt securities from the remaining provisions of the Act or the Rules, including Section 23-42-507 of the Act.
503.01
CLASSES OF
EXEMPT SECURITIES.
(a)
SECURITIES
EXEMPTED UNDER SECTION
23-42-503(a).
(1) Government Securities.
[RESERVED]
(2) Canadian Government Securities.
[RESERVED]
(3) Bank Securities.
[RESERVED]
(4) Savings and Loan Association Securities.
[RESERVED]
(5) Public Utility Securities.
[RESERVED]
(6) World Class Foreign Issuers. In order to
be exempt under Section
23-42-503(a)(6)
of the Act, a security of a world class foreign issuer must meet the
qualifications set forth in the NASAA Statement of Policy on World Class
Foreign Issuer Exemption.
(7)
Non-Profit Organization Securities. In order to be exempt under Section
23-42-503(a)(7),
a security must meet the qualifications as set forth in the appropriate NASAA
Statement of Policies on Church Bonds, Health Care Facility Offerings, or
Guidelines for General Obligation Financing by Religious Denominations. The
proof of exemption required to be filed pursuant to Section
23-42-503(d)
shall contain the following unless waived by the Commissioner:
(A) The filing fee as set forth in Section
23-42-503(d)(5)
of the Act;
(B) A declaration that
Section
23-42-503(a)(7)
of the Act is applicable;
(C) A
copy of the Articles of Incorporation and Bylaws of the issuer or the
equivalent entity governance documents;
(D) A description of the method by which full
disclosure of material facts will be made to each offeree. A copy of the
prospectus, pamphlet, offering circular, or similar literature should be
provided, if one is to be used;
(E)
Copies of all advertising or other material to be distributed in connection
with the offering;
(F) A copy of
the subscription agreement or other similar agreement;
(G) A copy of any proposed agreement or
proposed form of agreement with a securities broker-dealer or
underwriter;
(H) A copy of the
preliminary or definitive Trust Indenture and/or Trust Agreement, if
any;
(I) An opinion of counsel
attesting to the authority of the issuer to offer and sell the securities and
stating that after the sale the securities will be valid, binding obligations
of the issuer in accordance with the issuer's governing documents;
and
(J) Any additional information
or documentation that the Commissioner may require.
(8) Employee Stock Purchase, Savings,
Pension, Profit-Sharing, Stock Bonus, Stock Option or Similar Benefit Plans.
The notice filed pursuant to Section
23-42-503(a)(8)
of the Act for those plans not meeting the requirements of qualification under
the Internal Revenue Code shall contain the following:
(A) A declaration that Section
23-42-503(a)(8)
is applicable; and
(B) A
description of the method by which full disclosure of material facts will be
made to each offeree. A copy of the prospectus, pamphlet, offering circular, or
similar literature should be provided, if one is to be
used.
(9) Securities
Exempted by Rule Pursuant to Section
23-42-503(a)(9)
of the Act.
The following securities have been determined by the Commissioner to be exempt from the registration requirements of the Act. In addition, any individual who represents an issuer in effecting transactions in securities exempted under subdivisions (A) through (H) below shall not be deemed to be an agent if the transaction involves offers or sales to existing security holders of the issuer and no commission or other remuneration is paid or given directly or indirectly for soliciting any prospective purchaser in this state.
(A) Any security listed or approved for
listing upon its issuance on the following exchanges:
(i) Chicago Stock Exchange, Inc.
(ii) CME Group, Inc.
(iii) NYSE Group, Inc.
(iv) The Chicago Board Options Exchange,
Inc.
(v) Any other stock exchange
approved by the Commissioner.
(B) Securities listed on Tier I of the NASDAQ
OMX PHLX.
(C) Options traded on the
NASDAQ OMX PHLX that are issued by the Options Clearing Corporation.
(D) Any security of an issuer which is of
senior or substantially equal rank to a security of the same issuer listed in
subdivisions (A), (B), or (C) above.
(E) Any security called for by subscription
rights or warrants that are exempt under subdivisions (A), (B), (C), or (D)
above.
(F) Any warrant or right to
purchase or subscribe to any security that is exempt under subdivisions (A),
(B), (C), (D), or (E) above.
(G)
Any warrant or right to purchase or subscribe to any security that is covered
pursuant to Section
18(b)(1) of the
Securities Act of 1933.
(H) Any
security called for by a subscription right or warrant that is covered pursuant
to Section
18(b)(1) of the
Securities Act of 1933.
(I) Any
security issued under a written compensatory benefit plan or contract that is
exempt from registration under Rule
701 under the Securities Act of
1933.
(b)
SECURITIES EXEMPTED UNDER SECTION
23-42-503(b).
Pursuant to Section
23-42-503(b)
of the Act, the following securities offered for sale or sold in Arkansas in an
aggregate amount not exceeding the gross amount as set forth in Section
23-42-503(b)
of the Act during the period of the offering or any consecutive twelve (12)
month period, whichever shall first occur, shall be exempt from Sections
23-42-501
and
23-42-502
of the Act.
(1) Small Business Offering.
(A) All of the following requirements must be
complied with prior to offering the securities in this state:
(i) A filing fee of one hundred dollars
($100.00) shall be paid as set forth in Section
23-42-503(d)(5)
of the Act.
(ii) A proof of
exemption shall be filed that sets forth the means whereby each of the
requirements of subdivisions (iv) through (vi) of this Rule are to be satisfied
and that declares that an exemption is claimed under this Rule.
(iii) An opinion of counsel or other
satisfactory evidence shall be presented to the Commissioner that the
securities proposed to be sold pursuant to this exemption will be the
following:
(a) Shall be offered and sold in
compliance with or pursuant to appropriate exemption from all applicable
registration requirements under federal securities laws; and
(b) Will be legally issued, fully paid, and
non-assessable, and if a debt security, a binding obligation of the
issuer.
(iv) The issuer
shall furnish (in a form satisfactory to the Commissioner) each prospective
purchaser of the securities proposed to be sold pursuant to this exemption with
the following:
(a) A prospectus which contains
full disclosure of all material facts relating to the issuer and the offering
and sale of the securities. A prospectus meeting the requirements of Form U-7
or other uniform forms deemed acceptable to the Commissioner will generally
meet the requirements for disclosure;
(b) A balance sheet of the issuer as of a
date within four (4) months prior to the filing of the proof of exemption and a
profit and loss statement for the two (2) fiscal years preceding the date of
the balance sheet and for any period between the close of the last fiscal year
and the date of the balance sheet, or for a period of this issuer's and any
predecessor's existence if less than two (2) years, all prepared in accordance
with generally accepted accounting principles. Financial statements meeting the
requirements of Form U-7 or Regulation A will be deemed acceptable to the
Commissioner; and
(c) If over fifty
percent (50%) of the proceeds from the sale of securities sold pursuant to this
exemption are to be applied to the purchase of any business, the issuer shall
furnish the same financial statements that would be required if the business
were the issuer.
(v) A
copy of any offering circular, pamphlet, form letter, advertisement, television
script, radio script, public advertising, or other sales literature intended as
of the effective date to be used in connection with the offering shall be filed
with the Commissioner.
(vi) The
issuer shall file the consent to service of process required by Section
23-42-107(a)
of the Act, the documents required to be filed by Section
23-42-403(b)(13) and
(15) of the Act, the information specified in
Section
23-42-404(c)(1),
(2), and (3) of the Act, and a written
acknowledgment executed by each executive officer, director, and controlling
person of the issuer, that the person has done the following:
(a) Has made a diligent inquiry of the
affairs of the issuer;
(b) Is
personally familiar with the financial condition, operations, and manner in
which the offering is proposed to be effected, and salient risk features of the
issuer's securities proposed to be sold pursuant to this exemption;
(c) After review of the documents required
pursuant to this Rule, believes to his best knowledge that all materials are
true, accurate, and complete; and
(d) Is aware of the criminal and civil
liabilities provisions of Sections
23-42-104
through
23-42-106 of the
Act, as amended.
(B) In addition to the requirements set forth
in subsection (b)(1)(A), the following shall also be met or apply to offerings
under this Rule:
(i) The purchase of all
securities shall be evidenced in writing by a form affixed to the purchaser's
copy of the materials whereby the purchaser represents and acknowledges receipt
and review thereof prior to the consummation of the sale, the resident address
of the purchaser, and the date of execution thereof. The issuer shall retain
the detached receipt for a period of not less than five (5) years
thereafter;
(ii) The requirements
of Rule 404 shall apply to offerings of
securities pursuant to this exemption unless the Commissioner waives any or all
of the requirements;
(iii) The
issuer undertakes during the period of the offering to promptly file an
amendment to the proof of exemption any time anything previously filed with the
Commissioner in connection with the offering becomes outdated, incorrect,
inaccurate, modified, or otherwise changes in any material respect;
(iv) This exemption shall become effective
only when the Commissioner so indicates by written confirmation signifying
effectiveness;
(v) The exemption
from Sections
23-42-501
and
23-42-502
of the Act shall only be effective for the period of the offering or twelve
(12) months from the date it is declared effective, whichever shall first
occur;
(vi) The exemption for any
issue of securities may be denied, suspended, or revoked for any of the reasons
set forth in Section
23-42-405;
and
(vii) In connection with the
sale of the security, no commission or other remuneration shall be paid or
given, directly or indirectly, for soliciting any prospective purchaser in this
State unless registered as a broker-dealer or agent of the issuer.
(2) Small Real Estate
Investment Oriented Securities Offering. A security representing an investment
in real estate, offered in compliance with each of the following conditions,
shall be exempt under Section
23-42-503(b)
of the Act.
(A) The total purchase price of
the real property including all fees, commissions, and notes or other evidences
of indebtedness, but excluding points and prepaid interest, shall not exceed
the limitation set forth in Section
23-42-503(b)
of the Act.
(B) There shall be no
more than ten (10) persons as investors of the offering. For purposes of
computing the number of investing persons, the following shall be used:
(i) All persons who invest as organizers
shall be included; and
(ii) Each
corporation, partnership, association, joint stock company, trust, or
unincorporated organization shall be counted as one (1) person, except that if
the entity was organized for the specific purpose of acquiring the securities
offered, then this exemption shall not be available to the claimant.
(C) No investor shall purchase
less than one-tenth (1/10) ownership in the offering.
(D) Each investing person shall take title to
the real estate in his own name as a tenant in common.
(E) The sponsor or organizer must reasonably
believe that each investor is able to bear the economic risk of the investment.
It shall be prima facie evidence of compliance of this element if each
investing person demonstrates in writing prior to consummation of sale that he
is able to bear the economic risk of the investment.
(F) The sponsor or organizer must reasonably
believe that each investor is purchasing for investment. It shall be prima
facie evidence of compliance of this element if each investment person
demonstrates in writing prior to consummation of sale that he is purchasing for
investment and not with a view to distribution.
(G) In connection with the sale of the
security, no commission or other remuneration shall be paid or given, directly
or indirectly, for soliciting any prospective purchaser in this State, except a
standard real estate brokerage commission or securities commission that is
reasonable, customary, and competitive in light of the size, type, and location
of the property shall be permitted provided that the following occurs:
(i) The real estate commission is paid to a
registered Arkansas Real Estate Broker or the broker's agent; and
(ii) In no event shall the commission exceed
ten percent (10%) of the total purchase price of the
property.
(c)
SECURITIES EXEMPTED UNDER SECTION
23-42-503(c)
OF THE ACT.
The proof of exemption required to be filed pursuant to Section 23-42-503(d) of the Act, and that may be filed by farm cooperatives pursuant to Section 23-42-503(c) of the Act, shall contain the following unless waived by the Commissioner:
(1) The filing fee as
set forth in Section
23-42-503(d)(5)
of the Act;
(2) A declaration that
the Section
23-42-503(c)
exemption will be utilized;
(3) A
copy of the Articles of Incorporation and Bylaws of the issuer;
(4) A description of the method by which full
disclosure of material facts will be made to each offeree. A copy of the
prospectus, pamphlet, offering circular, or similar literature should be
provided, if one is to be used;
(5)
Current financial statements of the issuer;
(6) A copy of the subscription agreement or
other similar agreement;
(7) A
representation that no commissions or other remuneration will be paid in
connection with the offer or sale of the securities; and
(8) Any additional information or
documentation that the Commissioner may require.
503.02
GENERAL PROVISIONS.
(a)
QUALIFICATION. In order to
qualify for an exemption, each applicant must meet each of the requirements of
the particular exemption claimed under Section
23-42-503 of
the Act. A failure to comply with any one material element will render that
exemption unavailable to the claimant. The burden of proof for an exemption
under Sections
23-42-503 of
the Act shall be on the claimant.
FILING. Certain exemptions set forth in Section 23-42-503 of the Act and the corresponding Rules first require a filing with the Department as the initial step in the exemption process. These exemptions are unavailable unless the required filing is made.
(c)
REQUIREMENTS. The Securities
Commissioner will look with disfavor upon any exemption request under Section
23-42-503 of
the Act as not being in the public interest and tending to work a fraud on
investors, unless the requirements set forth in the Act and Rules are met, or
good cause is shown for an exception from the applicable requirements. A
request for deviation from exemption policies must be in writing and if not
acceptable, the request will be denied.
(d)
RECORDS. All issuers who
effect sales or offers of securities pursuant to the exemption specified in
Section
23-42-503
when a proof of exemption is filed, shall preserve the following records during
the period of five (5) years following the completion of the sales:
(1) A copy of the proof of exemption and all
exhibits thereto;
(2) A copy of all
literature by which the issuer made disclosure to offerees of the offers for
sale;
(3) Original copies of all
communications received and copies of all communications sent by the issuer
pertaining to the offer, sale, and transfer of the securities, including
purchase agreements and confirmations; and
(4) A list of the names and addresses of all
persons to whom the securities were sold, the type and amount of securities
sold to each, the consideration paid or promised by each, the method of payment
(for example, cash, check, property, services, or promissory note), and the
name of each person or persons who represented the issuer in effecting each
sale.
(e)
AGENT
REQUIREMENTS. Any person who effects transactions in securities of an
issuer exempted by Sections
23-42-503(a)(5)
through (7) is an agent. Any person who
effects transactions in securities exempted by Section
23-42-503(c)
where a commission or other remuneration is to be paid is an agent.
(1) All agents are required to be
registered.
(2) If the agent is not
associated with a broker-dealer registered in Arkansas, the person must become
registered as an agent of the issuer. Section
23-42-301
of the Act sets forth the requirements for the registration of an
agent.
(f)
CONFIRMATIONS. At or before completion of each transaction with a
purchaser, the agent of the issuer shall give or send to each purchaser written
notification of the following information (if the information is not included
in the subscription agreement):
(1) The date
the transaction took place and the date or dates payments are made by the
purchaser;
(2) The identity of the
registered agent handling the transaction; and
(3) Any other information required or deemed
material to the transaction such that the failure to disclose the information
would be misleading to the purchaser or would not accurately represent material
facts to the transaction. The information should include, at a minimum, a full
description of the security.
(g)
DENIAL OR REVOCATION. If an
applicant has filed for an exemption pursuant to Section
23-42-503 of
the Act, and if the Commissioner deems it necessary, he may by order summarily
deny or revoke any exemption pending a final determination of any proceeding
under Rule
606 or Section
23-42-505
of the Act.
(h)
PERIOD OF
EFFECTIVENESS. Except as provided by specific statute, rule, or order,
or unless the exemption is revoked, securities for which a proof of exemption
was filed pursuant to Sections
23-42-503(a)(7)
or
23-42-503(c)
of the Act may be issued as exempt securities during the twelve (12) month
period following the effective date.
RULE 504
EXEMPTED TRANSACTIONS.
These rules do not exempt transactions from the remaining provisions of the Act or Rules, including Section 23-42-507 of the Act.
504.01
TRANSACTIONS
EXEMPT UNDER SECTION
23-42-504(a)
OF THE ACT.
(a)
SPECIFIC TYPES
OF EXEMPT TRANSACTIONS.
(1) Isolated
Non-Issuer. Any sale of an outstanding security by or on behalf of a person not
in control of the issuer, controlled by the issuer, or under common control
with the issuer, and the following:
(A) The
person does not directly or indirectly effect transactions in securities for
the benefit of the issuer;
(B) The
person would not be defined as an issuer or underwriter pursuant to the Act and
Rules; and
(C) There are no more
than three (3) transactions effected in this state during any period of twelve
(12) consecutive months.
(2) Manual Exemption.
(A) The following will be considered
recognized manuals, including the electronic formats on CD-ROM and the
Internet:
(i)
Standard &
Poor's Standard Corporation Records;
(ii)
Mergent's Industrial
Manual;
(iii)
Mergent's Bank and Finance Manual;
(iv)
Mergent's Municipal and
Government Manual;
(v)
Mergent's Transportation Manual;
(vi)
Mergent's Public Utility
Manual;
(vii)
Mergent's OTC Industrial Manual; and
(viii)
Mergent's International
Manual.
(B)
Supplements to the above recognized manuals are accepted, provided that the
necessary information required by the Act is disclosed and the supplements are
subsequently incorporated and published in the respective annual
manual.
(C) The distribution of
large blocks of securities by controlling persons in firmly underwritten
offerings will ordinarily be presumed to be for the direct or indirect benefit
of the issuer, and not within the provisions of the manual
exemption.
(3) Sale to
Underwriter.
[RESERVED]
(4) Secured Transactions. This exemption
applies only when the mortgage, deed of trust, or agreement, together with all
the bonds or other evidences of indebtedness secured thereby are offered and
sold as a whole unit. Fractional interests or undivided interests in the unit
may not be offered or sold in reliance on this exemption.
(5) Fiduciary Transactions.
[RESERVED]
(6) Pledges.
[RESERVED]
(7) Cross Border Transactions.
[RESERVED]
(8) Sales to Institutional Buyers.
[RESERVED]
(9) Small Private Offerings.
(A) The proof of exemption required to be
filed with the Commissioner under Section
23-42-504(b)
of the Act, where a seller claims an exemption under Section
23-42-504(a)(9)
of the Act, shall contain the following unless waived by the Commissioner:
(i) The filing fee as set forth in Section
23-42-504(b)(4)
of the Act;
(ii) A declaration that
Section
23-42-504(a)(9)
of the Act is applicable;
(iii) A
representation that sales will be made to not more than thirty-five (35)
unaccredited purchasers other than those designated in Section
23-42-504(a)(8)
of the Act during any period of twelve (12) consecutive months;
(iv) A representation that no commission or
other remuneration will be paid or given directly or indirectly for soliciting
any prospective buyer in Arkansas unless the person receiving any commission or
remuneration is registered as a broker-dealer or agent of the issuer;
(v) A representation that the seller believes
that all the buyers in Arkansas are purchasing for investment;
(vi) A representation that each buyer will
sign an appropriate "investment intent letter," a copy of which shall be
included in the proof of exemption, stating in part that the buyer is not
taking with a view to distribution;
(vii) A representation that certificates to
be issued will bear an appropriate restrictive legend, and a copy of the
restrictive legend;
(viii) A copy
of the Articles of Incorporation, partnership agreement, limited partnership
agreement, certificate of designation, and all other entity governance
documents that reflect the rights of the security holders;
(ix) A description of the method by which
full disclosure of material facts will be made to each offeree. A copy of the
prospectus, pamphlet, offering circular, or similar literature should be
provided, if one is to be used;
(x)
A representation that no public advertising or solicitation will be employed in
effecting the proposed transaction; and
(xi) Current financial statements of the
issuer, if any;
(B) The
investment may not exceed ten (10) percent of any unaccredited purchaser's net
worth (net worth excludes home, furnishings, and automobiles).
(C) Any additional information or
documentation which the Commissioner may require.
(10) Sales to Existing Security Holders.
(A) A proof of exemption filed pursuant to
Section
23-42-504(a)(10)
of the Act shall contain the following:
(i)
The filing fee as set forth in Section
23-42-504(b)(4)
of the Act;
(ii) A statement of
which registration or exemption section was utilized in placing the original
securities with the existing security holders;
(iii) A description of the method by which
full disclosure of material facts will be made to each offeree. A copy of the
prospectus, pamphlet, offering circular, or similar literature should be
provided, if one is to be used; and
(iv) A representation that no commission or
other remuneration (other than a standby commission) is paid or given directly
or indirectly for soliciting any security holder in Arkansas unless waived by
the Commissioner.
(11) Red Herring Offers.
[RESERVED]
(12) Discretionary Exemptions. The following
transactions have been determined by the Commissioner to be exempt from the
registration requirements of Section
23-42-501
of the Act, the registration having been found to be not necessary or
appropriate in the public interest or for the protection of investors. These
transactions are not exempt from the remaining provisions of the Act or the
Rules, including Section
23-42-507
of the Act.
(A) Business Organization. Where
seven (7) or fewer persons form, incorporate, or each otherwise organize a
corporation, joint venture, limited liability company, limited liability
partnership, or general or limited partnership, provided the following occurs:
(i) Each person purchases from the issuer
with investment intent and not with a view to distribution;
(ii) Each purchaser is an organizer on the
date the issuer is formed, not including the initial limited partner of a
limited or general partnership who withdraws and is replaced by the organizing
limited partners;
(iii) Each
purchaser has access to information concerning the issuer;
(iv) In connection with the organization, no
commission or other remuneration is paid or given directly or indirectly to any
person for soliciting any prospective buyer in Arkansas; and
(v) No public advertising or other
solicitation will be employed in effectuating the proposed
transaction.
(B)
Additional Sales by an Existing Issuer. Any sale by an issuer to twelve (12) or
fewer purchasers provided that the sale complies with each of the following:
(i) No commission or other remuneration is
paid or given directly or indirectly to any person for the sale of the
security;
(ii) The security is the
following:
(a) Sold exclusively to existing
security holders and the issuer reasonably believes that each purchaser is
purchasing with investment intent; or
(b) Offered or sold to not more than five (5)
additional purchasers provided that in no event shall the total number of
security holders of the issuer exceed twelve (12) on consummation of the last
sale and the issuer shall reasonably believe that each purchaser is purchasing
with investment intent;
(iii) Each purchaser has access to
information concerning the issuer prior to consummation of sale;
(iv) For purposes of computing the number of
security holders in this transactional exemption, security holders who have
been issued securities pursuant to Sections
23-42-504(a)(5)
and
23-42-504(a)(8)
of the Act shall not be counted;
(v) This exemption shall not be available to
an issuer that has not been organized or when its securities have not been
previously issued in compliance with Section
23-42-501
of the Act; and
(vi) No public
advertising or other solicitation will be employed in effectuating the proposed
transaction.
(C)
Professional Corporation or Professional Limited Liability Company. Any
security issued by a professional corporation organized under the Arkansas
Medical Corporation Act, the Arkansas Dental Corporation Act, and the Arkansas
Professional Corporation Act, or a limited liability company formed under the
Arkansas Small Business Entity Tax Pass Through Act that performs professional
services, provided the following:
(i) The
professional corporation or limited liability company complies with the
ownership and retransfer restrictions as set forth in the professional
corporation Acts or the Small Business Entity Tax Pass Through Act;
(ii) The securities are sold to a
professional person;
(iii) The
seller reasonably believes that each buyer is purchasing for
investment;
(iv) Each professional
is provided access to information concerning the professional corporation or
limited liability company; and
(v)
No public advertising or other solicitation will be employed in effectuating
the proposed transaction.
(D) Limited Offering of Oil, Gas, and Other
Mineral Interests under Select Conditions. Any offer or sale of an interest in
or under an oil, gas, or mining lease, or title, or payments out of production
in or under the leases, titles, or contracts relating thereto by the issuer or
an agent for the issuer provided the following conditions are met:
(i) The offer or sale is made to persons or
companies, each of which the issuer or issuer's agent reasonably believes is
the following:
(a) Engaged in the business of
exploring for or producing oil, gas, or other minerals as an ongoing business
or is engaged in the practice of a profession or discipline that is directly
related to the exploration for, production of, refining of, or marketing of
oil, gas, or other minerals such as the interest being sold;
(b) A landman, drilling company, well service
company, production company, refining company, geologist, geophysicist,
petroleum engineer, or earth scientist; or
(c) An executive officer of a company whose
primary business involves one of the activities listed in subparagraphs (i)(a)
or (i)(b) immediately preceding this subparagraph.
(ii) The issuer or issuer's agent reasonably
believes that each purchaser is purchasing for investment and not with a view
for resale, and each investor must represent in writing that he understands
that he cannot resell his security or interest without registration or other
compliance with the state and federal securities laws; provided, however, that
sales may be made exclusively by and between those persons described in
subparagraphs (i)(a), (i)(b), or (i)(c) above, for purposes of assembling
leases or other rights for oil and gas production or exploration;
(iii) No commission or other remuneration
shall be paid or given directly or indirectly for soliciting any prospective
investor unless the person receiving any commission or other remuneration is
registered as a broker-dealer or agent of the issuer; and
(iv) Neither the issuer, any of the issuer's
predecessors, any affiliated issuer, any of the issuer's officers, directors,
general partners, any beneficial owners of ten percent (10%) or more of any
class of the issuer's equity securities, any of the issuer's promoters
presently connected with the issuer in any capacity, any underwriter of the
securities to be offered, nor any partner, director nor officer of the
underwriter shall have done the following:
(a)
Within the last five (5) years, filed a registration statement that is the
subject of a currently effective registration stop order entered by any state
or federal securities regulator;
(b) Been convicted of any criminal offense in
connection with the offer, purchase, or sale of any security, or involving
fraud or deceit;
(c) Currently be
subject to any state or federal administrative enforcement order or judgment,
entered within the last five (5) years, finding fraud or deceit in connection
with the offer, sale or purchase of any security; or
(d) Currently be subject to any order,
judgment or decree of any court of competent jurisdiction, entered within the
last five (5) years, temporarily, preliminarily or permanently restraining or
enjoining the party from engaging in or continuing to engage in any conduct or
practice involving fraud or deceit in connection with the offer, sale or
purchase of any security.
(E) Insured Savings, Certificate, Passbook,
and Other Similar Insured Accounts. Any savings, passbook, certificate and
other similar accounts insured in whole or in part by the Federal Deposit
Insurance Corporation or the National Credit Union Administration.
(F) Organization and Additional
Capitalization of Wholly Owned Subsidiary. Where the offer and sale of
securities is by a wholly owned subsidiary to its parent for purposes of
organizing or placing additional capital in the wholly owned subsidiary
provided each sale or additional capitalization complies with the following:
(i) The securities are purchased for
investment and not with a view to distribution; and
(ii) The securities bear an appropriate
restrictive legend.
(G)
Class Vote. Any transaction incident to a class vote by security holders or
members, pursuant to the certificate of incorporation, organizational document,
or the applicable statute on a merger, consolidation, reclassification of
securities, sale of assets in consideration of the issuance of securities of
another entity, or reorganization.
(H) Investment Club. The sale by an
investment club of beneficial interests for not more than fifty thousand
dollars ($50,000.00) in any one (1) year in contributions, for the purpose of
investing and reinvesting the proceeds in securities, provided there is
compliance with each of the following conditions:
(i) The organization is one (1), incorporated
or unincorporated, partnership or association, composed of not more than
twenty-five (25) members, each of whom are natural individuals, who for their
education and benefit, periodically or initially pay in sums of money to invest
in securities which are held in a fund beneficially owned by those individuals
in relative proportion as determined by the value of their payments.
(ii) The structure of the organization shall
be evidenced by a written instrument, setting forth the rights and obligations
of the members, a copy of which shall be furnished to each member.
(iii) Broker-dealers or registered agents of
broker-dealers who may be members of the club shall certify that this is the
only investment club to which they belong. The broker-dealer or registered
agent may not be the organizer or promoter of the club. A broker-dealer or
registered agent who is a member of the club may not himself receive a fee or
commission for sales of securities to the club; however, the broker-dealer may
receive a commission.
(iv) Voting
shall be based either upon each member's proportionate interest in the entire
assets of the club, or upon one (1) vote for each member of the club.
(v) Club decisions will require a majority
vote at the meeting authorized by the club's bylaws, determined either by a
majority in interest of the total interest of the members present, or by a
majority of the members present.
(vi) No member shall own beneficially more
than thirty-three percent (33%) of the club's entire assets.
(vii) Adequate books of account of the
transactions of the investment club shall be kept and be available and opened
to inspection and examination by any member at each meeting.
(viii) Sales are made in good faith and not
for the purpose of avoiding the provisions of the Act.
(ix) This exemption shall not be available to
any club, if it, any officer, director, promoter, sponsor, operator, organizer,
or agent of the club or other authorized person participating in the process of
offering or selling the securities shall have been the subject of the
following:
(a) Any administrative order
issued under any state or federal securities law or regulation or a postal
fraud order;
(b) Any outstanding
injunction consent or otherwise for a securities violation of any state or
federal securities law or regulation; or
(c) Any court decision granting civil relief
for a securities violation of any state or federal securities law or
regulation; or shall have been convicted of any violation of the federal
securities or postal laws or regulations, the securities laws of any state, or
criminal fraud.
(x) No
member of the club may receive a fee, commission, profit, or other remuneration
for selling an investment to the club unless the member first discloses in
writing that information to the other members and receives prior written
approval from each member.
(xi) No
public advertising or other solicitation will be employed in effectuating the
proposed transaction.
(I) Deferred Compensation Plans. Transactions
entered into in connection with certain types of deferred compensation plans
("Deferred Compensation Plans"), shall be exempt from Sections
23-42-501
and
23-42-502
of the Act.
(i) Contributions and Purchases of
Securities Regarding Section
401 of the I.R.C. Plans. Any
transaction whereby:
(1) an issuer or an
affiliate of the issuer ("affiliate") contributes any security of the issuer or
affiliate to a Section
401 Plan; or
(2) a Section
401 Plan purchases any security
of the issuer or affiliate with cash or other property which has been
contributed to the Section
401 Plan by the issuer or
affiliate.
(ii)
Allocation of "Phantom Stock Plan" Units. Any transaction whereby an issuer
allocates Section
401 of the I.R.C. Plan benefits
in the form of "units" or otherwise representing a right eventually to receive
cash (but not stock) measured by dividends paid on shares of capital stock of
the issuer or the market value of shares of capital stock of the issuer or both
in so-called "phantom stock plan".
(iii) Governmental Plans. The offer or sale
of any interest, participation, or investment contract in connection with a
Deferred Compensation Plan established or administered by the United States,
any state, any political subdivision of a state, or any agency or corporate or
other instrumentality of one or more of the foregoing.
(iv) Tax Exempt Organization Plans. The offer
or sale of any interest, participation, or investment contract in connection
with a Deferred Compensation Plan established or administered by any person
organized and operated not for private profit but exclusively for religious,
educational, benevolent, charitable, fraternal, social, athletic, or
reformatory purpose, or as a chamber of commerce or trade or professional
association.
(v) Unfunded Plans.
The offer or sale of any interest, participation, or investment contract in
connection with a Deferred Compensation Plan established primarily for a select
group of management or highly compensated employees or agents and which does
not provide for the contribution of funds to a trust or other legally separate
fund but is rather carried as a general obligation of the establishing
entity.
(J) Security
Holder Agreement. Any offer, sale, purchase, or other transaction between a
corporation, limited liability company, limited liability partnership, limited
partnership, joint venture, or partnership and its security holders or among
the security holders themselves in connection with a written agreement between
the persons concerning the buy-back, sale, exchange or other contractual
agreement of the security holders' interest that has been entered into prior to
or at the time of the transaction provided the following:
(i) There are no more than thirty-five (35)
persons party to the agreement;
(ii) Each person acquiring the security has
access to information concerning the issuer at the time of entering into the
agreement;
(iii) No commission or
other remuneration is paid or given directly or indirectly to any person for
the sale, disposition, or transfer of the security; and
(iv) The underlying securities when issued
were registered or exempt from registration under the Act.
(K) One Hundred Percent (100%) Sale of a
Business. Any transaction pursuant to the one hundred percent (100%) sale of
securities of a business entity provided the following:
(i) There are no more than seven (7)
purchasers;
(ii) Each person
purchases with investment intent and any certificates issued will bear an
appropriate restrictive legend.
(iii) Each person has access to information
concerning the issuer;
(iv) In
connection with the transaction, no commission or other remuneration is paid or
given directly or indirectly to any person, other than a business broker acting
as such and meeting the conditions set forth in Rule
102.01(17), for
soliciting any prospective purchaser; all parties have had the opportunity to
consult with counsel.
(L)
Affiliate Exclusion - Control Person.
(i) Any
sale of an outstanding security by or on behalf of a person in control of the
issuer, or controlled by the issuer, or under common control with the issuer,
that complies with SEC Rule
144 under the Securities Act of
1933.
(ii) Any sale of an
outstanding security by or on behalf of a person in control of the issuer, or
controlled by the issuer, or under common control with the issuer, provided the
sale does not involve a public offering and is effected pursuant to the
following:
(a) Resale purchasers must be
solicited directly by the holder of the stock, not by the issuer;
(b) Control person sellers are limited to no
more than three (3) transactions involving the same security within a twelve
(12) month period;
(c) Resale
purchasers must be provided with full disclosure of the type of information
found in a registration statement on a form that the issuer would be eligible
to use;
(d) The resale must include
the typical characteristics of a private placement, including compliance with
the purchaser qualification requirements of sophistication and ability to bear
risk; and
(e) The control person
seller must demonstrate that he is not making the sale with a view toward
distribution of securities and not on behalf of the issuer. This is typically
done by having the resale purchaser make investment representations similar to
those typically required in a private placement of
securities.
(M)
Life Settlements Contract. Any offer or sale of a life settlements contract if
the following:
(i) The underlying life
settlement transaction with the insured was in compliance with the Life
Settlements Act, Ark. Code Ann. Sections
23-81-801
through
23-81-818;
(ii) The life settlements contract contains a
provision providing for a right of rescission within fifteen (15) days of the
date the last required disclosure document is delivered to the purchaser or the
date the purchaser paid the purchase price for the life settlements contract,
whichever is later; and
(iii) The
following disclosure documents published by the Commissioner are delivered as
follows:
(a) Life Settlements Disclosure
Document I is delivered to a prospective purchaser initially, within seven (7)
days after the first contact by the person selling the life settlements
contract.
(b) Life Settlements
Disclosure Document II is delivered to a purchaser within fifteen (15) days
after the purchaser's check is delivered or the purchaser's funds are otherwise
made available to the seller for purchase.
(N) Accredited Investors. Certain offers and
sales of securities sold to Accredited Investors if in compliance with the
NASAA Model Accredited Investor Exemption. The issuer shall file the following
with the Commissioner within fifteen (15) days of the first sale in this state:
(i) Notice of the transaction;
(ii) The consent to service of process
required by Section
23-42-107(a);
and
(iii) A copy of the general
announcement of the proposed offering.
(O) Charitable Organizations. The
Commissioner, having found that the enforcement of the registration provisions
of the Act are not necessary for the protection of investors or in the public's
interest, with respect to certain transactions entered into with any offer or
sale of securities by an issuer who is a charitable organization that maintains
certain charitable funds, the following transactions shall be exempt from
Sections
23-42-501
and
23-42-502
of the Act provided the following:
(i) The
sale involves securities issued by, or any interest or participation in, any
charitable fund maintained by a company organized and operated exclusively for
religious, educational, benevolent, fraternal, charitable, or reformatory
purposes that is excluded from the definition of an investment company under
Section 3(c)(10)(B) of
the Investment Company Act, or other offer or sale thereof.
(ii) Each charitable fund should provide, to
each donor to the charitable fund, at or before the time of the donation,
written information containing the information required by Section 7(e) of the
Investment Company Act.
(iii)
Provide a copy of the written information to the Commissioner within ten (10)
days following a written request.
(iv) For purposes of this exemption:
(a) Agent Requirements. Any person who
represents an issuer in effecting transactions in securities exempted under
this subchapter is not an agent if the person soliciting donations on behalf of
the charitable organization to a charitable fund is either a volunteer or is
engaged in the overall fund raising activities of the charitable organization
and receives no commission, remuneration, or other special compensation,
directly or indirectly, based on the number or the value of donations collected
for the charitable fund.
(b)
Investment Adviser. For purposes of this exemption, an investment adviser does
not include the following:
(1) Any person that
is a charitable organization where no part of the net earnings of the
charitable organization or fund inures to the benefit of any private
shareholder or individual.
(2) Any
person that is a charitable organization offering a charitable fund whose
securities are exempt under this Rule.
(3) Any person that is a trustee, officer,
employee, or volunteer of a charitable organization described in this
subsection acting within the scope of the person's employment or duties with
the charitable organization, whose advice, analysis, or reports are provided to
one or more of the following:
(A) Any
charitable organization;
(B) A
charitable fund whose securities are exempt under this Rule; and
(C) A trust or other donative instrument
whose securities are exempt under this rule or the trustees, administrators,
settlors (or potential settlors) or the beneficiaries of any trust or
instrument.
(b)
PROOF OF EXEMPTION. Section
23-42-504(b)
of the Act establishes filing requirements for certain exempt transactions. A
filing shall be deemed incomplete until all information is filed as required by
the appropriate Rule. Before any transaction is entered into pursuant to
Sections
23-42-504(a)(9)
or (10) of the Act, a proof of exemption must
be filed with the Commissioner and not disallowed within the following ten (10)
business days.
504.02
GENERAL PROVISIONS.
(a)
QUALIFICATION. In order to qualify for an exemption, each
applicant must meet each of the requirements of the particular exemption
claimed under Section
23-42-504
of the Act. A failure to comply with any one material element will render that
exemption unavailable to the claimant. The burden of proof for an exemption
under Sections
23-42-504
of the Act shall be on the claimant.
(b)
FILING. Certain exemptions
set forth in Section
23-42-504
of the Act and the corresponding Rules first require a filing with the
Department as the initial step in the exemption process. These exemptions are
unavailable unless the required filing is made.
(c)
REQUIREMENTS. The Securities
Commissioner will look with disfavor upon any exemption request under Section
23-42-504
of the Act as not being in the public interest and tending to work a fraud on
investors, unless the requirements set forth in the Act and Rules are met, or
good cause is shown for an exception from the requirements. Request for
deviation from exemption requirements must be in writing and if not acceptable
to the Commissioner, the request will be denied.
(d)
RECORDS. All issuers that
effect sales or offers of securities pursuant to the exemption specified in
Section
23-42-504
when a proof of exemption is filed, shall preserve the following records during
the period of five (5) years following the completion of the sales.
(1) A copy of the proof of exemption and all
exhibits thereto;
(2) A copy of all
literature by which the issuer made disclosure to offerees of the offers for
sale;
(3) Original copies of all
communications received and copies of all communications sent by the issuer
pertaining to the offer, sale, and transfer of the securities, including
purchase agreements and confirmations; and
(4) A list of the names and addresses of all
persons to whom the securities were sold, the type and amount of securities
sold to each, the consideration paid or promised by each, the method of payment
(for example, cash, check, property, services, or promissory note), and the
name of each person or persons who represented the issuer in effecting each
sale.
(e)
AGENT
REQUIREMENTS. Any person who effects transactions in securities exempted
by Section
23-42-504(a)(9)
where a commission or other remuneration is to be paid is an agent.
(1) All agents are required to be
registered.
(2) If the agent is not
associated with a broker-dealer registered in Arkansas, the person must become
registered as an agent of the issuer. Section
23-42-301
of the Act sets forth the requirements for the registration of an
agent.
(f)
CONFIRMATIONS. At completion of each transaction with a purchaser,
the agent of the issuer shall give or send to each purchaser written
notification of the following information (if the information is not included
in the subscription agreement):
(1) The date
the transaction took place and the date or dates payments are made by the
purchaser;
(2) The identity of the
registered agent handling the transaction; and
(3) Any other information required or deemed
material to the transaction so that the failure to disclose the information
would be misleading to the purchaser or would not accurately represent material
facts to the transaction. The information should include, at a minimum, a full
description of the security.
(g)
NUMBER OF PURCHASERS. Unless
otherwise noted, the number of persons purchasing, receiving offers or
otherwise involved in an exempt transaction shall be determined as follows:
(1) A general partnership shall not be
counted as a single person, but as the total number of its partners;
(2) A husband and wife purchasing or acting
as joint tenants or tenants by the entirety may be counted as a single
person;
(3) A government or
political subdivision of a government shall be counted as a single
person;
(4) A trust, regardless of
the number of beneficial owners, that is evidenced by an appropriate instrument
declaring its creation may be counted as a single person; and
(5) A corporation, limited partnership,
limited liability company, or other legal entity required to organize,
register, or charter through the Secretary of State or some other state or
federal agency may be counted as a single person unless, from a totality of
circumstances, it appears reasonably likely that the entity was formed with the
purpose, in whole or in part, to evade the registration requirements of the Act
or to invest in the specific offering in question.
(h)
DENIAL OR REVOCATION. If
applicant has filed for an exemption pursuant to Section
23-42-504
of the Act, and if the Commissioner deems it necessary, he may by order
summarily deny or revoke any of the specified exemptions pending a final
determination of any proceeding under Rule
606 or Section
23-42-505
of the Act.
(i)
PERIOD OF
EFFECTIVENESS. Except as provided by specific statute or Rule or unless
the exemption is revoked, securities underlying a transactional exemption
effected pursuant to Section
23-42-504
of the Act may be issued until the time when the transaction is complete. The
maximum time period for completing a transaction is twelve (12) months from the
effective date. After the expiration of the effective period of the exemption,
a new filing is required. For exemptions executed pursuant to Section
23-42-504(a)(9)
of the Act, any offer or sale of additional securities during the twelve (12)
month effective period shall be considered amendments to the original statutory
limitations.
RULE
505
DENIAL OR REVOCATION OF EXEMPTIONS.
505.01
RULES OF PRACTICE AND PROCEDURE
REGARDING DENIAL OR REVOCATION OF EXEMPTION.
The rules of practice and procedure to be followed in any proceeding for the denial or revocation of an exemption are set forth in Chapter 6 of the Rules.
RULE 506
BURDEN OF
PROOF OF EXEMPTION
506.01
BURDEN
OF PROOF EXEMPTION.
The Commissioner may not grant an exemption under this section as the claimant has the burden of proving that the security so qualifies. The proof of exemption must be complete before a subscription agreement or other contractual obligation to acquire the security is signed by either party. Indications of interest may be solicited and obtained prior to the filing of the proof of exemption, but no offers may be accepted nor any contractual obligations entered into prior to the completion of the filing and subsequent action thereon by the Commissioner.
RULE 507
FRAUD OR DECEIT IN CONNECTION
WITH OFFER, SALE, OR PURCHASE OF SECURITIES.
[RESERVED]
RULE 508
MARKET MANIPULATION.
[RESERVED]
RULE 509
COVERED SECURITIES.
509.01
NOTICE FILINGS.
(a) A notice filing for covered securities
under Section
18(b)(2) of the
Securities Act of 1933 shall contain the following:
(1) Initial Offerings.
(A) Fees as set forth in Section
23-42-509(a)(1)
of the Act.
(B) Form NF. For
issuers paying less than the maximum filing fee, a sales report of the amount
of securities sold in this State during the filing period shall be provided on
Form NF. The sales report shall be provided no later than thirty (30) days
after the issuer's fiscal year end.
(C) Form U-2.
(2) Renewed Offerings.
(A) Fees as set forth in Section
23-42-509(a)(1)
of the Act.
(B) Form NF. For
issuers paying less than the maximum filing fee, a sales report of the amount
of securities sold in this State during the previous filing period shall be
provided on Form NF. The sales report shall be provided no later than thirty
(30) days after the issuer's fiscal year end.
(3) Amended Offerings.
(A) Fees as set forth in Section
23-42-509(b)
of the Act.
(B) Form NF.
(b) A notice filing for
covered securities under Section
18(b)(4)(D) of
the Securities Act of 1933 shall meet the following requirements:
(1) Filing fee as set forth in Section
23-42-509(c)
of the Act.
(2) A copy of Form D,
filed no later than fifteen (15) days after the first sale in Arkansas.
(A) Any amendments to Form D filed with the
SEC shall be filed concurrently with the Commissioner.
(B) Any amendments to Form D required to be
filed with the SEC pursuant to Regulation D, but not filed with the SEC, shall
be filed with the Commissioner within fifteen (15) days after the event or
activity necessitating the amendment.
(3) A sales report shall be filed with the
Commissioner no later than fifteen (15) days after the first sale in Arkansas.
(A) The sales report shall include the
following:
(i) The date of the first sale in
Arkansas;
(ii) The number of sales
and the amount of sales made to accredited investors;
(iii) The number of sales and the amount of
sales made to unaccredited investors;
(iv) The type of security sold; and
(v) The aggregate offering price of the
security sold.
(B) Issuers
paying less than the maximum filing fee shall provide to the Commissioner a
final sales report reflecting the final amount of sales to investors in
Arkansas during the previous filing period.
(4) Electronic Filing
(A) A notice of sales on Form D may be filed
by electronic format by means of the Electronic Filing Depository ("EFD")
maintained by NASAA.
(B) Every
notice of sales on Form D submitted through EFD must be signed by a person duly
authorized by the issuer.
(c) A notice filing or fee is not required
for a covered security under Section 18(b)(3) or (4) of the Securities Act of
1933, except as set forth in Rule 509.01(b).
(d) The Commissioner requires separate notice
filings and fees for each portfolio or series of an investment company, but
there is no separate filing or fee for classes of
securities.
509.02
AGENT REQUIREMENTS.
(a) Any
person who represents an issuer in effecting transactions in covered securities
exempted by Section
18(b)(1) of the
Securities Act of 1933 shall be registered as an agent except in the following:
(1) Any offer or sale to existing security
holders of the issuer and no commission or other remuneration is paid or given
directly or indirectly for soliciting any prospective purchaser in this state;
or
(2) Any other transaction that
the Commissioner may by order prescribe.
(b) Any person who represents an issuer in
effecting transactions in covered securities exempted by Section
18(b)(4)(D) of
the Securities Act of 1933 is not an agent if no commission or other
remuneration is paid or given directly or indirectly for soliciting any
prospective purchaser in Arkansas.
CHAPTER 6 PRACTICE AND PROCEDURE
RULE 601
GENERAL PROVISIONS.
601.01
SCOPE OF RULES.
(a) Chapter
6 of the Rules applies in all
investigations, proceedings, and rule-making conducted by the Department. The
purpose of Chapter
6 is to provide guidance and
direction in the procedures used by the Department to formulate orders and
conduct investigations and proceedings. In connection with any particular
matter, reference should also be made to any special requirements of procedure
and practice that may be contained in the particular statute involved or the
rules and forms adopted by the Commissioner thereunder or any relevant laws of
the State of Arkansas, which special requirements are controlling.
(b) The Rules should be read in conjunction
with the APA.
601.02
POWERS OF THE COMMISSIONER.
The Commissioner shall have all the powers necessary to conduct investigations and proceedings in a fair and impartial manner and to avoid unnecessary delay. The powers of the Commissioner include, but are not limited to, the following:
(a) Administer
oaths and affirmations;
(b)
Subpoena witnesses, documents, or records;
(c) Permit discovery by deposition or
otherwise;
(d) Preside over a
hearing or designate a hearing officer to preside over a hearing;
(e) Maintain order by regulating the course
of the hearing and the conduct of the parties and their attorney, including the
power to receive relevant and material evidence, to exclude repetitious
evidence, rule upon the admissibility of evidence and offers of proof, and
exclude or suspend a party's attorney from the proceedings for dilatory,
obstructionist, egregious, contemptuous, or contumacious conduct;
(f) Schedule and hold prehearing conferences
and conferences prior to and during the course of a hearing for purposes of
settlement or simplification of issues;
(g) Consider and rule upon all procedural and
other pleadings and motions appropriate in a proceeding, including petitions to
add a party or intervenor;
(h)
Recuse for bias or conflict of interest on a motion made by a party and appoint
a new hearing officer in his place;
(i) Take such action as the circumstances
warrant against a person who engages in dilatory or obstructionist conduct
during the course of a deposition, including exclusion of the offending person
from participation in the deposition or contested case; and
(j) Perform all other functions necessary and
appropriate to discharge the duties of
Commissioner.
RULE
602
INVESTIGATIONS, PROCEEDINGS, AND HEARINGS.
602.01
INVESTIGATIONS.
(a) Investigations conducted pursuant to
Section
23-42-205 of the
Act are not hearings, either formal or informal, as that term is used in this
Rule.
(b) Upon sufficient evidence,
the Commissioner shall enter an Order directing an investigation and appointing
investigative officers from the Staff.
(c) Any person compelled to appear, or who
appears by his own request in person at any investigative proceeding, may be
accompanied, represented and advised by counsel.
(d) The right to be accompanied, represented
and advised by counsel shall mean the right of a person testifying to have an
attorney present with him during any investigative proceeding and to have his
attorney advise such person before, during and after the conclusion of the
examination; question such person briefly at the conclusion of the examination
to clarify any of the answers such person has given; and make summary notes
during the examination solely for the use of such person.
602.02
PROCEEDINGS AND HEARINGS.
(a)
GOVERNING LAW AND PROCEDURE.
All formal hearings before the Commissioner shall be in accordance with the
provisions of the Act, the APA, and the Rules.
(b)
COMMENCEMENT OF A
PROCEEDING. The filing of a pleading, other than a request for subpoena
or a request for an order directing investigation and designating officers
pursuant to Section
23-42-205 of the
Act by the Staff with the Commissioner shall be deemed to be the institution of
a proceeding. Entering of a summary order postponing or suspending
effectiveness of a registration shall be deemed to be the institution of a
proceeding.
(c)
TYPES OF
HEARINGS. The Department shall engage in two (2) forms of hearings:
(1) Informal Hearings or Conferences.
Informal hearings or conferences conducted on an informal basis, at the
direction of the Commissioner or by mutual consent of the parties, may be held
in person at a specified time and place or with the Commissioner by telephone.
Informal hearings or conferences may be held upon reasonable notice to all
parties, prior to or subsequent to a scheduled formal hearing, or in
circumstances where no pleading was filed and no formal hearing has yet been
scheduled, or during a recess of a formal hearing. Issues that may be
determined at an informal hearing or conference include the following:
(A) Clarification and simplification of the
issues as to pleadings filed;
(B)
Exchange of witnesses and exhibit lists and copies of exhibits;
(C) Stipulations, admissions of fact, and the
contents, authenticity, and admissibility into evidence of documents;
(D) Matters of which official notice may be
taken;
(E) Issues relating to
witnesses and exhibits;
(F) Summary
disposition of any and all issues;
(G) Resolution of document production issues
or disputes;
(H) Amendments to
pleadings;
(I) Need for formal
action by the Department;
(J)
Possibility of settlement among the parties; and
(K) Such other matters as the Commissioner
determines to be within the scope of such an informal hearing or
conference.
(2) Formal
Hearings.
(A) Parties to the proceedings
before the Commissioner shall be styled Staff, applicants, issuers,
broker-dealers, agents, investment advisers, representatives, petitioners,
intervenors, complainants, or respondents, etc., according to the nature of the
proceedings and relationship of the parties thereto.
(B) All pleadings, applications, complaints,
answers, responses and replies shall be liberally construed with a view to
effect justice between the parties, and the Commissioner will at every stage of
any proceeding disregard errors or difficulties in the pleadings, applications,
complaints, answers, responses, and replies or
proceedings which do not materially affect the substantive rights of the
parties involved.
(C) Pre-Hearing
Orders. At or within a reasonable time following the conclusion of a scheduling
conference or any pre-hearing conference, the Commissioner may serve on each
party an order setting forth any agreements reached and any procedural
determinations made. If the Commissioner has ordered a party to disclose all
witnesses or exhibits, no witness may testify and no exhibit may be introduced
at the hearing if such witness or exhibit was not disclosed pursuant to such
order, unless the Commissioner allows a party the sufficient time to prepare in
light of the undisclosed witness or exhibit.
(D) Informal Discussions. Following any
discussion among the Commissioner and the parties addressing any issues in a
contested case that occur during a hearing recess, the Commissioner shall place
the substance of the communication on the record, including any action taken
and any agreements made by the parties as to any matters that were
discussed.
RULE 603
PLEADINGS AND PRACTICE.
603.01
PLEADINGS ALLOWED.
Pleadings shall include all forms of petitions, requests, complaints, answers, responses, replies, proposals, notices, applications, briefs, and filings of any nature that are placed before the Commissioner.
603.02
FORM.
The form to be followed in the filing of pleadings pursuant to the Rules will vary to the extent necessary to provide for the nature of the legal rights, duties, or privileges involved therein. Except as otherwise provided by law or the Commissioner otherwise determines, the pleadings shall include the following:
(a) A statement
setting forth clearly and concisely the authorization or other relief sought,
as well as the following:
(1) The exact legal
name of each person seeking the authorization or relief and the address or
principal place of business of each such person, unless the pleading is filed
by the Staff. If any applicant, petitioner, respondent, or movant is a
corporation, limited liability company, partnership, trust, association, or
other organized group, it shall also specify the state under the laws of which
it was created or organized;
(2)
The name, title, address, and telephone number of the attorney to whom
correspondence or communications in regard to the pleading is to be addressed.
Notice, orders and other papers may be served upon the person so named and such
service shall be deemed to be service upon the petitioner, respondent, or
applicant;
(3) A concise and
explicit statement of the facts on which the Commissioner is expected to rely
in granting the authorization or other relief sought; and
(4) An explanation of any unusual
circumstances involved in the pleading to which the Commissioner will be
expected to direct particular attention, including the existence of emergency
conditions or any request for the granting of interlocutory relief by way of an
interim order during the pendency of the pleading.
(b) Any exhibits, sworn written testimony,
data, models, illustrations, or other materials that the applicant, petitioner,
respondent, or movant deems necessary or desirable to support the granting of
the pleading or that any statute or regulation may require for the lawful
determination of the pleading.
(c)
All documents, whenever practicable, shall be printed, typewritten, or
reproduced on one (1) side of the paper only, and double-spaced with a normal
margin on all four (4) sides. All pleadings shall be on paper eight and one
half (8 ½) by eleven (11) inches in size.
(d) The venue as "Before the Arkansas
Securities Commissioner," the title of the proceedings, the case number
assigned, and an appropriate designation (e.g. Petition, Request, Motion,
Brief, Pleading).
603.03
MOTIONS.
(a) All requests for
relief will be by motion. Motions must be in writing or oral, if made on the
record during a hearing, unless the Commissioner directs that such motion be
reduced to writing.
(b) A motion
must fully state the relief sought and the grounds relied upon. It may be
accompanied by a proposed order. Written memoranda, briefs, affidavits or other
relevant materials or documents may be filed in support of a motion.
(c) The original written motion shall be
filed with the Commissioner. There shall be an original and two (2) copies of
each motion and each exhibit.
(d) A
response to a motion must be filed by a party within ten (10) days of the date
of service of the written motion. This time may be extended as permitted by the
Commissioner for good cause shown.
(e) No oral arguments may be held on written
motions except as otherwise directed by the Commissioner.
(f) The Commissioner shall not rule on any
oral or written motion before each party has had an opportunity to respond. The
failure of a party to oppose a motion is deemed consent by that party to the
entry of an order granting the relief sought.
(g) The Commissioner or his designee as
hearing officer may conduct such proceedings and enter such orders as are
deemed necessary to address issues raised by the motion. However, a hearing
officer, other than the Commissioner, will not enter a dispositive order unless
expressly authorized in writing to do so.
(h) Upon written request from a respondent
made no less than ten (10) days prior to a scheduled hearing, the following
information shall be provided:
(1) The names
and addresses of persons whom the Staff intends to call as witnesses at any
hearing;
(2) Any written or
recorded statements and the substance of any oral statements made by the
license holder, or a copy of the same;
(3) Any reports or statements of experts made
in connection with the particular case, including results of physical or mental
examinations, scientific tests, experiments, or comparisons, or copies of the
same;
(4) Any books, papers,
documents, photographs, or tangible objects which the Staff intends to use in
any hearing or which were obtained from or belong to the license holder, or
copies of the same; and
(5)
Disclosure shall not be required of research or records, correspondence,
reports, or memoranda to the extent that they contain the opinions, theories,
or conclusions of the Staff or members of the legal Staff or other state agents
of the Staff.
603.04
BRIEFS.
Briefs may be filed by a party or interested non-party either before or during the course of a hearing or within such time as the Commissioner designates. Failure to file a brief shall in no way prejudice the rights of any party. The order and timing of filing briefs or reply briefs shall be designated by the Commissioner. A party may request an extension of the briefing schedule set by the Commissioner prior to the due date. Late briefs may be considered at the discretion of the Commissioner.
603.05
COMPUTATIONS OF TIME.
In computing any period of time prescribed or allowed by the Act or the Rules, the day of the act, event, or default after which the designated period of time begins to run is not to be included. The last day of the period, so computed, is to be included, unless it is a Saturday, Sunday, or a legally-declared state holiday. When the period of time prescribed or allowed is less than ten (10) days, intermediate Saturdays, Sundays, and legally-declared state holidays shall be excluded in the computation.
603.06
EXTENSIONS OF TIME.
(a) Except
as otherwise provided by law, the Commissioner may, for good cause shown,
extend any time limit prescribed or allowed by the Rules or by any notice or
order issued in a contested case, hearing, or other proceeding.
(b) In determining whether to grant an
extension of time, the Commissioner may consider the following:
(1) Prior continuances or extensions of
time;
(2) The interests of all
parties;
(3) The likelihood of
informal settlements;
(4) The
existence of an emergency;
(5) Any
objection;
(6) Any applicable time
requirement;
(7) The existence of a
conflict of the schedules of attorneys, parties, or witnesses;
(8) The time limits of the request;
and
(9) Other relevant
factors.
(c) Any party may
request an extension of time via a motion. The Commissioner may grant
extensions of time once notice and opportunity to respond is afforded to all
parties. The Commissioner may grant extensions on his own motion.
(d) Requests for extensions of time, other
than motions for continuances, must be made as soon as practicable and, except
in cases of emergencies, no later than five (5) days prior to the date noticed
for the hearing. The Commissioner may require documentation of any grounds for
extensions.
603.07
EFFECT OF FILING.
The filing with the Commissioner of any pleadings, requests for no action or interpretive opinions, or any other document shall not relieve any person of the obligation to comply with any statute, rule, or order of the Commissioner. Acceptance of a filing by the Commissioner shall not constitute a waiver of any failure to comply with the Act or the Rules. Where appropriate, the Commissioner may require the amendment of any filing.
603.08
FILING AND SERVICE.
(a) Any pleading filed by the Staff or
summary order issued by the Commissioner for the purpose of commencing a
proceeding shall be served on each respondent by personal service, registered
or certified mail, or any express delivery service which provides a written
confirmation of delivery.
(b)
Following the date of commencement of a proceeding, all pleadings may be filed
with the Commissioner by United States Mail or hand-delivery.
(c) Pleadings filed with the Commissioner
shall reflect the parties upon whom the pleading was served.
(d) A copy of every pleading filed with the
Commissioner by a party shall be served upon the attorney of record for every
other party, and upon any person appearing pro se.
(e) Written interrogatories, requests for
production, and other discovery requests shall not be filed with the
Commissioner, but shall be served by the party making the discovery request
upon the attorney of record for every other party, and upon any person
appearing pro se.
603.09
SUBMISSION OF
INFORMATION.
Any information filed or submitted to the Department in connection with an application, subpoena, or otherwise given voluntarily to the Department may, where competent and relevant, be used in any criminal prosecutions under the Act or other laws of the State of Arkansas or other jurisdiction.
RULE
604
HEARING PROCEDURES.
604.01
NOTICE OF HEARINGS.
(a) A notice of hearing shall be served upon
each party. This may be by hand delivery or United States Mail within a
reasonable amount of time prior to the hearing. For purposes of this Rule,
service of a notice of hearing by the Commissioner upon any registrant may be
by United States Mail to the business address of the registrant.
(b) The notice of hearing will include the
following:
(1) A statement of the time, place,
and nature of the hearing;
(2) A
statement of the legal authority and jurisdiction under which the hearing is to
be held;
(3) The name(s) of the
respondents; and
(4) A short and
plain statement of the matters of fact and law asserted.
(c) The Commissioner may in his discretion
amend the notice of hearing at any stage of a proceeding provided that the
parties are given reasonable notice of the amendment and allowed sufficient
time to prepare their case in light of the amendment.
604.02
RIGHTS OF WITNESSES.
Any person who appears and testifies in a deposition, under oath, or in a contested case, may be accompanied, represented, and advised by an attorney. The right to be accompanied, represented, and advised by an attorney means the right of a person testifying to have an attorney present at all times while testifying and to have an attorney do the following:
(a) Advise the person before and after
conclusion of the testimony;
(b)
Question the person briefly at the conclusion of testimony to clarify any of
the answers given; and
(c) Make
summary notes during the testimony solely for the use of the person.
604.03
NOTICE TO INTERESTED
PARTIES.
If it appears that the determination of the rights of parties in a proceeding will necessarily involve a determination of the substantial interests of persons who are not parties, the Commissioner may enter an order requiring that an absent person be notified of the proceeding and be given an opportunity to be joined as a party of record.
604.04
SUBPOENAS.
(a) At the request of any party, the
Commissioner shall issue subpoenas for the attendance of witnesses and
production of documents for a hearing. The requesting party shall specify
whether the witness is also requested to bring documents and reasonably
identify the documents.
(b) A
subpoena may be served in a manner as now provided for by statute or rule for
the service of subpoenas in civil cases or by any form of mail addressed to the
person to be served with a return receipt requested and delivery restricted to
the addressee or agent of the addressee. The party seeking the subpoena shall
have the burden of obtaining service of the process and shall be charged with
the responsibility of tendering appropriate mileage fees and witness fees
pursuant to Rule
45 of the Arkansas Rules of Civil
Procedure. The witness must be served a reasonable time prior to the
hearing.
(c) Any motion to quash or
limit the subpoena shall be filed with the Commissioner and shall state the
grounds relied upon.
604.05
HEARING LOCATION.
All hearings shall be held at the office of the Commissioner unless a different place is designated by direction of the Commissioner.
604.06
CONSOLIDATION AND
SEVERANCE.
(a) If there are separate
matters that involve related questions of law or fact, or identical parties,
the Commissioner for good cause, upon the Commissioner's own motion or upon
motion by a party, may consolidate matters if it appears that consolidation
would promote the just, speedy, and inexpensive resolution of the proceedings,
and would not unduly prejudice the rights of a party.
(b) The Commissioner may, for good cause,
upon the Commissioner's own motion or upon motion by a party, sever the
proceeding for separate resolution of the matter as to any party or issue. In
determining whether to sever the proceeding, the Commissioner shall consider
whether any undue prejudice or injustice would result from not severing the
proceeding outweighs the interests of judicial economy and expeditiousness in
the complete and final resolution of the proceeding.
604.07
CONDUCT OF HEARING.
(a) The Commissioner presides at the hearing
and may rule on motions, require briefs, and issue orders as will ensure the
orderly conduct of the proceedings; provided, however, any hearing officer
other than the Commissioner shall not enter a dispositive order or proposed
decision unless expressly authorized in writing to do so.
(b) All objections must be made in a timely
manner and stated on the record.
(c) Parties have the right to participate or
to be represented by an attorney in hearings or prehearing conferences related
to their case.
(d) Subject to the
terms and conditions prescribed by the APA, parties have the right to introduce
evidence on issues of material fact, cross-examine witnesses as necessary for a
full and true disclosure of the facts, present evidence in rebuttal, engage in
oral argument, and, upon request, may submit
briefs.
(e) The Commissioner is
charged with maintaining the decorum of the hearing and may refuse to admit, or
may expel, anyone whose conduct is disorderly.
604.08
ORDER OF PROCEEDINGS.
The Commissioner will conduct the hearing in the following manner:
(a) The Commissioner will give
an opening statement, briefly describing the nature of the
proceedings;
(b) The parties are to
be given the opportunity to present opening statements;
(c) The parties will be allowed to present
their cases in the sequence determined by the Commissioner;
(d) Each witness must be sworn or affirmed by
the Commissioner, or the court reporter, and be subject to examination and
cross-examination as well as questioning by the Commissioner. The Commissioner
may limit questioning in a manner consistent with the law;
(e) When all parties and witnesses have been
heard, parties may be given the opportunity to present final arguments;
and
(f) The Commissioner may, at
any time prior to the rendering of a final decision, reopen the hearing upon
the motion of the Commissioner or any party for good cause shown. The parties
shall be notified of the reopening and the hearing shall be convened not less
than ten (10) days after the sending of such notice unless waived by the
parties.
604.09
FAILURE TO REQUEST OR APPEAR AT A HEARING.
(a) When a party fails to request a hearing
within the time specified in the cease and desist order or other administrative
order, the allegations against the party may be deemed admitted.
(b) If a party fails to appear or participate
in an administrative adjudication after proper service of notice, the Staff may
proceed with the hearing and the Commissioner may render a decision in the
absence of the party. The allegations against the party may be deemed admitted.
Without further proceedings or notice to the party, the Commissioner shall
issue a final order. The Commissioner may, if deemed necessary, receive
evidence from the Staff, as part of the record, concerning the appropriateness
of the amount of any civil penalty sought in the request.
604.10
APPEARANCE, PRACTICE, AND
WITHDRAWAL BEFORE THE COMMISSIONER.
(a)
Any party appearing in any proceeding has the right, at the party's own
expense, to be represented by an attorney. The attorney must be duly admitted
to practice law in the State of Arkansas and in good standing with the bar of
the State of Arkansas. The Commissioner, at his discretion, may require any
attorney who desires to represent a person before the Commissioner to first
file with the Commissioner a written declaration that he is currently qualified
and is authorized to represent the particular party in whose behalf he acts.
Attorneys in good standing from other jurisdictions may request and, for good
cause shown, be allowed to appear in a contested case, provided an attorney
admitted to practice in Arkansas is present during the entire proceeding, signs
all pleadings and other papers filed in the proceeding, and agrees to take full
responsibility for supervising the conduct of the attorney.
(b) The respondent may appear on his or her
own behalf in a contested case. Other duly authorized individuals including a
partner, member, or manager of a partnership or limited liability company may
appear and represent the partnership or limited liability company, and a duly
authorized officer, director, or employee of any agency, institution,
corporation, or authority may appear and represent the agency, institution,
corporation, or authority.
(c) Any
party acting pro se shall so notify the Commissioner in
writing. The notice of appearance shall include accurate contact
information.
(d) Service on the
attorney of record is the equivalent of service on the party
represented.
(e) After a notice of
appearance is filed by a party or attorney, copies of all subsequent pleadings,
notices, rulings, applications, responses, replies, or decisions shall be
provided to the person named in the notice of appearance and Staff designated
to represent the Department.
604.11
RECORDING THE PROCEEDINGS AND
TRANSCRIPT CORRECTIONS.
(a) The
responsibility to record the testimony heard at a hearing is assumed by the
Department. Any party may request a copy of the transcript from the court
reporter and the copy shall be made available to any party upon payment of the
cost of the transcript.
(b) The
Commissioner shall have the authority to order the transcript corrected upon a
motion to correct, upon stipulation of the parties, or upon the Commissioner's
own motion following notice to the parties. The Commissioner may call for the
submission of proposed corrections and may order the corrections at appropriate
times during the course of the proceedings. Corrections in the official
transcript may be made only to make it conform to the evidence presented at the
hearing. Transcript corrections may be incorporated into the record at any time
during the hearing or after the close of evidence, but not more than thirty
(30) days from the date of receipt of the transcript by the
Commissioner.
604.12
EVIDENCE.
(a) The Commissioner
shall rule on the admissibility of evidence and may, when appropriate, take
official notice of facts and generally recognized technical or scientific
facts.
(b) Stipulation of facts is
encouraged. Parties may stipulate as to any relevant matters of fact or the
authentication of any relevant documents that may be entered as evidence at the
commencement of or during the hearing. The Commissioner may make a decision
based on stipulated facts.
(c) A
party seeking admission of an exhibit must provide four (4) copies of each
exhibit at the hearing. The Commissioner must provide the opposing parties with
an opportunity to examine the exhibit prior to the ruling on its admissibility.
All exhibits admitted into evidence must be appropriately marked and be made
part of the record.
(d) Formal
exceptions to rulings on evidence and procedure are unnecessary. It is
sufficient that a party, at the time an evidentiary ruling is sought, makes
known to the Commissioner the objections to such action and the grounds for
such objection. The objection, the ruling on the objection, and the reasons for
the ruling will be noted in the record. Failure to object to the admission of
evidence or any ruling constitutes a waiver of the objection. The Commissioner
may rule on the objection at the time it is made or may reserve the ruling
until the written decision.
(e)
Whenever evidence is ruled inadmissible, the party offering that evidence may
submit an offer of proof on the record. The party making the offer of proof for
excluded or rejected oral testimony will briefly provide a summarized statement
of the testimony. If the excluded evidence consists of a document, record, or
written form, a copy of such evidence shall be marked as part of an offer of
proof and inserted in the record.
(f) Irrelevant, immaterial, and unduly
repetitive evidence will be excluded. Any other oral or documentary evidence,
not privileged, may be received if it is of a type commonly relied upon by
reasonably prudent people in the conduct of their affairs.
(g) The Commissioner may base the finding of
facts upon reasonable inferences derived from the evidence received. The finder
of fact shall have the authority to employ the Staff's experience, technical
competence, and specialized knowledge in evaluating the evidence presented at
the hearing for the purpose of making findings of fact and arriving at a
decision in any contested case.
(h)
At any stage of the hearing, the Commissioner may call for further evidence
upon any issue and require that such evidence be produced by the relevant party
or may authorize any party to file specific documentary evidence as part of the
record, either at the hearing or within a specified time, provided every party
shall be afforded a reasonable opportunity to review and rebut or object to
such evidence.
604.13
ORDERS.
(a)
GENERALLY. All decisions and orders of the Commissioner concluding
a proceeding shall be in writing and served on all parties.
(1) The order will include a recitation of
facts found based on testimony, other evidence presented, and reasonable
inferences derived from the evidence pertinent to the issues of the case. It
will also state conclusions of law and directives or other dispositions entered
against or in favor of the respondent.
(2) The order will be served personally or by
mail on the parties. If respondent is represented by an attorney, service of
the order on respondent's attorney shall be deemed service on the
respondent.
(b)
SUMMARY ORDER. In addition to the procedures set forth in Rules
602.02, 604.01, 604.10, 605.01,
606.01, and 604.13(a), the Commissioner may issue a summary order for the
following:
(1) Whether a person is an
applicant, registrant, issuer, or other person, to cease and desist from an act
or practice or apply directly to a court of competent jurisdiction for such
relief as the Commissioner deems appropriate pursuant to Section
23-42-209
of the Act, if the following occurs:
(A) If
it is in the public interest; and
(B) The Commissioner deems it
necessary.
(2) To
retroactively deny or suspend effectiveness of a registration statement filed
pursuant to Section
23-42-402
of the Act if the required notification and pricing amendment is not received.
(A) If a summary order is entered, the
Commissioner must promptly notify the registrant by electronic mail (e-mail),
facsimile, or telephone call followed by a letter.
(B) If the registrant proves compliance, the
summary order is void as of the time of its entry.
(C) The summary order remains in effect
pending final determination of a proceeding to deny or revoke the
effectiveness.
(D) The date for a
hearing on a summary order shall be set no more than fifteen (15) days after
receipt of a written request to hold such a hearing; if no hearing is
requested, the summary order will remain in effect until modified or vacated by
the Commissioner.
(3) To
suspend or postpone registration of an applicant or registration filed pursuant
to Section
23-42-301
of the Act if the Staff learns of an applicant's or registrant's failure to
comply with the Act or Rules or when it is determined that the applicant or
registrant might be subject to one of the provisions set forth in Section
23-42-308(a)
of the Act or a cancellation of registration pursuant to Section
23-42-308(d)
of the Act.
(A) If such a summary order is
entered, the Commissioner must promptly notify the applicant or registrant (as
well as the employer or prospective employer if the applicant or registrant is
an agent or an investment adviser representative). Notification or service
shall be by certified or registered United States Mail.
(B) The summary order remains in effect
pending final determination of a proceeding to deny or revoke the application
or registration as a result of a hearing.
(C) The date for a hearing on a summary order
shall be set no more than fifteen (15) days after receipt of a written request
to hold such a hearing; if no hearing is requested, the summary order will
remain in effect until modified or vacated by the Commissioner.
(D) A summary order entered prior to a
hearing can be used to postpone or suspend registration or withdrawal.
Revocation can occur only after the filing of a pleading and notice of
hearing.
(c)
STOP ORDER. A stop order, as discussed in Rule
604.13(b)(2)
above, referring to Section
23-42-402
of the Act, may mean a final order entered in disposition of the institution of
a proceeding except as that term is used in Section
23-42-509
of the Act.
(d)
AMENDED
ORDER. All orders may be vacated or modified if conditions change or it
is otherwise in the public interest to do so.
(e) Nothing shall prohibit or restrict
informal disposition of a pleading or order by stipulation, settlement,
consent, or default in lieu of a formal or informal hearing on the matter or in
lieu of sanctions imposed. An order shall be entered if administrative
proceedings have been instituted or a pleading filed. All orders shall be
public.
604.14
RIGHT TO APPEAL.
A person who is aggrieved by the final decision of the Commissioner may seek judicial review of the decision in accordance with the provisions of Section 23-42-210 of the Act.
RULE 605
SECURITIES REGISTRATION.
605.01
SECURITIES REGISTRATION STATEMENT.
(a) When the Staff or the Commissioner learns
of an applicant's or registrant's possible failure to comply with the Act or
Rules, or when it is determined that the applicant or registrant might be
subject to one of the provisions set forth in Section
23-42-405(a)
of the Act, the following may occur:
(1) The
applicant may be notified by deficiency letter or by telephone, and, after
adequate notice, the Staff may initiate legal proceedings with the Commissioner
to deny, suspend, or revoke the effectiveness of the registration statement,
or
(2) The Commissioner may enter a
summary order suspending or postponing effectiveness of the registration
statement pending final determination of a proceeding to deny or revoke the
effectiveness.
(3) If an
applicant's response to a deficiency letter or telephone call is not deemed to
show compliance, the applicant may be allowed to withdraw the registration
statement prior to its effectiveness.
(b) If a pleading or summary order is
entered, the applicant, registrant, issuer, and the person on whose behalf the
securities are to be or have been entered shall be notified by certified or
registered United States Mail.
RULE 606
EXEMPT SECURITIES.
606.01
SECURITIES EXEMPTED FROM
REGISTRATION.
(a) A security or
transaction exemption filed in accordance with Section
23-42-503(d)
or
23-42-504(b)
of the Act, may be disallowed when the following occurs:
(1) The exemption under which the filing was
made is not available to the issuer or applicant;
(2) The filing is not complete;
(3) The fee is not sufficient;
(4) The filing fails to comply with any
provision of the Act or Rules; or
(5) The filing indicates conduct prohibited
by the Act, including, but not limited to, false or misleading statements or
omissions of material fact.
(b) In the event any of the above grounds of
Rule 606.01(a) are
present with respect to an application, the applicant will be notified by
deficiency letter by United States Mail, facsimile, or electronic mail on or
before the tenth (10th) business day after receipt
of the filing. Such deficiency letter shall serve as notice in lieu of a
pleading or order. Upon an applicant's failure to satisfy the deficiencies, the
following may occur:
(1) The applicant may
request that the filing be withdrawn;
(2) An order disallowing the security or
transactional exemption will be entered; or
(3) If applicable, a summary order or a
pleading to deny the exemption will be entered.
(c) A security or transaction exempt pursuant
to Sections
23-42-503(a)(7),
(a)(8), (b), (c),
23-42-504(a)(9),
or (a)(10) of the Act may be denied prior to
issuance or execution of security or transaction when the following is
determined:
(1) The exemption claimed is not
available;
(2) The security or
transaction fails to comply with any provisions of the Act or Rules;
(3) There has been or is about to be conduct
prohibited by the Act; or
(4) A
required filing was not made.
(d) A security or transaction exemption
subject to Sections
23-42-503(a)(7),
(a)(8), (b) or (c) or
23-42-504(a)
of the Act may be revoked after issuance or execution of security or
transaction when the following is determined:
(1) The exemption claimed was not
available;
(2) The filing, if made,
was not complete or contained false and misleading statements or omissions of
material fact;
(3) A fact or event
becomes known which would have been the cause of a disallowance or denial of
the exemption had it been known;
(4) The claimant failed to comply with the
Act or Rules; or
(5) A claimant did
not comply with representations made or conditions imposed.
(e) The Commissioner may not disallow, deny,
or revoke an exemption for a security claimed pursuant to Sections
23-42-503(a)(1),
(2), (3), (4), (5), (6), or (9) of the Act,
however, the Commissioner may take or recommend an action pursuant to the
applicable investigative, injunctive, civil, or criminal provisions of the
Act.
(f) Under the circumstances
set forth in Rule 606.01(b) above, the Staff may file a pleading to disallow,
deny, or revoke an exemption or the Commissioner may summarily disallow, deny,
or revoke an exemption.
(g) If a
pleading or order is entered, all interested parties shall be notified by
personal service, certified or registered United States Mail, or any express
delivery service that provides a written confirmation of
delivery.
RULE
607
REGISTRATION OF INDIVIDUALS.
607.01
BROKER-DEALER, AGENT, INVESTMENT
ADVISER, OR INVESTMENT ADVISER REPRESENTATIVE.
(a) An applicant for registration or a
registrant seeking withdrawal from registration may agree in writing to allow
the Commissioner or the Staff additional time to investigate or examine facts
or transactions prior to the registration or the termination becoming
effective, thus extending the thirty (30) day time limitation for the review by
the Commissioner or the Staff.
(b)
When the Staff or the Commissioner learns, through examination or otherwise, of
an applicant's or registrant's possible failure to comply with the Act or Rules
or when it is determined that the applicant or registrant might be subject to
one of the provisions set forth in Section
23-42-308(a)
of the Act or a cancellation of registration pursuant to Section
23-42-308(d)
of the Act, the Staff shall notify such applicant or registrant of the alleged
violation or action and set a period of time in which the applicant or
registrant must show compliance. If the applicant's or registrant's response to
the Staff's letter is deemed not to show compliance with the Act or Rules or
shows the applicant or registrant to be subject to Section
23-42-308(d)
of the Act, a pleading may be filed by the Staff with the Commissioner
requesting that the matter be set for a hearing. Notification to the applicant
or registrant of the alleged violation(s) shall not be deemed to be the
institution of a proceeding.
(c) If
the Staff files a pleading with the Commissioner or the Commissioner summarily
suspends or postpones registration, the applicant or registrant (as well as the
employer or prospective employer if the applicant or registrant is an agent or
an investment adviser representative) shall be promptly served with a copy of
the pleading or order.
(d) If the
Commissioner issues an order which imposes a suspension, revocation, or
cancellation of the registration of a person or bars that person from further
association with any registrant, the registrant shall not allow that person to
remain associated with it in any capacity, including clerical or ministerial
functions. When an individual is suspended, a registrant, in addition to the
above, shall not pay or credit any salary, commission, profit, or other
remuneration that results directly or indirectly from any security transaction,
that individual might have earned during the period of suspension.
Disclaimer: These regulations may not be the most recent version. Arkansas may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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