Code of Maine Rules
02 - DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
032 - OFFICE OF SECURITIES
Chapter 504 - BROKER-DEALER AND AGENT LICENSING
Section 032-504-9 - Dishonest or Unethical Practices: Investment Company Shares

Universal Citation: 02 ME Code Rules ยง 032-504-9

Current through 2024-38, September 18, 2024

Broker-dealers and agents shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business and shall give particular consideration to any conflicts of interest that may arise or exist.The practices listed below are examples of practices relating to investment company shares which may be considered contrary to such standards and may thus constitute grounds for discipline under Section 16412 of the Act.

This section is not intended to be all inclusive, and thus practices not enumerated herein may also be deemed dishonest or unethical. This section is also not intended to limit or define fraudulent and other prohibited practices under Subchapter 5 of the Act or to preclude application of the general anti-fraud provisions contained therein against any person for practices similar in kind to those listed below.

For purposes of this section, the delivery of a prospectus, in and of itself, shall not be dispositive that the broker-dealer or agent provided the customer full and fair disclosure.

A person may be deemed to have engaged in "dishonest or unethical practices" under Section 16412(4)(M) of the Act by engaging in one or more of the following practices in connection with the solicitation of investment company shares:

1. Failing to adequately disclose to a customer all sales charges, including asset based and contingent deferred sales charges, which may be imposed with respect to the purchase, retention or redemption of such shares;

2. Stating or implying to a customer that the shares are sold without a commission, are "no load" or have "no sales charge" if there is associated with the purchase of the shares:

A. A front-end load;

B. A contingent deferred sales load;

C. A SEC Rule 12 b-1 fee or a service fee if such fees in total exceeds .25%of average net fund assets per year; or

D. In the case of closed-end investment company shares, underwriting fees, commissions or other offering expenses;

3. Failing to disclose to any customer any relevant:

A. Sales charge discount on the purchase of shares in dollar amounts at or above a breakpoint; or

B. Letter of intent feature, if available, which will reduce the sales charges;

4. Recommending to a customer the purchase of a specific class of investment company shares in connection with a multi-class sales charge or fee arrangement without reasonable grounds to believe that the sales charge or fee arrangement associated with such class of shares is suitable and appropriate based on the customer's investment objectives, financial situation and other securities holdings, and the associated transaction or other fees;

5. Recommending to a customer the purchase of investment company shares which results in the customer simultaneously holding shares in different investment company portfolios having similar investment objectives and policies without reasonable grounds to believe that such recommendation is suitable and appropriate based on the customer's investment objectives, financial situation and other securities holdings, and any associated transaction charges or other fees;

6. Recommending to a customer the liquidation or redemption of investment company shares for the purpose of purchasing another investment without reasonable grounds to believe that such recommendation is suitable and appropriate based on the customer's investment objectives, financial situation and other securities holdings and any associated transaction charges or other fees;

7. Stating or implying to a customer the fund's current yield or income without disclosing the fund's most recent average annual return, calculated in a manner prescribed in SEC Form N-1A, for one, five and ten year periods and fully explaining the difference between current yield and total return;

8. Stating or implying to a customer that the investment performance of an investment company portfolio is comparable to that of a savings account, certificate of deposit or other bank deposit account without disclosing to the customer that the shares are not insured or otherwise guaranteed by the FDIC or any other government agency and the relevant differences regarding risk, guarantees, fluctuation of principal and/or return, and any other factors which are necessary to ensure that such comparisons are fair, complete and not misleading;

9. Stating or implying to a customer the existence of insurance, credit quality, guarantees or similar features regarding securities held, or proposed to be held, in the investment company's portfolio without disclosing to the customer other kinds of relevant investment risks, including but not limited to, interest rate, market, political, liquidity, or currency exchange risks, which may adversely affect investment performance and result in loss and/or fluctuation of principal notwithstanding the creditworthiness of such portfolio securities;

10. Stating or implying to a customer:

(A) that the purchase of such shares shortly before an ex-dividend date is advantageous to such customer unless there are specific, clearly described tax or other advantages to the customer; or

(B) that a distribution of long-term capital gains by an investment company is part of the income yield from an investment in such shares; or

11. Making:

A. Projections of future performance;

B. Statements not warranted under existing circumstances; or

C. Statements based upon non-public information.

Disclaimer: These regulations may not be the most recent version. Maine 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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