New Jersey Administrative Code
Title 13 - LAW AND PUBLIC SAFETY
Chapter 47A - BUREAU OF SECURITIES
Subchapter 6 - DISHONEST OR UNETHICAL BUSINESS PRACTICES
Section 13:47A-6.3 - Examples of dishonest or unethical practices for broker-dealers, agents, issuer-agents, advisers, and internet site operators

1. Engaging in a pattern of unreasonable and unjustifiable delays in the delivery of securities purchased by any of its customers or in the payment, upon request, of free credit balances reflecting completed transactions of any of its customers, or both;

2. 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;

3. Recommending to a customer an investment strategy, or the purchase, sale, or exchange of any security or securities without reasonable grounds to believe that such strategy, transaction, or recommendation is suitable for the customer based upon reasonable inquiry concerning the customer's investment objectives, financial situation, and needs, and any other relevant information known by the broker-dealer;

4. Placing an order or executing a transaction on behalf of a customer without prior authorization to do so;

5. 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 or price for the execution of orders, or both;

6. Executing any transaction in a margin account without securing consent to trade on margin from the customer before the initial transaction in the account;

7. Failing to segregate a customer's free securities or securities held in safekeeping;

8. Hypothecating a customer's securities without having a first lien thereon unless the broker-dealer secures from the customer a properly executed written consent promptly after the initial transaction, except as permitted by the rules and regulations of the SEC;

9. Entering into a transaction with or for a customer at a price not reasonably related to the current market price of the security or receiving an unreasonable commission or profit;

10. Failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include all information set forth in the final prospectus;

11. Charging fees for services without prior notification to a customer as to the nature and amount of the fees;

12. Charging 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;

13. Offering to buy from or sell to any person any security at a stated price unless the broker-dealer is prepared to purchase or sell, as the case may be, at the price and under the conditions as are stated at the time of the offer to buy or sell;

14. 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; by any person for whom the broker-dealer is acting or with whom the broker-dealer is associated in the distribution; or by any person controlled by, controlling or under common control with the broker-dealer;

15. Effecting any transaction in, or inducing the purchase or sale of, any security by means of any manipulative, deceptive or fraudulent device, practice, plan, program, design or contrivance, which may include, but not be limited to:

16. 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;

17. Publishing or circulating, or causing to be published or circulated, any notice, circular, advertisement, newspaper article, investment service, or communication of any kind which:

18. Using any advertising or sales presentation by any person in such a fashion as to be deceptive or misleading. An example of the prohibited practice would be distribution of any nonfactual data, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in any brochure, flyer, press release, or display by words, pictures, graphs or otherwise designed to supplement, detract from, supersede or defeat the purpose or effect of any prospectus or disclosure;

19. Failing to disclose to a customer 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 the security, or failing to supplement a disclosure not made in writing by giving or sending written disclosure at or before completion of the transaction;

20. Failing to make a bona fide public offering of all of the securities allotted to a broker-dealer for distribution, whether acquired as an underwriter or a selling group member, or from a member participating in the distribution as an underwriter or selling group member;

21. Failing or refusing to furnish a customer, upon reasonable request, information to which the customer is entitled, or to respond to a formal written request or complaint;

22. Permitting a person to open an account for another person or transact business in the account unless there is on file written authorization for the action from the person in whose name the account is carried;

23. Permitting a person to open or transact business in a fictitious account;

24. Permitting an agent to open or transact business in an account other than the agent's own account, unless the agent discloses in writing to the broker-dealer or issuer with which the agent associates the reason therefore;

25. In connection with the solicitation of a sale or purchase of an OTC, non-NASDAQ security, failing to promptly provide the most current prospectus or the most recently filed periodic report filed under Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. § 78m), when requested to do so by a customer;

26. Marking any order tickets or confirmations as "unsolicited" when in fact the transaction is solicited;

27. For any month in which activity has occurred in a customer's account, but in no event less than every three months, failing to provide each customer with a statement of account which, with respect to all OTC non-NASDAQ equity securities in the account, contains a value for each security based on the closing market bid on a date certain; provided that this provision shall apply only if the firm has been a market maker in the security at any time during the month in which the monthly or quarterly statement is issued;

28. Failing to comply with any applicable provision of the Standards of Honor and Principles of Trade of FINRA or any applicable fair practice or ethical standard promulgated by the SEC or by a self-regulatory organization, which relate to honesty and fair dealings and just and equitable principles of trade;

29. Failing to comply with a suspension or bar order of the SEC, FINRA, any other self-regulatory organization, or any other securities regulator;

30. Failing to cooperate in accordance with N.J.A.C. 13:47A-14.16;

31. Making any misrepresentation or omission of a material fact or otherwise employing any form of concealment or deception in connection with the offer, sale, purchase or negotiation of any securities, commodity futures, banking or insurance contract, instrument or transaction;

32. Engaging in any material misrepresentation or omission or engaging in deceitful, deceptive or fraudulent conduct involving any aspect of the securities, banking, insurance, investment advisory or commodities futures industries or engaging in any conduct described above which, at the time, is prohibited by the statutes or rules governing the above industries in the jurisdiction where the conduct occurred;

33. Altering any document relevant to or on the books and records of any broker-dealer, investment adviser, bank, insurance or commodities futures business with any entry or deletion which is materially false or misleading;

34. In connection with any securities, banking, insurance, investment advisory, or commodity futures contract, instrument or transaction, signing any client's name without the prior knowledge and written consent of both the client and the applicant's or registrant's employing firm;

35. In the case of agents of broker-dealers, effecting securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer prior to execution of the transaction;

36. Establishing or maintaining an account containing fictitious information in order to execute transactions which would otherwise be prohibited;

37. Engaging in acts or practices that constitute deceptive market-timing in the trading of mutual funds, including, but not limited to:

38. Sharing directly or indirectly in profits or losses in the account of any customer without the prior written authorization of the customer and the broker-dealer which the agent represents;

39. Dividing or otherwise splitting commissions or otherwise paying production-based compensation from the purchase or sale of securities to any person not registered with the Bureau, except where the broker-dealer has established a retirement plan which has received prior Bureau approval;

40. For agents who are dually registered, failing to disclose the dual license to a client;

41. Altering client account records to falsely change the client's investment objectives to conform to unsuitable or unauthorized trades made by the agent in the client's account;

42. 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;

43. Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of an investment adviser, or a financial institution engaged in the business of loaning funds;

44. Loaning money to a client except in the case of a broker-dealer, or where the lending party is a financial institution engaged in the business of loaning funds, or where the client is an affiliate;

45. Knowingly being designated, directly or indirectly, as a beneficiary of a client's account, estate, trust, insurance, or other property interest and, in the case of an agent or investment adviser representative, without the prior written authorization of the client and:

46. Misrepresenting to any advisory 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 such 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;

47. Using a certification or professional designation to indicate or imply that the user has special training in advising or servicing senior citizens or retirees (hereinafter, a "senior-specific certification" or "professional designation"), in such a way as to mislead any person, in connection with the offer, sale, or purchase of a security, or the provision of advice as to the value of or the advisability of investing in, purchasing, or selling a security, either directly or indirectly or through a publication or a writing, or by issuing or promulgating an analysis or report relating to a security.

48. Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing that fact. This provision does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service;

49. Charging a client an unreasonable advisory fee;

50. Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the adviser or any of its employees which could reasonably be expected to impair the rendering of unbiased and objective advice including:

51. Guaranteeing a client that a specific result will be achieved (gain or no loss) with advice which will be rendered;

52. Publishing, circulating or distributing any advertisement which does not comply with Rule 206(4)-1 ( 17 CFR 275.206(4)-1 ) under the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-1 et seq.;

53. Disclosing the identity, affairs, or investments of any client or former client unless required by law to do so, or unless consented to by the client;

54. Failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information in violation of Section 204A of the Investment Advisers Act of 1940 (15 U.S.C. § 80b-4a);

55. Failing to adopt, maintain, and enforce written supervisory policies and procedures under the requirements of N.J.A.C. 13:47A-2.12;

56. 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 such securities or funds as defined in N.J.A.C. 13:47A-7.2:

57. Entering into, extending, or renewing any investment advisory contract, unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or non-performance, whether the contract grants discretionary power to the adviser and that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract;

58. Entering into, extending, or renewing any advisory contract which would violate Section 205 of the Investment Advisers Act of 1940. This provision shall apply to all advisers registered or required to be registered under this Act, notwithstanding whether such adviser would be exempt from Federal registration pursuant to Section 203(b) of the Investment Advisers Act of 1940 (15 U.S.C. § 80b-3(b));

59. To indicate, in an advisory contract any condition, stipulation, or provisions binding any person to waive compliance with any provision of N.J.S.A. 49:3-47 et seq., or of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-1 et seq., or any other practice that would violate Section 215 of the Investment Advisers Act of 1940 ( 15 U.S.C. § 215 );

60. Retaining investment consulting services for compensation that is provided either directly to the consultant or indirectly through a matching or expert network service, shall be as follows:

61. As to Internet site operators, failing to notify the Bureau within 30 days after the Internet site operator knows or should have known of the existence of any of the following by an issuer offering a security pursuant to N.J.S.A. 49:3-50(b)(14) on its internet site:

62. As to Internet site operators, failing to adopt, maintain, and enforce written policies and procedures to ensure the requirements of N.J.A.C. 13:47A-12A.5 are met;

63. Engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative in contravention of Section 206(4) of the Investment Advisers Act of 1940 (15 U.S.C. § 206(4)), notwithstanding the fact that such investment adviser is not registered or required to be registered pursuant to Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. § 203);

64. Failing to pay and fully satisfy any final judgment or arbitration award, resulting from an investment-related, customer-initiated arbitration, or court proceeding, unless alternative payment arrangements are agreed to between the customer and the investment adviser or investment adviser representative, or the broker-dealer or broker-dealer agent, in writing, and the investment adviser or investment adviser representative, or broker-dealer or broker-dealer agent complies with the terms of the alternative payment arrangement;

65. Attempting to avoid payment of any final judgment or arbitration award resulting from an investment-related, customer-initiated arbitration or court proceeding, unless alternative payment arrangements are agreed to between the customer and the investment adviser or investment adviser representative, or the broker-dealer or broker-dealer agent, in writing, and the investment adviser or investment adviser representative, or the broker-dealer or broker-dealer agent complies with the terms of the alternative payment arrangements;

66. Failing to pay and fully satisfy any fine, civil penalty, order of restitution, order of disgorgement, or similar monetary payment obligation imposed, whether administratively or through court proceedings, upon the investment adviser or investment adviser representative, or the broker-dealer or agent by the Securities and Exchange Commission, a court of competent jurisdiction, the securities or other financial services regulator of any state or province, or any self-regulatory organization; or

67. Engaging in conduct or any act, indirectly or through or by any other person, that would be unlawful for such person to do directly under the provisions of N.J.S.A. 49:3-47 et seq., or any rule promulgated thereunder.