Utah Administrative Code
Topic - Commerce
Title R164 - Securities
Rule R164-6 - Denial, Suspension or Revocation of a License
Section R164-6-1g - Dishonest or Unethical Business Practices
Universal Citation: UT Admin Code R 164-6-1g
Current through Bulletin 2024-18, September 15, 2024
(A) Authority and purpose
(1) The Division enacts this rule under
authority granted by Sections
61-1-6 and
61-1-24.
(2) This rule identifies certain acts and
practices which the Division deems to constitute dishonest or unethical
practices in the securities business under Subsection
61-1-6(2)(a)(ii)(G).
The list contained herein should not be considered to be all-inclusive of such
acts and practices, but rather is intended to act as a guide to broker-
dealers, agents, investment advisers, federal covered advisers and investment
adviser representatives as to the types of conduct which may result in
sanctions under Subsection
61-1-6(2)(a)(ii)(G).
(3) Conduct which violates Section
61-1-1
may also be considered to constitute dishonest or unethical practices under
Subsection
61-1-6(2)(a)(ii)(G).
(4) This rule is patterned after
well-established standards in the industry which have been adopted by the SEC,
FINRA, NASAA, the national securities exchanges and various courts. It
represents one of the purposes of the securities laws: to create viable
securities markets in which those persons involved are held to a high standard
of fairness with respect to their dealings with the public.
(5) The provisions of this rule apply to
federal covered advisers to the extent that the conduct alleged is fraudulent
or deceptive, or to the extent permitted by the National Securities Markets
Improvement Act of 1996 (Pub. L. No. 104-290).
(6) The federal statutory and
regulatory provisions referenced in Paragraph (E) shall apply to investment
advisers, federal covered advisers, and investment adviser representatives
regardless of whether the federal provision limits its application to advisers
subject to federal registration.
(B) Definitions
(1) "Division" means the Division of
Securities, Utah Department of Commerce.
(2) "Market maker" means a broker-dealer who,
with respect to a particular security:
(a)
regularly publishes bona fide, competitive bid and ask quotations in a
recognized inter-dealer quotation system, or
(b) regularly furnishes bona fide competitive
bid and offer quotations to other broker-dealers upon request; and
(c) is ready, willing and able to effect
transactions in reasonable quantities at his quoted price with other
broker-dealers on a regular basis.
(3) "NASAA" means the North American
Securities Administrators Association, Inc.
(4) "FINRA" means the Financial Industry
Regulatory Authority, formerly known as NASD.
(5) "NASDAQ" means National Association of
Securities Dealers Automated Quotation System.
(6) "OTC" means over-the-counter.
(7) "SEC" means the United States Securities
and Exchange Commission.
(C) Broker-Dealers
In relation to Broker-Dealers, as used in Subsection 61-1-6(2)(a)(ii)(G)"dishonest or unethical practices" shall include:
(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
which is excessive in size or frequency in view of the financial resources and
character of the account;
(3)
recommending to a customer the purchase, sale or exchange of any security
without reasonable grounds to believe that such 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) 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 from the customer a properly executed
written margin agreement promptly after 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 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, 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;
(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:
(a) effecting any transaction in a security
which involves no change in the beneficial ownership thereof;
(b) entering an order or orders for the
purchase or sale of a security with the knowledge that an order or orders of
substantially the same size, at substantially the same time and substantially
the same price, for the sale of the security, has been or will be entered by or
for the same or different parties for the purpose of creating a false or
misleading appearance of active trading in the security or a false or
misleading appearance with respect to the market for the security; provided,
however, nothing in this subparagraph shall prohibit a broker-dealer from
entering bona fide agency cross transactions for its customers; or
(c) effecting, alone or with one or more
other persons, a series of transactions in any security creating actual or
apparent active trading in a security or raising or depressing the price of a
security, for the purpose of inducing the purchase or sale of the security by
others;
(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:
(a) purports to report any transaction as a
purchase or sale of any security unless the broker-dealer believes that the
transaction was a bona fide purchase or sale of the security; or
(b) purports to quote the bid price or asked
price for any security, unless the broker-dealer believes that the quotation
represents a bona fide bid for, or offer of, the security;
(18) using any advertising or sales
presentation 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, 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, 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;
(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, a selling group member,
or from a member participating in the distribution as an underwriter or selling
group member;
(21) failure or
refusal 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 therefor;
(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, 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 subsection 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 Conduct Rules of FINRA or any applicable fair practice or
ethical standard promulgated by the SEC or by a self-regulatory organization to
which the broker-dealer is subject and which is approved by the SEC;
(29) any acts or practices enumerated in
Section
R164-1-3;
(30) failing to comply with a reasonable
request from the Division for information or testimony, or an examination
request made pursuant to Subsection
61-1-5(5),
or a subpoena of the Division;
(31)
dividing or otherwise splitting commissions, profits or other compensation from
the purchase or sale of securities with any person not licensed as an agent of
the broker-dealer, or of a broker-dealer under direct or indirect common
control; or
(32) in connection with
the offer, sale, or purchase of any security, using a specific certification or
designation that indicates or implies that the user has special certification
or training in advising or servicing clients or prospective clients, in such a
way as to mislead any person. The prohibited use of such certification or
professional designation 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 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; or
(d) use of a
certification or professional designation that was obtained from a designating
or certifying organization that:
(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.
(D) Agents
In relation to agents of broker-dealers or agents of issuers, as used in Subsection 61-1- 6(2)(a)(ii)(G) "dishonest or unethical practices" shall include:
(1) engaging in the
practice of lending or borrowing money or securities from a customer, or acting
as a custodian for money, securities or an executed stock power of a
customer;
(2) effecting securities
transactions not recorded on the regular books or records of the broker- dealer
which the agent represents, in the case of agents of broker-dealers, unless the
transactions are authorized in writing by the broker-dealer prior to execution
of the transaction;
(3)
establishing or maintaining an account containing fictitious information in
order to execute transactions which would otherwise be prohibited;
(4) 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;
(5) dividing or
otherwise splitting the agent's commissions, profits or other compensation from
the purchase or sale of securities with any person not also licensed as an
agent for the same broker-dealer, or for a broker- dealer under direct or
indirect common control;
(6) for
agents who are dually licensed under Rule
R164-4-1(D)(4)(b),
failing to disclose the dual license to a client; or
(7) engaging in conduct specified in
subsections (C)(2), (C)(3), (C)(4), (C)(5), (C)(6), (C)(9), (C)(10), (C)(15),
(C)(16), (C)(17), (C)(18), (C)(24), (C)(25), (C)(26), (C)(28), (C)(29), (C)(30)
or (C)(32).
(E) Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers
In relation to investment advisers or investment adviser representatives, as used in Subsection 61-1- 6(2)(a)(ii)(G) "dishonest or unethical practices" shall include the following listed practices. In relation to federal covered advisers, as used in Subsection 61-1-6(2)(a)(ii)(G), "dishonest or unethical practices" shall include the following, but only if such conduct involves fraud or deceit:
(1) 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 by the investment adviser;
(2) exercising any discretionary power in
placing an order for the purchase or sale of securities for a client without
obtaining written discretionary authority from the client within ten (10)
business days after the date of the first transaction placed pursuant to oral
discretionary authority, unless the discretionary power relates solely to the
price at which, or the time when, an order involving a definite amount of a
specified security shall be executed, or both;
(3) 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 if an adviser in such
situations can directly benefit from the number of securities transactions
effected in a client's account. The rule appropriately forbids an excessive
number of transaction orders to be induced by an adviser for a "customer
account";
(4) placing an order to
purchase or sell a security for the account of a client without authority to do
so;
(5) 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;
(6)
borrowing money or securities 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;
(7) loaning money to a client unless the
investment adviser is a financial institution engaged in the business of
loaning funds or the client is an affiliate of the investment
adviser;
(8) 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;
(9) providing a report or recommendation to
any advisory client prepared by someone other than the adviser without
disclosing that fact except that 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 such a report in the normal course of
providing service;
(10) charging a
client an unreasonable advisory fee;
(11) 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:
(a) entering into compensation arrangements
connected with advisory services to clients which are in addition to
compensation from such clients for such services; and
(b) charging a client an advisory fee for
rendering advice when a commission for executing securities transactions
pursuant to such advice will be received by the adviser or its
employees;
(12)
guaranteeing a client that a specific result will be achieved (gain or no loss)
with advice which will be rendered;
(13) publishing, circulating or distributing
any advertisement which does not comply with Rule 206(4)-1 under the Investment
Advisers Act of 1940;
(14)
disclosing the identity, affairs, or investments of any client unless required
by law to do so, or unless consented to by the client;
(15) 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 when the adviser's action is subject to and does
not comply with the requirements of Reg. 206(4)-2 under the Investment Advisers
Act of 1940;
(16) 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;
(17) 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;
(18) 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 and investment
adviser representatives registered or required to be registered under this Act,
notwithstanding whether such adviser or investment adviser representative would
be exempt from federal registration pursuant to section 203(b) of the
Investment Advisers Act of 1940;
(19) including, in an advisory contract, any
condition, stipulation, or provisions binding any person to waive compliance
with any provision of this act or of the Investment Advisers Act of 1940, or
any other practice that would violate section 215 of the Investment Advisers
Act of 1940;
(20) 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 notwithstanding the fact that such investment adviser or investment
adviser representative is not registered or required to be registered under
section 203 of the Investment Advisers Act of 1940;
(21) engaging in conduct or any act,
indirectly or through or by any other person, which would be unlawful for such
person to do directly under the provisions of this act or any rule or
regulation thereunder;
(22) for an
investment adviser representative compensating any customer for losses in the
account of the customer without the prior written authorization of the customer
and the representative's investment adviser;
(23) failing to comply with a reasonable
request from the Division for information or testimony, or an examination
request made pursuant to Subsection
61-1-5(5),
or a subpoena of the Division; or
(24) in connection with 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 when issuing or promulgating analyses or reports relating to
securities, using a specific certification or designation that indicates or
implies that the user has special certification or training in advising or
servicing clients or prospective clients, in such a way as to mislead any
person. The prohibited use of such certification or professional designation
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 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; or
(d) use of a
certification or professional designation that was obtained from a designating
or certifying organization that:
(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.
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