2023 New Hampshire Revised Statutes › Title XXXVIII - Securities › Chapter 421-B - Uniform Securities Act › Section 421-B:4-411 - Postregistration Requirements.

421-B:4-411 Postregistration Requirements. –
(a) Financial requirements. Subject to the Securities Exchange Act of 1934, 15 U.S.C. section 78o(h), or the Investment Advisers Act of 1940, 15 U.S.C. section 80b-18a, an order issued under this chapter may establish minimum financial requirements for broker-dealers registered or required to be registered under this chapter and investment advisers registered or required to be registered under this chapter, including without limitation the following:
(1) Each broker-dealer registered or required to be registered under this chapter shall comply with the net capital requirements set forth in Rule 15c3-1 under the Securities and Exchange Act of 1934, 17 C.F.R. 240.15c3-1 and the custody requirements set forth in Rule 15c3-3 under the Securities and Exchange Act of 1934, 17 C.F.R. 240.15c3-3, as may be amended, and shall report to the secretary of state those items requiring reporting under Rules 17a-5, 17a-10 and 17a-11, under the Securities and Exchange Act of 1934, 17 C.F.R. 240. 17a-5, 17 C.F.R. 240.17a-10, and 17 C.F.R. 240.17a-11 as may be amended.
(2) Each investment adviser registered or required to be registered under this chapter which has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000 and every investment adviser registered or required to be registered under this chapter which has discretionary authority over client funds or securities, but does not have custody of client funds or securities, shall maintain at all times a minimum net worth of $10,000. The secretary of state shall specify by order the requirements for determining and reporting such net worth to the secretary of state. Any such investment adviser which has its principal place of business in another state shall maintain such minimum net worth as required by the state in which it maintains its principal place of business, provided that the investment adviser is registered or licensed in such state and is in compliance with such state's minimum net worth requirements.
(3) Each investment adviser registered or required to be registered under this chapter which has custody of client funds or securities shall comply with Rule 206(4)-2 under the Investment Advisers Act of 1940, 17 C.F.R. 275.206(4)-2.
(b) Financial reports.
(1) Every broker-dealer or agent doing business in this state unless otherwise directed shall, within 60 days after the close of its fiscal year, make and transmit to the secretary of state a filing under oath of its chief managing officer showing or providing the financial statement, changes in management, changes in ownership, and any significant changes in the method of doing business for the preceding fiscal year, except as provided by section 15(h) of the Securities Exchange Act of 1934 in the case of a broker-dealer, and section 222 of the Investment Advisers Act of 1940 in the case of an investment adviser. The filing shall include statements or periodic reports filed with any regulatory, state, or federal authority or exchange if so directed by order or rule of the secretary of state. Every broker-dealer shall include audited financial statements certified by an independent certified public accountant consisting of a balance sheet, income statement, statement of cash flows, a reconciliation of surplus and appropriate notes prepared in accordance with generally accepted accounting principles.
(2) The secretary of state may extend the time for filing such statement for cause shown for a period of not more than 60 days. A broker dealer failing to file its annual statement as required by subsection (b)(1) shall forfeit to the state $25 for each day of delinquency; provided, however, that for good cause shown, the secretary of state may abate all or a portion of the delinquency penalty. The secretary of state may refuse to continue, or may suspend or revoke, the license of any broker dealer failing to file its annual statement when due. When the sixtieth day falls on a weekend, or on a New Hampshire state or federal legal holiday, the due date shall be automatically extended to the next business day following such weekend or holiday.
(c) Recordkeeping. Subject to the Securities Exchange Act of 1934, 15 U.S.C. section 78o(h) or the Investment Advisers Act of 1940, 15 U.S.C. section 80b-18a:
(1) A broker-dealer registered or required to be registered under this chapter and an investment adviser registered or required to be registered under this chapter shall make and maintain the accounts, correspondence, memoranda, papers, books, and other records required by order issued under this chapter except as provided by Section 15 of the Securities Exchange Act of 1934 in the case of broker-dealers and Section 222 of the Investment Advisers Act of 1940 in the case of investment advisers;
(2) broker-dealer records required to be maintained under subsection (c)(1) may be maintained in any form of data storage acceptable under the Securities Exchange Act of 1934, 15 U.S.C. section 78q(a), if they are readily accessible to the secretary of state; and
(3) investment adviser records required to be maintained under subsection (1) may be maintained in any form of data storage required by order issued under this chapter.
(4) Every investment adviser registered or required to be registered under this chapter shall make and keep true, accurate and current the following books, ledgers, and records:
(A) 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.
(B) General and auxiliary ledgers or other comparable records, reflecting asset, liability, reserve, capital, income, and expense accounts.
(C) A memorandum of each order given by the investment adviser for the purchase or sale of any security or any instruction received by the investment adviser from the client concerning the purchase, sale, receipt, or delivery of a particular security, and of any modification or cancellation of any such order or instruction. Such memoranda shall show the terms 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 such 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.
(D) All checkbooks, bank statements, canceled checks, and cash reconciliations of the investment adviser.
(E) All bills or statements (or copies thereof), paid or unpaid, relating to the business of the investment adviser as such.
(F) All trial balances, financial statements, and internal audit working papers relating to the business of such investment adviser.
(G) Originals of all written communications received and copies of all written communications sent by such investment adviser relating to (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; provided, however, that (i) the investment adviser shall not be required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser, and (ii) if the investment adviser sends any notice, circular or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent; except that if such notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of such notice, circular or advertisement, a memorandum describing the list and the source thereof.
(H) A list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities, or transactions of any client.
(I) All powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser, or copies thereof.
(J) All written agreements (or copies thereof) entered into by the investment adviser with any client or otherwise relating to the business of such investment adviser as such.
(K) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than persons connected with such investment adviser) and, if such notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication recommends the purchase or sale of a specific security and does not state the reasons for such recommendation, a memorandum of the investment adviser indicating the reasons therefor.
(L)(i) A record of every transaction in a security in which the investment adviser or any advisory representative of such investment adviser has, or by reason of such transaction, acquires any direct or indirect beneficial ownership, except (i) transactions effected in any account over which neither the investment adviser nor any investment adviser representative has any direct or indirect influence or control; and (ii) transactions in securities which are direct obligations of the United States. Such record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale, or other acquisition or disposition); the price at which it was effected; and the name of the broker-dealer or bank with or through whom the transaction was effected. Such record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.
(ii) An investment adviser shall not be deemed to have violated subsection (c)(4) because of failure to record securities transactions of any investment adviser representative if the investment adviser establishes that adequate procedures were instituted and reasonable diligence used to obtain promptly reports of all transactions required to be recorded.
(M)(i) Notwithstanding the provisions of subsection (c)(4)(L) where the investment adviser is primarily engaged in a business or businesses other than advising advisory clients, a record shall be maintained of every transaction in a security in which the investment adviser or any investment adviser representative of such investment adviser has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, except (i) transactions effected in any account over which neither the investment adviser nor any investment adviser representative of the investment adviser has any direct or indirect influence or control; and (ii) transactions in securities which are direct obligations of the United States. Such record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale or other acquisition or disposition); the price at which it was effected, and the name of the broker-dealer or bank with or through whom the transaction was effected. Such record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than 10 calendar days after the end of the calendar quarter in which the transaction was effected.
(ii) An investment adviser is "primarily engaged in a business or businesses other than advising advisory clients" when, for each of its most recent 3 fiscal years or for the period of time since organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of (a) its total sales and revenues, and (b) its income or loss before income taxes and extraordinary items, from such other business or businesses.
(iii) An investment adviser shall not be deemed to have violated subsection (c)(4)(M) because of failure to record securities transactions of any investment adviser representative if the investment adviser establishes that adequate procedures were instituted and reasonable diligence used to obtain promptly reports of all transactions required to be recorded.
(N)(i)(a) A copy of each written statement and each amendment or revision thereof, given or sent to any client or prospective client of such investment adviser;
(b) Any summary of material changes that is required by Part 2 of Form ADV but is not contained in the written statement; and
(c) A record of the dates that each written statement, each amendment or revision thereto, and each summary of material changes was given or offered to any client or to any prospective client who subsequently becomes a client.
(ii) A memorandum describing any legal or disciplinary event listed in Item 8 of Part 2A or Item 3 of Part 2B of Form ADV and presumed to be material, if the event involved the investment adviser or any of its supervised persons and is not disclosed in the written statements described in subsection (c)(13)(A). The memorandum shall explain the investment adviser's determination that the presumption of materiality is overcome, and shall discuss the factors described in those items.
(O) 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 any or all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than persons connected with, affiliated with or employed by such investment adviser); provided, however, that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debts, 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 subsection.
(P) Copies, with original signatures of the investment adviser's appropriate signatory and the investment adviser representative, of each initial Form U-4 and each amendment to Disclosure Reporting Pages (DRPs U-4) must be retained by the investment adviser (filing on behalf of the investment adviser representative), and shall be made available for inspection upon request by the secretary of state.
(Q) A separate file on all written complaints of customers and action taken by the investment adviser, if any, or a separate record of such complaints and a clear reference to the files containing the correspondence connected with such complaints as maintained in such office. For purposes of subsection (c)(4)(Q), a "complaint" means any written statement of a customer or any person acting on behalf of a customer alleging a grievance involving the activities of those persons under the control of the investment adviser in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.
(R) A litigation file open to inspection by the secretary of state documenting any criminal or civil actions filed in any state or federal court against the investment adviser's branch office or against any of its personnel with respect to a securities transaction and the disposition of any such litigation.
(5) If an investment adviser subject to RSA 421-B:4-411(c)(3) has custody or possession of securities or funds of any client, the records required to be made and kept under subsection (b), shall also include:
(A) A journal or other record showing all purchases, sales, receipts, and deliveries of securities (including certificate numbers) for such accounts, and all other debits and credits to such accounts.
(B) A separate ledger account for each such client showing all purchases, sales, receipts, and deliveries of securities, the date and price of each such purchase and sale, and all debits and credits.
(C) Copies of confirmations of all transactions effected by or for the account of any such client.
(D) A record for each security in which any such client has a position, which record shall show the name of each such client having any interest in each security, the amount or interest of each such client, and the location of each such security.
(6) 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, every investment adviser subject to subsection (c) who renders any investment supervisory or management service to any client shall make and keep true, accurate, and current:
(A) Records showing separately for each such client the securities purchased and sold, and the date, amount, and price of each such purchase and sale.
(B) For each security in which any such client has a current position, information from which the investment adviser can promptly furnish the name of each such client, and the current amount or interest of such client.
(7) Any books or records required by this subsection (c) may be maintained by the investment adviser in such manner that the identity of any client to whom the investment adviser renders investment advisory services is indicated by numerical or alphabetical code or some similar designation.
(8)(A) All books and records required to be made under subsections (a), (b), (c), (d), (e)(1), (h), and (i), except for the books and records required to be made under subsections (c)(11) and (c)(15), shall be maintained and preserved in (i) an easily accessible place for a period of not less than 5 years from the end of the fiscal year during which the last entry was made on those books and records and (ii) during the first 2 years, an appropriate office of the investment adviser.
(B) Partnership articles and any amendments thereto, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor shall be maintained in the principal office of the investment adviser and preserved until at least 3 years after termination of the enterprise.
(C) Books and records required to be made under subsections (c)(11) and (c)(15) shall be maintained and preserved in an easily accessible place for a period of not less than 5 years, the first 2 years in an appropriate office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication.
(9) Before ceasing to conduct or discontinuing business as an investment adviser, an investment adviser subject to subsection (c), shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under subsection (c) for the remainder of the period specified in this subsection, and shall notify the secretary of state in writing of the exact address where such books and records will be maintained during such period.
(10)(A) The records required to be maintained and preserved pursuant to subsection (c) shall be immediately produced or reproduced by photograph, on film, or, as provided in subsection (i), on magnetic disk, tape or other computer storage medium, and shall be maintained and preserved for the required time in that form. If records are produced or reproduced by the photographic film or computer storage medium, the investment adviser shall:
(i) Arrange the records and index the films or computer storage medium so as to permit the immediate location of any particular record.
(ii) Be ready at all times to provide, and promptly provide, any facsimile enlargement of film or computer printout or copy of the computer storage medium which the secretary of state by its examiners or other representatives may request.
(iii) Store separately from the original one other copy of the film or computer storage medium for the time required.
(iv) With respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration, or destruction.
(v) With respect to records stored on film, at all times have available for the secretary of state's examination its records pursuant to provisions of this chapter, and facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements.
(B) Pursuant to subsection (i) an investment adviser may maintain and preserve, on computer tape or disk or other computer storage medium, records which, in the ordinary course of the adviser's business, are created by the adviser on electronic media or are received by the adviser solely on electronic media or by electronic data transmission.
(11) For purposes of subsection (c), "investment supervisory services" means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client.
(12) Every investment adviser that has its principal place of business in a state other than this state shall be exempt from the requirements of this section, provided the investment adviser is licensed in such state and is in compliance with such state's recordkeeping requirements.
(13)(A)(i) Unless otherwise provided in this section, an investment adviser registered or required to be registered under this chapter shall, in accordance with the provisions of this section, furnish each advisory client and prospective advisory client with a written disclosure statement which may be a copy of Part 2 of its Form ADV or written documents containing at least the information then so required by Part 2 of Form ADV, and such other information as the secretary of state may require. Each investment adviser shall furnish each advisory client and prospective advisory client with a firm brochure and one or more supplements as required by this section. The brochure and supplements shall contain all information required by Part 2 of Form ADV (17 C.F.R. 279.1), and such other information as the secretary of state may require.
(ii) An investment adviser shall deliver: (a) The current brochure required by this section to a client or prospective client, and (b) The current brochure supplements for each investment adviser representative who will provide advisory services to the client.
(iii) An investment adviser shall deliver the disclosure statement required by this section to an advisory client or prospective advisory client not less than 48 hours prior to entering into any investment advisory contract with such client or prospective client, or at the time of entering into any such contract, if the advisory client has the right to terminate the contract without penalty within 5 business days after entering into the contract.
(B) Any disclosure statement requested in writing by an advisory client pursuant to an offer required by subsection (c)(13)(C) shall be mailed or delivered within 7 days of the receipt of the request.
(C) If the adviser is the general partner of a limited partnership, the manager of a limited liability company, or the trustee of a trust, then for purposes of this section the investment adviser shall treat each of the partnership's limited partners, the company's members, or the trust's beneficial owners as a client. For purposes of subsection (c)(13)(C), a limited liability partnership or limited liability limited partnership is a "limited partnership."
(D) If an investment adviser renders substantially different types of investment advisory services to different advisory clients, the investment adviser may provide them with different disclosure documents or brochures, provided that each client receives all applicable information about services and fees. The brochure delivered to a client may omit any information required by Part 2A of Form ADV if such information is applicable only to a type of investment advisory service or fee that is not rendered or charged, or proposed to be rendered or charged, to that client or prospective client.
(E) The investment adviser shall amend its brochure and any brochure supplements and deliver the amendments to clients promptly when information contained in the brochure or brochure supplements becomes materially inaccurate. The instructions to Part 2 of Form ADV contain updating and delivery instructions that the investment adviser shall follow. An amendment will be considered to be delivered promptly if the amendment is delivered within 30 days of the event that requires the filing of the amendment.
(F) Nothing in this section shall relieve any investment adviser from any obligation pursuant to any provision of this chapter or the rules and regulations thereunder or other federal or state law to disclose any information to its advisory clients or prospective advisory clients not specifically required by this section.
(G)(i) If the investment adviser is a sponsor of a wrap fee program, then the brochure, required to be delivered by subsection (c)(13)(A) to a client or prospective client of the wrap fee program, must be a wrap fee brochure containing all information required by Form ADV. Any additional information in a wrap fee brochure shall be limited to information applicable to wrap fee programs that the investment adviser sponsors.
(ii) The investment adviser does not have to offer or deliver a wrap fee brochure if another sponsor of the wrap fee program offers or delivers to the client or prospective client of the wrap fee program a wrap fee program brochure containing all the information the investment adviser's wrap fee program brochure must contain.
(iii) A wrap fee brochure does not take the place of any brochure supplements that the investment adviser is required to deliver under subsection (c)(13)(G).
(H) All investment advisers registered or required to be registered under this chapter must deliver to each of their clients their current brochure and all required brochure supplements within 30 days from the date of effectiveness of Part 2 of Form ADV.
(I) For the purpose of subsection (c)(13)(G), the following definitions shall apply:
(i) "Current brochure" and "current brochure supplement" mean the most recent revision of the brochure or brochure supplement, including all subsequent amendments (i.e., stickers).
(ii) "Entering into" in reference to an investment advisory contract, does not include an extension or renewal without material change of any such contract which is in effect immediately prior to such extension or renewal.
(iii) "Sponsor" of a wrap fee program means an investment adviser that is compensated under a wrap fee program for sponsoring, organizing, or administering the program, or for selecting, or providing advice to clients regarding the selection of other investment advisers in the program.
(iv) "Wrap fee program" means an advisory program under which a specified fee or fees, not based directly upon transactions in a client's account, is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions.
(14)(A) Every registered investment adviser who has custody of client funds or securities or requires payment of advisory fees 6 months or more in advance and in excess of $500 per client shall file with the secretary of state an audited balance sheet as of the end of the investment adviser's fiscal year. Each balance sheet filed pursuant to subsection (c)(14)(A) shall be:
(i) Examined in accordance with generally accepted auditing standards and prepared in conformity with generally accepted accounting principles;
(ii) Audited by an independent public accountant or an independent certified public accountant; and
(iii) Accompanied by an opinion of the accountant as to the report of financial position and by a note stating the principles used to prepare it, the basis of included securities, and any other explanations required for clarity.
(B) The financial statements required by this subsection (c)(14) shall be filed with the secretary of state within 90 days following the end of the investment adviser's fiscal year.
(C) Every investment adviser that has its principal place of business in a state other than this state shall maintain such books or records as required by the state in which the investment adviser maintains its principal place of business, provided that the investment adviser:
(i) Is registered or licensed as such in the state in which it maintains its principal place of business; and
(ii) Is in compliance with the applicable books and records requirements of the state in which it maintains its principal place of business.
(15) Every licensed broker-dealer shall comply with minimum financial requirements and financial reporting requirements as follows:
(A) Each broker-dealer licensed or required to be licensed under this chapter shall comply with Rules 15c3-1, 15c3-2, and 15c-3 under the Securities and Exchange Act of 1934, 17 C.F.R. 240.15c3-1, 17 C.F.R. 240.15c3-2, and 17 C.F.R. 240.15c3-3.
(B) Each broker-dealer licensed or required to be licensed under this chapter shall comply with Rules 17a-11 under the Securities and Exchange Act of 1934, (17 C.F.R. 240.17a-11) and shall file with the secretary of state upon request, or as required by this chapter or orders or rules promulgated thereunder, copies of notices and reports required under Rules 17a-5, 17a-10, and 17a-11 under the Securities and Exchange Act of 1934, 17 C.F.R. 240.17a-5, 17 C.F.R. 240.17a-10, and 17 C.F.R. 240.17a-11.
(C) To the extent that the Securities and Exchange Commission promulgates changes to the rules, described in subsections (c)(15)(A) and (c)(15)(B) broker-dealers in compliance with such rules as amended shall not be subject to enforcement action by the secretary of state for violation of this section to the extent that the violation results solely from the broker-dealer's compliance with the amended rules.
(16) Every licensed investment adviser shall comply with minimum financial requirements and financial reporting requirements as follows:
(A) An investment adviser registered or required to be registered under this chapter who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000, and every investment adviser licensed or required to be licensed under this chapter who has discretionary authority over client funds or securities, but does not have custody of client funds or securities, shall maintain at all times a minimum net worth of $10,000.
(B) Unless otherwise exempted, as a condition of the right to continue to transact business in this state, every investment adviser registered or required to be registered under this chapter shall by the close of business on the next business day notify the secretary of state if such investment adviser's total worth is less than the minimum required. After transmitting such notice, each investment adviser shall file by the close of business on the next business day, a report with the secretary of state of its financial condition, including the following:
(i) A trial balance of all ledger accounts;
(ii) A statement of all client funds or securities which are not segregated;
(iii) A computation of the aggregate amount of client ledger debit balances; and
(iv) A statement as to the number of client accounts.
(C) For purposes of subsection (c)(16), the term "net worth," means an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets: prepaid expenses (except as to items properly classified as current assets under generally accepted accounting principles), deferred charges, goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, all other assets of intangible nature; home, home furnishings, automobiles, and any other personal items not readily marketable in the case of an individual; advances or loans to stockbrokers and officers in the case of a corporation; and advances or loans to partners in the case of a partnership.
(D) The secretary of state may require that a current appraisal be submitted in order to establish the worth of any asset.
(E) For purposes of these rules an investment adviser shall not be deemed to be exercising discretion when it places a trade order with a broker-dealer, pursuant to a third party trading agreement if:
(i) The investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that a third party trading agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client's broker-dealer account;
(ii) The investment adviser contract specifically states that the client does not grant discretionary authority to the investment adviser, and the investment adviser in fact does not exercise discretion with respect to the account; and
(iii) A third party trading agreement is executed between the client and a broker-dealer which specifically limits the investment adviser's authority in the client's broker-dealer account to the placement of trade orders and deduction of investment adviser fees.
(F) Every investment adviser that has its principal place of business in a state other than this state shall maintain such minimal capital as required by the state in which the investment adviser maintains its principal place of business, provided that the investment adviser is licensed in such state and is in compliance with such state's minimal capital requirements.
(d) Audits or inspections.
(1) The records of a broker-dealer registered or required to be registered under this chapter and of an investment adviser registered or required to be registered under this chapter and of an issuer of securities whose principal office is located in this state are subject to such reasonable periodic, special, or other audits or inspections by a representative of the secretary of state, within or without this state, as the secretary of state considers necessary or appropriate in the public interest and for the protection of investors. An audit or inspection may be made at any time and without prior notice. The secretary of state may copy, and remove for audit or inspection copies of, all records the secretary of state reasonably considers necessary or appropriate to conduct the audit or inspection. The secretary of state may assess a reasonable charge for conducting an audit or inspection under this subsection (d)(1).
(2) For the purpose of ascertaining compliance with law or relationships and transactions between any person and any broker-dealer, investment adviser, or agent or proposed broker-dealer, investment adviser, or agent and in circumstances where the secretary of state has reasonable grounds to believe there is noncompliance with or violation of any law, rule, or order, the secretary of state may, as often and to the extent he or she deems advisable, examine the accounts, records, documents, and transactions pertaining to or affecting the securities affairs or proposed securities affairs and transactions of:
(A) Any person having a contract under which the person enjoys by terms or in fact the exclusive or dominant right to manage or control the broker-dealer, investment adviser, or agent;
(B) Any person in this state engaged in, proposing to be engaged in, holding himself, herself, or itself out as so engaging, or proposing or assisting in the promotion, formation, or financing of a broker-dealer, investment adviser, or agent, or corporation or other group to finance a broker-dealer, investment adviser, or agent or the production of its business;
(C) Any rating bureau or organization;
(D) Any registrant or other person subject to this chapter; or
(E) If adequate information cannot be obtained, any broker-dealer, agent, investment adviser, holding company or person holding the shares of voting stock or proxies of a broker-dealer, investment adviser, or agent as voting trustee or otherwise, for the purpose of controlling the management thereof.
(3) Whenever the secretary of state decides to examine the affairs of any person, he or she shall designate one or more examiners and instruct them as to the scope of the examination. Upon demand, the examiner shall exhibit his or her official credentials to the person under examination.
(A) The secretary of state shall conduct each examination in an expeditious, fair, and impartial manner.
(B) Upon any such examination the secretary of state, or the examiner if specifically so authorized in writing by the secretary of state, shall have power to administer oaths, and the power to examine under oath any individual as to any matter relevant to the affairs under examination or relevant to the examination.
(C) Every person being examined, and all of the officers, attorneys, employees, agents, and representatives of such person shall make freely available to the secretary of state or his or her examiners the accounts, records, documents, files, information, assets, and matters in their possession or control relating to the subject of the examination and shall facilitate the examination.
(D) If the secretary of state or examiner finds any accounts or records to be inadequate, or kept or posted in a manner not in accordance with commonly accepted securities accounting principles, then the secretary of state may employ experts to reconstruct, rewrite, post or balance them at the expense of the person being examined if such person has failed to maintain, complete or correct such records or accounting after the secretary of state or examiner has given him or her written notice and a reasonable opportunity to do so.
(E) Neither the secretary of state nor any examiner shall remove any record, account, document, file or other property of the person being examined from the offices or place of such person except with the written consent of such person in advance of such removal or pursuant to an order of court duly obtained. Subsection (c)(2)(E) shall not be deemed to affect the making and removal of copies or abstracts of any such record, account, document, or file.
(F) Any individual who refuses without just cause to be examined under oath or who willfully obstructs or interferes with the examiners in the exercise of their authority pursuant to subsection (d) shall be guilty of a misdemeanor.
(4)(A) Upon completion of an examination, the examiner in charge shall make a true report thereof which shall comprise only facts appearing upon the books, records or other documents of the person examined, or as ascertained from the sworn testimony of its officers or agents or other individuals examined concerning its affairs, and such conclusions and recommendations as may reasonably be warranted from such facts. The report of examination shall be verified by the oath of the examiner in charge thereof.
(B) Such a report of examination of a broker-dealer or agent so verified shall be prima facie evidence in any delinquency proceeding against the broker-dealer or agent, its officers, employees, or agents upon the facts stated therein, whether or not the report has been filed as provided in subsection (d)(5)(C).
(5)(A) The secretary of state shall deliver a copy of the examination report to the person examined, together with a notice affording such person 20 days or such additional reasonable period as the secretary of state for good cause may allow, within which to review the report and recommend changes therein.
(B) If so requested by the person examined, then, within the period allowed under subsection (d)(5)(A), or if deemed advisable by the secretary of state without such request, the secretary of state shall hold a closed hearing relative to the report and shall not file the report in the department until after such closed hearing and his or her order thereon; except, that the secretary of state may furnish a copy of the report to the governor, secretary of state or state treasurer pending final decision thereon.
(C) If no such closed hearing has been requested or held, then the examination report, with any modifications, that the secretary of state deems proper, shall be accepted by the secretary of state and filed upon expiration of the review period provided for in subsection (d)(5)(A). The report shall in any event be so accepted and filed within 6 months after final hearing thereon.
(D) The secretary of state shall forward to the person examined a copy of the examination report as filed, together with any recommendations or statements relating thereto which he or she deems proper.
(E) The report when so filed in the department shall be admissible in evidence in accordance with rules of the superior court, in any action or proceeding brought by the secretary of state against the person examined, or against its officers, employees, or agents. In any such action or proceeding, the secretary of state or his or her examiners may, however, at any time testify and offer proper evidence as to information secured or matters discovered during the course of an examination, whether or not a written report of the examination has been either made, furnished, or filed in the department.
(6) All reports pursuant to subsection (d) shall be absolutely privileged and although filed in the department as provided in subsection (d)(5) shall nevertheless not be for public inspection. The comments and recommendations of the examiner shall also be deemed confidential information and shall not be available for public inspection, except as the secretary of state in his or her discretion may deem advisable.
(7) The broker-dealer or other person examined pursuant to subsection (d) shall bear the expense of the examination. Such expenses shall be limited to a reasonable per diem allowance for compensation and expenses as determined by the secretary of state. The per diem allowance shall not exceed $100. Notwithstanding any other provision of law, domestic agents shall be exempt from bearing the expense of examinations conducted pursuant to subsection (d), except for the mileage expenses to and from the examination incurred by the department.
(8) Notwithstanding any other provision of law, the broker-dealer or other person liable for the travel expense of an examination pursuant to subsection (d)(7) shall make such payment either directly to the individual conducting the examination, whether or not such individual is a classified state employee, or to the state of New Hampshire, as may be directed by the secretary of state. The secretary of state may direct that the travel expense allowance be paid directly to the individual conducting the examination. The compensation allowance shall be paid directly to the state. The amounts paid directly to individuals conducting the examination pursuant to subsection (d) may be in excess of any amounts that may be appropriated for such purposes.
(e) Custody and discretionary authority bond or insurance. Subject to the Securities Exchange Act of 1934, 15 U.S.C. section 78o(h), or the Investment Advisers Act of 1940, 15 U.S.C. section 80b-18a, a rule adopted or order issued under this chapter may require a broker-dealer or investment adviser that has custody of or discretionary authority over funds or securities of a customer or client to obtain insurance or post a bond or other satisfactory form of security in an amount not to exceed $100,000. The secretary of state may determine the requirements of the insurance, bond, or other satisfactory form of security. Insurance or a bond or other satisfactory form of security may not be required of a broker-dealer registered under this chapter whose net capital exceeds, or of an investment adviser registered under this chapter whose minimum financial requirements exceed, the amounts required by rule or order under this chapter. The insurance, bond, or other satisfactory form of security must permit an action by a person to enforce any liability on the insurance, bond, or other satisfactory form of security if instituted within the time limitations in RSA 421-B:5-509(j)(2).
(f) Requirements for custody. Subject to the Securities Exchange Act of 1934, 15 U.S.C. section 78o(h), or the Investment Advisers Act of 1940, 15 U.S.C. section 80b-18a, an agent may not have custody of funds or securities of a customer except under the supervision of a broker-dealer and an investment adviser representative may not have custody of funds or securities of a client except under the supervision of an investment adviser or a federal covered investment adviser. An order issued under this chapter may prohibit, limit, or impose conditions on a broker-dealer regarding custody of funds or securities of a customer and on an investment adviser regarding custody of securities or funds of a client.
(g) Investment adviser brochure rule. Each investment adviser registered or required to be registered under this chapter shall furnish to its customers the information set forth in Part 2 of Form ADV.
(h) Continuing education. An order issued under this chapter may require an individual registered under RSA 421-B:4-402 or RSA 421-B:4-404 to participate in a continuing education program approved by the Securities and Exchange Commission and administered by a self-regulatory organization or, in the absence of such a program, a rule adopted or order issued under this chapter may require continuing education for an individual registered under RSA 421-B:4-404.
(i) Privacy provisions. A broker-dealer registered or required to be registered under this chapter and an investment adviser registered or required to be registered under this chapter shall comply with the privacy provisions of Regulation S-P adopted by the Securities and Exchange Commission.
(j) Requests for Information. The secretary of state may require at any reasonable time and in any reasonable manner from any person or company subject to this chapter:
(1) Statements, reports, including reports audited by independent public accountants, answers to questionnaires and other information, and evidence thereof, in whatever reasonable form he or she designates, and at such reasonable intervals as the secretary of state may choose, or from time to time;
(2) A full explanation of the programming of any data storage or communications systems in use; and
(3) Information from any books, records, electronic data processing systems, computers, or any other information storage system.
(k) Forms for reports. The secretary of state may prescribe forms for the reports under RSA 421-B:4-411(j). The forms shall be consistent, as far as practicable, with those prescribed by other states.
(l) Response to inquiries. Any officer, manager, or agent of any broker-dealer or investment adviser authorized to do or doing securities business in this state, and any person controlling or having a contract under which he or she has a right to control such a broker-dealer or investment adviser, whether exclusively or otherwise, and any person with executive authority over or in charge of any segment of such a broker-dealer's or investment adviser's business, shall reply promptly in writing or in other designated form, to any written inquiry from the secretary of state requesting a reply.
(m) Verification of communications. The secretary of state may require that any communication made to him or her under this section be verified.
(n) Privilege against defamation. In the absence of actual malice, no communication required by the secretary of state under this section shall subject the person making it to an action for damages for defamation.
(o) Privilege. The information obtained pursuant to RSA 421-B:4-411(j) shall be privileged.
(p) False filings. Any director, officer, agent, or employee of any broker-dealer, investment adviser, or agent who subscribes to, makes, or concurs in making or publishing, any annual or other statement required by law, having actual knowledge that the same contains any material statement which is false, shall be guilty of a misdemeanor if a natural person, or guilty of a felony if any other person.
(q) Updating of information. If the information contained in any document filed with the secretary of state is or becomes inaccurate or incomplete in any material respect, the registrant or federal covered adviser shall file a correcting amendment promptly if the document is filed with respect to a registrant or when such amendment is required to be filed with the Securities and Exchange Commission if the document is filed with respect to a federal covered adviser, unless notification of the correction has been given under article 4.
(r) Incorporation of other securities laws and rules. Persons registered under this chapter to conduct securities business shall abide by the rules of the Securities and Exchange Commission, FINRA or successor organization, national and regional stock exchanges, and other self-regulatory organizations which have jurisdiction over the registrant, which set forth standards of conduct in the securities industry.
(s) Other Information for advisory clients. With respect to investment advisers, the secretary of state may require that certain information be furnished or disseminated as necessary or appropriate in the public interest or for the protection of investors and advisory clients. To the extent determined by the secretary of state, in the secretary of state's discretion, information furnished to clients or prospective clients of an investment adviser that would be in compliance with the Investment Advisers Act of 1940 and the rules thereunder may be used in whole or partial satisfaction of this requirement.
Source.
2015, 273:1, eff. Jan. 1, 2016.