Arkansas Administrative Code › Agency 003 - DEPARTMENT OF COMMERCE › Division 14 - Arkansas Securities Department › Rule 003.14.20-001 - Rules of the Arkansas Securities Commissioner

Current through Register Vol. 49, No. 6, June, 2024
CHAPTER 1
GENERAL PROVISIONS
RULE 101
TITLE.
[RESERVED]
RULE 102
102.01
DEFINITIONS.
When the terms listed below are used in the Act, Arkansas Code
				Sections 23-42-101 through 509, these Rules, the forms, and the instructions
				and orders of the Commissioner, the following definitions shall apply (unless
				the context indicates otherwise), together with the definitions which may
				hereinafter appear, to the extent that they are not inconsistent with the
				definitions provided in Section 23-42-102 of the Act.
(1)
ACCESS TO OR FURNISHING OF
			 INFORMATION.
Access to or furnishing of information can only exist by
			 reason of the purchaser's position with respect to the issuer or seller.
			 Position means an employment or family relationship or economic bargaining
			 power that enables the purchaser to obtain information from the issuer or
			 seller in order to evaluate the merits and risks of a prospective investment.
			 In any event, each purchaser or his legal, financial or other
			 representative(s), or both, shall have access to or have been furnished during
			 the course of the transaction and prior to the sale, by the issuer or any
			 person acting on its behalf, or the seller or any person acting on its behalf,
			 the same kind of information that is required by a registration under the Act,
			 to the extent that the issuer or seller possesses the information or can
			 acquire it without reasonable effort or expense. This condition shall be deemed
			 to be satisfied if the purchaser or his legal, financial or other
			 representative(s) is furnished with information, either in the form of
			 documents actually filed with the Commissioner or otherwise. The issuer or
			 seller shall make available, during the course of the transaction and prior to
			 sale, to each purchaser or his legal, financial or other representative(s) or
			 both, the opportunity to ask questions of, and receive answers from, the issuer
			 or seller, or any person acting on the issuer's or seller's behalf, concerning
			 the terms and conditions of the offering and to obtain any additional
			 information, to the extent that the issuer or seller possesses the information
			 or can acquire it without unreasonable effort or expense, necessary to verify
			 the accuracy of the information obtained. Audited, unaudited or other financial
			 statements must be sworn to with a statement from a responsible representative
			 of the issuer as follows: "To the best of my knowledge and belief these
			 financial statements and supporting schedules or documents of the issuer are
			 true, correct and fairly represent the financial position of the
			 issuer."
(2)
ACCREDITED
			 INVESTOR.
See definition of "Accredited Investor" found in SEC Rule 501
			 of Regulation D, promulgated under the Securities Act of 1933,
			 17 C.F.R. §
												230.501.
(3)
ACT.
The Arkansas Securities
			 Act, as amended, codified at Arkansas Code Sections 23-42-101 through
			 509.
(4)
ADVISORY
			 AFFILIATE.
A person that directly or indirectly controls or is
			 controlled by a person who either is registered as an investment adviser or has
			 filed an application to become registered as an investment adviser, including
			 any current employee except one performing only clerical, administrative,
			 support or similar functions.
(5)
AFFILIATE.
The term "affiliate" of or "affiliated" with a person
			 means a person that directly or indirectly through one (1) or more
			 intermediaries' controls, or is controlled by, or is under common control with
			 the person.
(6)
APA.
The Arkansas Administrative Procedures Act ("APA"), as amended, codified at
			 Arkansas Code Sections 25-15-201 through 25-15-220.
(7)
APPLICANT.
A person who
			 submits an application for registration of securities, for an exemption
			 procedure or for registration as a broker-dealer, broker-dealer agent, agent of
			 the issuer, investment adviser, or investment adviser representative who files
			 an application for an order of the Commissioner.
(8)
APPLICATION.
The form
			 prescribed by the Commissioner for filing in connection with the registration
			 of securities, for an exemption procedure and as a broker-dealer, broker-dealer
			 agent, agent of the issuer, investment adviser, or investment adviser
			 representative, including all amendments, papers, documents and exhibits
			 incidental thereto.
(9)
CLIENT.
For purposes of Sections 23-42-102(9)(E)(ii) of the Act,
			 the following shall be deemed a single client:
(A) A natural person, and:
(i) Any minor child of the natural
			 person;
(ii) Any relative, spouse,
			 or relative of the spouse of the natural person who has the same principal
			 residence;
(iii) All accounts of
			 which the natural person and/or the persons referred to in this subsection (A)
			 are the only primary beneficiaries; and
(iv) All trusts of which the natural person
			 and/or the persons referred to in this subsection (A) are the only primary
			 beneficiaries;
(B) A
			 corporation, general partnership, limited partnership, limited liability
			 company, trust (other than a trust referred to in Rule 102.01(9)(A)(iv) above),
			 or other legal organization that receives investment advice based on its
			 investment objectives rather than the individual investment objectives of its
			 shareholders, partners, limited partners, members, or beneficiaries, or any two
			 (2) or more legal organizations that have identical owners, provided however,
			 an owner must be counted as a client if the investment adviser provides
			 investment advisory services to the owner separate and apart from the
			 investment advisory services provided to the legal organization, and a limited
			 partnership shall be deemed a client of any general partner or other person
			 acting as investment adviser to the partnership.
(10)
COMMISSIONER.
The Arkansas
			 Securities Commissioner.
(11)
CONTROL.
Including the terms "controlling," "controlled by," and
			 "under common control with," means the possession, directly or indirectly, of
			 the power to direct or cause the direction of the management or policies of a
			 person, whether through the ownership of securities, by contract, or otherwise.
			 Control of a person is presumed when any individual or firm does the following:
(A) Is a director, partner or officer
			 exercising executive responsibility or has a similar status or performs similar
			 functions;
(B) Directly or
			 indirectly has the right to vote twenty-five percent (25%) or more of the
			 voting securities of a person; or
(C) Is entitled to twenty-five percent (25%)
			 or more of the profits of a person.
(12)
CONTROL AFFILIATE.
Any
			 person that directly or indirectly controls, is controlled by, or under common
			 control with an applicant or registrant, including any current employee except
			 one performing only clerical, administrative, support or similar functions, or
			 who, regardless of title, performs no executive duties or has no senior policy
			 making authority.
(13)
CRD.
The Central Registration Depository operated by
			 FINRA.
(14)
CUSTODY.
Holding, directly or indirectly, client funds or securities, having any
			 authority to obtain possession of them, or having the ability to appropriate
			 them. An investment adviser has custody if a related person, as defined in Rule
			 307.02, holds, directly or indirectly, client funds or securities, or has any
			 authority to obtain possession of them, in connection with advisory services
			 the investment adviser provides to clients.
(A) Custody includes the following:
(i) Possession of client funds or securities
			 unless the investment adviser receives them inadvertently and returns them to
			 the sender promptly but in any case within three (3) business days of receiving
			 them;
(ii) Any arrangement
			 (including a general power of attorney) under which the investment adviser is
			 authorized or permitted to withdraw client funds or securities maintained with
			 a custodian upon the investment adviser's instruction to the custodian;
			 and
(iii) Any capacity, such as
			 general partner of a limited partnership, managing member of a limited
			 liability company or a comparable position for another type of pooled
			 investment vehicle, or trustee of a trust, that gives the investment adviser or
			 its supervised person legal ownership of or access to client funds or
			 securities.
(B) Receipt
			 of checks drawn by clients and made payable to third parties will not meet the
			 definition of custody if forwarded to the third party within three (3) business
			 days of receipt and the investment adviser maintains a record of the
			 transfer.
(15)
CUSTOMER.
The person being charged a commission or fee, being
			 rendered a service, being sold a security, being solicited to sell a security,
			 or receiving investment advice. However, the term "customer" shall not include
			 the broker-dealer or investment adviser charging the commission or fee,
			 offering the services, or rendering the investment advice.
(16)
DEPARTMENT.
The Arkansas
			 Securities Department.
(17)
DISCRETION OR DISCRETIONARY AUTHORITY.
The authority that an
			 investment adviser or broker-dealer possesses by virtue of a limited power of
			 attorney or other grant of authority enabling the investment adviser or
			 broker-dealer to determine what securities shall be purchased or sold by or for
			 an account, or make decisions as to what securities or other property shall be
			 purchased or sold by or for an account even though some other person may have
			 responsibility for the investment decisions. A firm also has discretionary
			 authority if it has the authority to decide which investment advisers to retain
			 on behalf of the client.
(18)
ENGAGED IN THE BUSINESS OF EFFECTING TRANSACTIONS IN SECURITIES.
As used in Section 23-42-102(3) of the Act, the term "engaged in the business
			 of effecting transactions in securities," includes any person who holds himself
			 out as being able to effect transactions in securities for the accounts of
			 others or for his own account regardless of whether any transactions have
			 actually been effected.
(19)
EXEMPTED OR EXEMPTION.
Securities or transactions meeting the
			 requirements of Section 23-42-503 or Section 23-42-504 of the Act, and the
			 applicable Rules, are exempt from the registration requirements contained in
			 Section 23-42-501 and Section 23-42-502 of the Act. These securities or
			 transactions are not exempted from any other provisions of the Act or
			 applicable Rules.
(20)
FINRA.
The Financial Industry Regulatory Authority.
(21)
FORMS.
See Rule
			 204.01(c).
(22)
IARD.
The Investment Adviser Registration Depository operated by FINRA.
(23)
INDICATIONS OF INTEREST.
Communications and/or actions on the part of a customer, or the solicitation
			 thereof, that give rise to the inference that the customer may purchase the
			 yet-to-be issued securities.
(24)
INVESTMENT INTENT.
Securities purchased under the Act and Rules
			 with "investment intent" cannot be purchased with a view to, or for resale in
			 connection with any sale or hypothecation. Securities purchased with investment
			 intent cannot be disposed of unless the securities are registered under the Act
			 or, in the opinion of counsel for the issuer, an exemption from the
			 registration requirements of the Act is available. As a result, the purchaser
			 of these securities must be prepared to bear the economic risk of the
			 investment for an indefinite period of time and have no need of liquidity of
			 the investment. Where securities are purchased under the Act for investment,
			 investment intent shall be presumed if the purchaser retains the securities for
			 one year from the date of consummation of the sale. However, any disposition of
			 the securities within one year of the date of purchase, in the absence of an
			 unforeseeable change of circumstances, shall create a presumption that the
			 person did not purchase the securities with investment intent.
(25)
LIFE SETTLEMENT CONTRACT.
An agreement for the purchase, sale, assignment, transfer, devise, or bequest
			 of any portion of the death benefit or ownership of a life insurance policy or
			 certificate for consideration that is less than the expected death benefit of
			 the life insurance policy or certificate. Life settlement contract does not
			 include the following:
(A) The assignment,
			 transfer, sale, devise or bequest of a death benefit, life insurance policy or
			 certificate of insurance by the insured to the life settlement provider
			 pursuant to the Life Settlements Act, Ark. Code Ann. Sections 23-81-801 through
			 23-81-818;
(B) The assignment,
			 transfer, sale, devise or bequest of a life insurance policy, for any value
			 less than the expected death benefit, by the insured to a friend or family
			 member who enters into no more than one such agreement in a calendar
			 year;
(C) An assignment of a life
			 insurance policy to a bank, savings bank, savings and loan association, credit
			 union or other licensed lending institution as collateral for a loan;
			 or
(D) The exercise of accelerated
			 benefits pursuant to the terms of the Arkansas Insurance Code and of the life
			 insurance policy.
(26)
MSRB.
Municipal Securities Rulemaking Board.
(27)
NASAA.
North American
			 Securities Administrators Association, Inc.
(28)
NOTICE FILING.
A filing
			 made pursuant to Section 23-42-301(c)(1) of the Act in the case of investment
			 advisers, and Section 23-42-509 of the Act in the case of persons issuing or
			 offering securities.
(29)
OFFER OR OFFER TO SELL.
For the purposes of Sections 23-42-501 and
			 23-42-502 of the Act, the term "offer" or "offer to sell" as defined in Section
			 23-42-102(15)(A)(ii) of the Act shall not include negotiations, agreements or
			 similar communications with respect to a proposed reorganization provided the
			 negotiations, agreements or similar communications are incidental to the
			 formulation of a proposal of a reorganization and, except for the merger of a
			 subsidiary entity into its parent, a vote of approval and consent of security
			 holders is required to effectuate the proposed transactions.
(30)
PARENT.
An affiliate
			 controlling another person.
(31)
PLACE OF BUSINESS.
The term "place of business" means the
			 following:
(A) Any office or other location
			 at or from which an investment adviser, investment adviser representative,
			 broker-dealer, or agent regularly provides investment advisory or broker-dealer
			 services, solicits, meets with, or otherwise communicates with clients;
			 and
(B) Any other location that is
			 held out to the general public as a location at which the investment adviser,
			 investment adviser representative, broker-dealer, or agent provides investment
			 advisory or broker-dealer services, solicits, meets with, or otherwise
			 communicates with clients.
(32)
PRINCIPAL PLACE OF
			 BUSINESS.
The executive office of a registrant from which the officers,
			 partners, or managers of the registrant direct, control, and coordinate the
			 activities of the registrant.
(33)
PROMOTER.
A person who, acting alone or in conjunction with
			 others, takes the initiative in founding, organizing or incorporating the
			 business or enterprise. A promoter does not include a lawyer or accountant
			 acting as an independent contractor.
(34)
PROOF OF EXEMPTION.
"Proof
			 of Exemption" as used in Sections 23 -42-503(d) and 23-42-504(b) of the Act
			 shall mean the filing made by an applicant, together with any supporting
			 documents and written statements of the applicant as set forth in the
			 appropriate Rule, whereby the applicant describes his expected conduct during
			 the exemption process and demonstrates his disclosure and antifraud
			 responsibilities required in order to qualify for the exemption. A proof of
			 exemption is not in and of itself an exemption. It is merely the filing by
			 which an applicant requests the Commissioner not to withdraw the availability
			 of use of the exemption based on the applicant's demonstration of his
			 recognition of the technical requirements necessary to qualify.
(35)
PUBLIC ADVERTISING.
Any
			 form of general solicitation, offer, invitation to invest, or other writing
			 that could be easily understood to be designed to attract investors, general
			 advertising or any other communication directed to persons whose background is
			 unknown to the communicant, including, but not limited to, the following:
(A) Any advertisement, article, notice or
			 other communication published in any newspaper, magazine, or similar medium or
			 broadcast over television, radio or other electronic media;
(B) Any seminar or meeting or invitation to
			 or promotion of a meeting or seminar;
(C) Any letter, circular, handbill, notice or
			 other written communication;
(D)
			 Any solicitation by telephone or other electronic media; or
(E) A solicitation that is maintained on or
			 disseminated by way of any webpage, site on the Internet, or other electronic
			 posting.
(36)
PURCHASER.
For purposes of computing the number of purchasers,
			 offerees, investors, or subscribers, a husband and wife who purchase or
			 contemplate purchasing in the joint names of both spouses shall be deemed to be
			 one offer or sale.
(37)
REGISTRANT.
An applicant for whom a registration has been declared
			 effective.
(38)
RESTRICTIVE
			 LEGEND.
An appropriate restrictive legend shall conform to the NASAA
			 Uniform Disclosure Guidelines for Cover Legends.
(39)
REORGANIZATION.
Any merger,
			 consolidation, reclassification of securities, sale of assets in consideration
			 of the issuance of securities of another person, exchange of outstanding
			 securities for the issuance of securities or assets of another person, or other
			 similar reorganization, pursuant to applicable statutory provisions of the
			 jurisdiction under which the corporation or other person is organized, or
			 pursuant to the provisions of its Articles of Incorporation or similar
			 controlling instrument, which the approval or consent of the security holders
			 is required to effectuate, or any merger of a subsidiary entity into its parent
			 where a vote, approval or consent is not required by the applicable
			 statute.
(40)
RULES.
The Rules of the Arkansas Securities Commissioner.
(41)
SEC.
The United States
			 Securities and Exchange Commission.
(42)
SPONSOR.
A person or a
			 member of the immediate family of a person who acts as a general partner,
			 manager or management company of a program including an affiliate of, or a
			 person associated with, a sponsor, except as otherwise provided.
(43)
SUBSIDIARY.
An affiliate
			 controlled by another person.
(44)
STAFF.
The Staff of the Arkansas Securities Department.
(45)
TRANSACT BUSINESS.
As used
			 in Sections 23-42-301(a) and 23-42-301(c) of the Act, the term "transact
			 business" includes representing a person or entity as being able to effect
			 transactions in securities for the account of others or for his or her own
			 account regardless of whether any transactions have actually been effected, or
			 being able to serve as an investment adviser regardless of whether any
			 investment advice or service has actually been rendered. The term shall not
			 include communications, postings, or distributions of information set forth on
			 the Internet or other mass media outlet if each of the following conditions are
			 met:
(A) The Internet or other mass media
			 outlet communication contains a legend in which the following is clearly
			 stated:
(i) The broker-dealer, investment
			 adviser, broker-dealer agent, agent of the issuer, or investment adviser
			 representative in question may only transact business in this state if first
			 registered, or exempted from registration as a broker-dealer, investment
			 adviser, broker-dealer agent, agent of the issuer, or investment adviser
			 representative, whichever is applicable; and
(ii) Follow-up, individualized responses to
			 persons in this state by a broker-dealer, investment adviser, broker-dealer
			 agent, agent of the issuer, or investment adviser representative that involve
			 either the effecting of or the attempt to effect transactions in securities, or
			 the rendering of personalized investment advice for compensation or attempt to
			 render advice, as may be, will not be made absent compliance with state
			 broker-dealer, investment adviser, broker-dealer agent, agent of the issuer, or
			 investment adviser representative requirements, or an applicable
			 exemption;
(B) The
			 Internet or other mass media outlet communication contains a mechanism,
			 including and without limitation, technical "firewalls" or other implemented
			 policies and procedures, designed reasonably to ensure that prior to any
			 subsequent, direct communication with prospective customers or clients in this
			 state, the broker-dealer, investment adviser, agent of the issuer,
			 broker-dealer agent, or investment adviser representative is first registered
			 in this state or is exempt from registration under the Act. Nothing in this
			 Rule shall be construed to relieve a broker-dealer, investment adviser,
			 broker-dealer agent, agent of the issuer, or investment adviser representative
			 from any applicable securities registration requirements in this
			 state;
(C) The Internet or other
			 mass media outlet communication does not involve either effecting or attempting
			 to effect transactions in securities, or rendering of or attempting to render
			 personalized investment advice for compensation, as may be, in this state over
			 the Internet, but is limited to the dissemination of general information on
			 products and services; and
(D) In
			 the case of an agent or representative:
(i)
			 The affiliation with the broker-dealer or investment adviser of the agent, or
			 representative is prominently disclosed within the communication;
(ii) The broker-dealer or investment adviser
			 with which the agent or representative is associated retains responsibility for
			 reviewing and approving the content of any Internet or other mass media outlet
			 communication by the agent or representative;
(iii) The broker-dealer or investment adviser
			 with which the agent or representative is associated first authorizes the
			 distribution of information on the particular products and services through the
			 Internet or other mass media outlet communication; and
(iv) In disseminating information through the
			 Internet or other mass media outlet communication, the agent or representative
			 acts within the scope of the authority granted by the broker-dealer or
			 investment adviser with which the agent or representative is
			 associated.
(46)
UNDERWRITER.
Any person who
			 has purchased from an issuer with a view to, or offers or sells for an issuer
			 in connection with, the distribution of any security, or participates or has a
			 direct or indirect participation in any such undertaking, or participates or
			 has a participation in the direct or indirect underwriting of any such
			 undertaking; but the term shall not include a person whose interest is limited
			 to a commission from an underwriter or broker-dealer not in excess of the usual
			 and customary distributors' or sellers' commission.
RULE 103
APPLICABILITY.
[RESERVED]
RULE 104
CRIMINAL PENALTIES.
[RESERVED]
RULE 105
PROSECUTION OF CRIMINAL
			 OFFENSES.
[RESERVED]
RULE 106
CIVIL LIABILITY.
[RESERVED]
RULE 107
CONSENT TO SERVICE OF
			 PROCESS.
[RESERVED]
RULE 108
RIGHTS AND REMEDIES
			 CUMULATIVE.
[RESERVED]
RULE 109
WAIVER OF COMPLIANCE
			 VOID.
[RESERVED]
RULE 110
FALSE OR MISLEADING STATEMENTS
			 UNLAWFUL.
[RESERVED]