Arkansas Administrative Code › Agency 214 - Arkansas Securities Department › Rule 214.00.11-001 - Rules of the 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
		  25-15-219.
(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(8)(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(2)
		  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. The term
		  shall not include a business broker who, as part of the facilitation of the
		  sale of business, including securities of the business, takes a fee provided
		  all of the following conditions are met:
(A)
		  The business broker has a limited role in negotiations between the purchaser
		  and the seller;
(B) The businesses
		  represented by the business broker are going concerns and are not "shell"
		  organizations;
(C) Only assets are
		  advertised or otherwise offered for sale by the business broker;
(D) Transactions effected by means of
		  securities convey all of the business' equity to a single purchaser or group of
		  purchasers formed without the assistance of the business broker;
(E) The business broker does not advise the
		  parties whether to issue securities or assess the value of any securities
		  sold;
(F) The business broker's
		  compensation does not vary according to the form of conveyance the parties
		  agree to; and
(G) The business
		  broker does not assist purchasers in obtaining financing other than to provide
		  to a party a list of potential lenders.
(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 intenf 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 Settlement
s
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(13)(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]