Arkansas Administrative Code › Agency 214 - Arkansas Securities Department › Rule 214.00.09-001 - 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, 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 such 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 such 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.
(3)
ACT.
The Arkansas Securities
		  Act, as amended, codified at Ark. Code Ann. 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 or more intermediaries'
		  controls, or is controlled by, or is under common control with such
		  person.
(6)
APA.
The
		  Arkansas Administrative Procedures Act ("APA"), as amended, codified at Ark.
		  Code Ann. §§
										25-15-201
		  through
		  25-15-217.
(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 and Rule
		  102.01(35), 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 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.
The power to direct or cause the direction of the
		  management or policies of a person, whether through ownership of securities, by
		  contract, or otherwise. Any individual or firm that is a director, partner or
		  officer exercising executive responsibility (or having similar status or
		  functions) or that directly or indirectly has the right to vote 25 percent or
		  more of the voting securities of a person or is entitled to 25 percent or more
		  of the profits of a person is presumed to control that 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)
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.
(15)
DEPARTMENT.
The Arkansas
		  Securities Department.
(16)
DISCRETION OR DISCRETIONARY AUTHORITY.
Solely for purposes of
		  determining an investment adviser's surety bond obligation under Rule
		  305.01(b), the
		  term "discretionary authority" means the authority that an investment adviser
		  possesses by virtue of a limited power of attorney or other grant of authority
		  enabling such investment adviser to determine what securities or other property
		  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 such investment
		  decisions.
The term "discretionary authority" shall not include the
			 authority of an investment adviser to direct purchases or sales of securities
			 in an account provided the following conditions are met:
(A) The limited power of attorney or other
		  grant of authority precludes the possibility of disbursements of cash or
		  securities from the account to the investment adviser other than for the
		  payment of advisory fees due to the investment adviser;
(B) The investment adviser receives no
		  compensation or pecuniary benefit, either directly or indirectly, on account of
		  or as a result of any purchase or sale in the account, other than the
		  compensation which he may receive for investment advice or for purely
		  administrative services under the Employee Retirement Income Security Act of
		  1974;
(C) The investment adviser
		  has no direct or indirect ownership interest in the broker-dealer or
		  affiliation with the agent effecting the purchase or sale; or
(D) The purchase or sale does not involve a
		  security in which the investment adviser has an interest unless such security
		  is:
(i) A "covered security" in Section
		  18(b)(1) of the
		  Securities Act of 1933;
(ii) A
		  security which has been determined by rule or order of the Commissioner to be
		  exempt because it is sold on an exchange (or tier or segment thereof) which has
		  listing standards substantially similar to the listing standards of the
		  exchanges set forth in subparagraph (D)(i) of this subsection.
The Commissioner may upon written request and for good cause
			 shown, waive any of the conditions set forth above.
(17)
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 or her 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.
(18)
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. Such securities or transactions are not exempted from any other
		  provisions of the Act or applicable Rules.
(19)
FINRA.
The Financial
		  Industry Regulatory Authority.
(20)
IARD.
The Investment Adviser Registration Depository operated by
		  FINRA.
(21)
INDICATIONS OF
		  INTEREST.
Communications and/or actions on the part of a customer, or
		  the solicitation thereof, that give rise to the inference that such customer
		  may purchase the yet-to-be issued securities.
(22)
INVESTMENT INTENT.
Securities purchased under the Act and these 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 such 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. Securities
		  purchased with investment intent are deemed "restricted" securities and must
		  bear an appropriate legend restricting retransfer.
(23)
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:
(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 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.
(24)
MSRB.
Municipal Securities Rulemaking Board.
(25)
NASAA.
North American
		  Securities Administrators Association, Inc.
(26)
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.
(27)
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 such 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.
(28)
PARENT.
An affiliate
		  controlling another person.
(29)
PLACE OF BUSINESS.
The term "place of business" means:
(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.
(30)
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.
(31)
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.
(32)
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.
(33)
PUBLIC ADVERTISING.
Public
		  advertising shall mean 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 such 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.
(34)
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.
(35)
REGISTRANT.
An applicant
		  for whom a registration has been declared effective.
(36)
REPRESENTATIVE OF AN INVESTMENT
		  ADVISER REGISTERED WITH THE SEC.
The term "representative of an
		  investment adviser registered with the SEC" shall mean a supervised person of
		  the investment adviser more than ten percent of whose clients are natural
		  persons, but does not include a supervised person who:
(A) Does not on a regular basis solicit, meet
		  with, or otherwise communicate with clients of the investment adviser;
		  or
(B) Provides only investment
		  advisory services by means of written material or oral statements that do not
		  purport to meet the objectives or needs of specific individuals or accounts.
For purposes of this subsection, natural persons who have at
			 least five hundred thousand dollars ($500,000.00) under management with the
			 investment adviser immediately after entering into the investment advisory
			 contract, and natural persons who immediately prior to entering into the
			 investment advisory contract the investment adviser reasonably believes to have
			 a net worth (together with assets held jointly with a spouse) of more than one
			 million dollars ($1,000,000.00) at the time the investment advisory contract is
			 entered into shall not be included as clients of the investment adviser.
(37)
RESTRICTED
		  SECURITY.
Restricted securities shall mean those securities that require
		  purchase with investment intent and those securities that have additional
		  transfer restrictions, such as shareholder agreements. Each restricted security
		  should bear the appropriate restrictive legend, including the NASAA Uniform
		  Disclosure Guidelines for Cover Legends. The following reflects retransfer
		  restriction as to securities law:
"RESTRICTION ON RETRANSFER"
"The security represented by this certificate has been executed
			 pursuant to an exemption from registration under the Securities Act of 1933 and
			 the Arkansas Securities Act in reliance upon the representation of the holder
			 hereof that the same is acquired for investment purposes. This stock may
			 accordingly not be resold or otherwise transferred or conveyed in the absence
			 of registration of the same pursuant to the applicable securities laws or
			 unless an opinion of counsel satisfactory to the issuer is first obtained that
			 such is not then necessary. Any transfer contrary hereto is
			 void."
(38)
REORGANIZATION.
The term "reorganization" shall mean 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 such 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 such vote, approval or consent is not required by the applicable
		  statute.
(39)
RULES.
The Rules of the Arkansas Securities Commissioner.
(40)
SEC.
The Securities and
		  Exchange Commission.
(41)
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.
(42)
SUBSIDIARY.
An affiliate controlled by another person.
(43)
SUPERVISED PERSON.
With
		  regard to investment advisers registered with the SEC, the term 'supervised
		  person" means any partner, officer, director, or employee of an investment
		  adviser, or other person who provides investment advice on behalf of the
		  investment adviser and is subject to the supervision and control of the
		  investment adviser.
(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 if each of the following conditions
		  are met:
(A) The Internet communication
		  contains a legend in which it is clearly stated that:
(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 such
		  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 such 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 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 102.01(45) 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
		  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 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 communication; and
(iv) In disseminating information through the
		  Internet 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.
The term
		  "underwriter" means 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 such 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]