Hawaii Administrative Rules › Title 16 - DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS › Chapter 39 - SECURITIES › Subchapter 4 - REGISTRATION OF BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS, AND INVESTMENT ADVISER REPRESENTATIVES › E - Denial of Application; Suspension and Revocation of Registration of Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives › Section 16-39-470 - Denial; suspension and revocation

Current through June, 2024
(a) A proceeding to
				  deny an application for registration, or to suspend or revoke the effectiveness
				  of a registration may be instituted by the commissioner if the action is in the
				  public interest, reasonable grounds exist that the applicant or registrant has
				  violated or failed to comply with any provision of chapter
				  485A, HRS, or this chapter, or the
				  applicant or registrant has demonstrated its unworthiness to transact the
				  business of a brokerdealer, agent, investment adviser, or investment adviser
				  representative.
(b) Without in any
				  way limiting the generality thereof, for the purposes of section
				  485A-412(d)(14),
				  HRS, any of the following shall demonstrate an applicant's or registrant's
				  unworthiness to transact the business of a broker-dealer or agent:
(1) Delivery delays. Engaging in a pattern of
				  unreasonable and unjustifiable delays in the delivery of securities purchased
				  by any of its customers or in the payment upon request of free credit balances
				  reflecting completed transactions of any of its customers, or both;
(2) Churning. Inducing trading in a
				  customer's account which is excessive in size or frequency in view of the
				  financial resources and character of the account;
(3) Unsuitable recommendations. Recommending
				  to a customer the purchase, sale, or exchange of any security without
				  reasonable grounds to believe that the transaction or recommendation is
				  suitable for the customer based upon reasonable inquiry concerning the
				  customer's investment objectives, financial situation and needs, and any other
				  relevant information known by the broker-dealer or agent;
(4) Unauthorized transactions. Executing a
				  transaction on behalf of a customer without authorization to do so;
(5) Discretionary authority. Exercising any
				  discretionary power in effecting a transaction for a customer's account without
				  first obtaining written discretionary authority from the customer, unless the
				  discretionary power relates solely to the time or price for the executing of
				  orders, or both;
(6) Margin
				  accounts. Executing any transaction in a margin account without securing from
				  the customer a properly executed written margin agreement promptly after the
				  initial transaction in the account;
(7) Segregation of client securities. Failing
				  to segregate customers' free securities or securities held in
				  safekeeping;
(8) Hypothecating
				  customer securities. Hypothecating a customer's securities without having a
				  lien thereon unless the broker-dealer secures from the customer a properly
				  executed written consent promptly after the initial transaction, except as
				  permitted by rules of the SEC;
(9)
				  Unreasonable price, commission. Entering into a transaction with or for a
				  customer at a price not reasonably related to the current market price of the
				  security, or receiving an unreasonable commission or profit;
(10) Prospectus delivery. Failing to furnish
				  to a customer purchasing securities in an offering, no later than the due date
				  of confirmation of the transaction, either a final prospectus or a preliminary
				  prospectus and an additional document, which together include all information
				  set forth in the final prospectus;
(11) Unreasonable fees. Charging unreasonable
				  and inequitable fees for services performed, including miscellaneous services
				  such as collection of monies due for principal, dividends or interest, exchange
				  or transfer of securities, appraisals, safekeeping, or custody of securities
				  and other services related to its securities business;
(12) Offer to buy or sell at stated price.
				  Offering to buy from or sell to any person any security at a stated price
				  unless the broker-dealer or agent is prepared to purchase or sell, as the case
				  may be, at such price and under such conditions as are stated at the time of
				  such offer to buy or sell;
(13)
				  Sales at the market. Representing that a security is being offered to a
				  customer "at the market" or a price relevant to the market price unless the
				  broker-dealer or agent knows or has reasonable grounds to believe that a market
				  for the security exists other than that made, created, or controlled by the
				  broker-dealer or agent, or by any person for whom one is acting or with whom
				  one is associated in the distribution, or any person controlled by, controlling
				  or under common control with the broker-dealer or agent;
(14) Manipulative, deceptive, or fraudulent
				  practices. Effecting any transaction in, or inducing the purchase or sale of,
				  any security by means of any manipulative, deceptive or fraudulent device,
				  practice, plan, program, design or contrivance, which may include but not
				  limited to:
(A) Effecting any transaction in a
				  security which involves no change in the beneficial ownership
				  thereof;
(B) Entering an order or
				  orders for the purchase or sale of any security with the knowledge that an
				  order or orders of substantially the same size, at substantially the same time
				  and substantially the same price, for the sale of any such security, has been
				  or will be entered by or for the same or different parties for the purpose of
				  creating a false or misleading appearance of active trading in the security or
				  a false or misleading appearance with respect to the market for the security;
				  provided that nothing in this subsection shall prohibit a broker-dealer from
				  entering bona fide agency cross transactions for its customers; or
(C) Effecting, alone or with one or more
				  other persons, a series of transactions in any security creating actual or
				  apparent active trading in such security or raising or depressing the price of
				  such security, for the purpose of inducing the purchase or sale of such
				  security of others;
(15)
				  Loss guarantees. Guaranteeing a customer against loss in any securities account
				  of such customer carried by the broker-dealer or agent, or in any securities
				  transaction effected by the broker-dealer or agent, or in any securities
				  transaction effected by the broker-dealer or agent with or for such
				  customer;
(16) Bona fide price
				  reports. Publishing or circulating, or causing to be published or circulated,
				  any notice, circular, advertisement, newspaper article, investment service, or
				  communication of any kind which purports to report any transaction as a
				  purchase or sale of any security unless such broker-dealer or agent believes
				  that such transaction was a bona fide purchase or sale or such security; or
				  which purports to quote the bid price or asked price for any security, unless
				  such broker-dealer or agent believes that such quotation represents a bona fide
				  bid for, or offer of, such security;
(17) Deceptive or misleading advertising.
				  Using any advertising or sales presentation in any manner that is deceptive or
				  misleading. An example would be the distribution of any nonfactual data,
				  material, or presentation based on conjecture, unfounded or unrealistic claims
				  or assertions in any brochure, flyer, or display by worlds, pictures, graphs or
				  otherwise designed to supplement, detract from, supersede, or defeat the
				  purpose or effect of any prospectus or disclosure;
(18) Disclosure of control. Failing to
				  disclose that the broker-dealer is controlled by, controlling, affiliated with,
				  or under common control with the issuer of any security before entering into
				  any contract with or for a customer for the purchase or sale of such security,
				  the existence of such control to such customer, and if such disclosure is not
				  made in writing, it shall be supplemented by the giving or sending of written
				  disclosure at or before the completion of the transaction;
(19) Bona fide distribution. Failing to make
				  a bona fide public offering of all of the securities allotted to a
				  broker-dealer for distribution; whether acquired as an underwriter, a selling
				  group member, or from a member participating in the distribution as an
				  underwriter or selling group member;
(20) Customer communication. Failure or
				  refusal to furnish a customer, upon reasonable request, information to which
				  the customer is entitled, or to respond to a formal written request or
				  complaint from a customer;
(21)
				  Loans to or from customers. Engaging in the practice of lending or borrowing
				  money or securities from a customer, or acting as a custodian for money,
				  securities, or an executed stock power of a customer;
(22) Unrecorded transactions. Effecting
				  securities transactions not recorded on the regular books or records of the
				  brokerdealer which the agent represents, unless the transactions are authorized
				  in writing by the broker-dealer prior to execution of the
				  transaction;
(23) Fictitious
				  accounts. Establishing or maintaining an account containing fictitious
				  information in order to execute transactions which would otherwise be
				  prohibited;
(24) Profit or loss
				  sharing. Sharing directly or indirectly in profits or losses in the account of
				  any customer without the written authorization of the customer and the
				  broker-dealer which the agent represents;
(25) Splitting commissions. Dividing or
				  otherwise splitting the agent's commissions, profits, or other compensation
				  from the purchase or sale of securities with any person not also registered as
				  an agent for the same broker-dealer, or for a brokerdealer under direct or
				  indirect common control;
(26)
				  Unsolicited transactions. Marking any order tickets or confirmations as
				  unsolicited when in fact the transaction was solicited;
(27) Compliance with the rules of
				  self-regulatory organizations. Failing to comply with any applicable provision
				  of the Conduct Rules and any other Rules of Fair Practice of the NASD or any
				  applicable fair practice or ethical standard promulgated by the SEC or by a
				  self-regulatory organization approved by the SEC;
(28) Failure to cooperate. Failing to
				  cooperate with, or providing false or incomplete information to, the
				  commissioner in connection with any investigation under this chapter or chapter
				  485A, HRS;
(29) Statement of account for OTC securities.
				  Failing to provide each customer with a statement of account which, with
				  respect to all OTC non-NASDAQ equity securities in the account, contains a
				  value for each security based on the closing market bid on a date certain for
				  any month in which activity has occurred in a customer's account, but in no
				  event less than every three months; provided that this paragraph shall apply
				  only if the firm has been a market maker in the security at any time during the
				  period for which the monthly or quarterly statement is issued;
(30) Credit to customer. Extending credit to
				  a customer in violation of the Securities Exchange Act or the regulations of
				  the Federal Reserve Board;
(31) Fee
				  disclosures. Charging a fee based on the activity, value, or contents (or lack
				  thereof) of a customer account unless written disclosure pertaining to the fee,
				  which shall include information about the amount of the fee, how imposition of
				  the fee can be avoided, and any consequence of late payment or non-payment of
				  the fee, was provided no later than the date the account was established or,
				  with respect to an existing account, at least sixty calendar days prior to the
				  effective date of the fee;
(32)
				  Business disclosures. Failing to accurately describe or disclose, in any
				  advertising or other promotional materials (including business cards,
				  stationery or signs) relating to an agent's business, the identity of the
				  broker-dealer or issuer with whom the agent is associated or the nature of the
				  securities services offered by the agent;
(33) Boiler room tactics. Engaging or aiding
				  in high pressure tactics in connection with the solicitation of a sale or
				  purchase of a security by means of an intensive telephone, e-mail, or fax
				  campaign, or unsolicited calls to persons not known by, nor having an account
				  with, the agent or broker-dealer represented by the agent, whereby the
				  prospective purchaser is encouraged to make a hasty decision to buy,
				  irrespective of his or her investment needs and objectives;
(34) Protection of non-public information.
				  Failing to protect the security and confidentiality of the non-public personal
				  information of any client;
(35)
				  Minimum capital requirements. Operating a securities business while being
				  unable to meet current liabilities, or violating any rule or order relating to
				  minimum capital, bond, record-keeping and reporting requirements, or provision
				  concerning use, commingling, or hypothecation of a customer's funds or
				  securities;
(36) Outside business
				  activity. Any agent associated with a broker-dealer registered under chapter
				  485A, HRS, and this chapter shall
				  not engage in business activities, for which the agent receives compensation
				  either directly or indirectly, outside the scope of the agent's regular
				  employment unless the agent has provided prior written notice to his employing
				  firm;
(37) Dual agency. Failing to
				  disclose a dual agency capacity;
(38) Other terms or conditions. Effecting
				  transactions upon terms and conditions other than those stated per
				  confirmations; or
(39) False,
				  misleading, deceptive, exaggerated, or flamboyant representations. Making
				  false, misleading, deceptive, exaggerated, or flamboyant representations or
				  predictions in the solicitation or sale of a security. Examples of this include
				  without limitation misrepresenting:
(A) That
				  the security shall be resold or repurchased;
(B) That the security shall be listed or
				  traded on an exchange or established market;
(C) That the security shall result in an
				  assured, immediate or extensive increase in value, future market price, or
				  return on investment;
(D) With
				  respect to the issuer's financial condition, anticipated earnings, potential
				  growth, or success; or
(E) That
				  there is a guarantee against risk or loss.
This subsection is not intended to be all-inclusive, and
					 thus, acts or practices not enumerated in this subsection may also be deemed to
					 demonstrate unworthiness to transact the business of broker-dealer or agent.
					 Engaging in other conduct such as forgery, embezzlement, nondisclosure,
					 incomplete disclosure or misstatement of material facts, or manipulative or
					 deceptive practices shall also be grounds for denial, suspension, or revocation
					 of registration.