Code of Maine Rules › 02 - DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION › 032 - OFFICE OF SECURITIES › Chapter 504 - BROKER-DEALER AND AGENT LICENSING › Section 032-504-8 - Dishonest and unethical practices

Current through 2024-29, July 17, 2024
Broker-dealers and agents shall observe high standards of
				  commercial honor and just and equitable principles of trade in the conduct of
				  their business and shall give particular consideration to any conflicts of
				  interest that may arise or exist. The practices listed below are examples of
				  practices that may be considered contrary to such standards and may thus
				  constitute grounds for discipline under Section 16412 of the Act.
This section is not intended to be all inclusive, and thus
				  practices not enumerated herein may also be deemed dishonest or unethical. This
				  section is also not intended to limit or define fraudulent and other prohibited
				  practices under Subchapter 5 of the Act or to preclude application of the
				  general anti-fraud provisions contained therein against any person for
				  practices similar in kind to those listed below.
For purposes of this section, the delivery of a prospectus,
				  in and of itself, shall not be dispositive that the broker-dealer or agent
				  provided the customer full and fair disclosure.
A person may be deemed to have engaged in "dishonest or
				  unethical practices" under Section 16412(4)(M) of the Act if the person has
				  engaged in practices including but not limited to one or more of the
				  following:
1. Engaging in any
				unreasonable or unjustifiable delay or failure in executing orders, liquidating
				customer accounts, making delivery of securities purchased, or in paying upon
				request free credit balances reflecting completed transactions of any
				customer;
2. Switching or churning
				of securities in a customer's account or inducing trading in a customer's
				account which is excessive in size or frequency in view of the financial
				situation and needs of the customer and the character of the account;
3. Recommending to a customer the purchase,
				sale or exchange of any security without reasonable grounds to believe that
				such transaction or recommendation is suitable for the customer based upon
				reasonable inquiry concerning the customer's other securities holdings,
				investment objectives, financial situation and needs, and any other relevant
				information known by the person;
4.
				Marking any order tickets or confirmations as unsolicited when in fact the
				person recommended the transaction to the customer or introduced the customer
				to the security;
5. Effecting a
				transaction in a customer's account without authority to do so;
6. 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;
7. Executing any transaction
				in a margin account without obtaining from the customer a properly executed
				written margin agreement promptly after the initial transaction in the account,
				or failing, prior to or at the opening of a margin account, to explain to a
				non-institutional customer the operation of a margin account and to disclose
				the risks associated with trading on margin;
8. Hypothecating a customer's securities
				without having a lien thereon unless the broker-dealer secures from the
				customer a properly executed written consent, except as permitted by rules of
				the United States Securities and Exchange Commission;
9. Extending, arranging for, or participating
				in arranging for credit to a customer in violation of the Securities Exchange
				Act of 1934 or the regulations of the Federal Reserve Board;
10. Entering into a transaction with or for a
				customer in any security at an unreasonable price or at a price not reasonably
				related to the current market price of the security or receiving an
				unreasonable commission, markup or profit;
11. Charging unreasonable and inequitable
				fees for services performed, including but not limited to miscellaneous
				services such as collection of monies due for principal, dividends or interest,
				exchange or transfer of securities, appraisals, safekeeping, or custody of
				securities;
12. 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 60 days prior to the effective date of the
				fee;
13. Offering to buy or sell
				any security at a stated price unless the person 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;
14. Representing that a security is being
				offered to a customer "at the market price" or a price related to the market
				price unless the person knows or has reasonable grounds to believe that a
				market for such security exists other than that made, created or controlled
				either by such person, by any other person for whom such person is acting or
				with whom such person is associated, or by any other person controlled by,
				controlling or under common control with such person;
15. Representing that securities will be
				listed, or that application for listing will be made, on a securities exchange
				or quotation system without a reasonable basis in fact for the
				representation;
16. Guaranteeing a
				customer against loss in any securities account of such customer or in any
				securities transaction effected by the person with or for such
				customer;
17. 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 the person believes that such transaction was a bona fide
				purchase or sale of such security, or which purports to quote the bid price or
				asked price for any security unless the person believes that such quotation
				represents a bona fide bid for, or offer of, such security;
18. Using any advertising, research materials
				or sales presentation in such a fashion as to be deceptive or misleading or
				which would detract from, supersede or defeat the purpose or effect of any
				prospectus or disclosure document. An example of this practice would be a
				distribution of any non-factual data, material or presentation based on
				conjecture, unfounded or unrealistic claims or assertions in any brochure,
				flyer, or display by words, pictures, graphs or otherwise;
19. Failing to accurately describe or
				disclose, in 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;
20. Holding oneself out as representing any
				person other than the broker-dealer with whom the agent is associated and, in
				the case of an agent whose normal place of business is not on the premises of
				such broker-dealer, failing to conspicuously disclose the name of such
				broker-dealer when representing the broker-dealer in effecting or attempting to
				effect purchases or sales of securities;
21. 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, or if such
				disclosure is not made in writing, failing to give or send a written disclosure
				at or before the completion of the transaction;
22. Failing to segregate a customer's free
				securities or securities held in safekeeping;
23. Failing to make a bona fide public
				offering of all of the securities allotted to a broker-dealer for distribution
				by, among other things, (A) transferring securities to a customer, another
				broker-dealer or a fictitious account with the understanding that those
				securities will be returned to the broker-dealer or its nominees, or (B)
				parking or withholding securities;
24. Establishing, maintaining or permitting a
				person to open or use a fictitious or nominee account in order to execute
				otherwise prohibited transactions, or permitting a person to open an account
				for another person or to transact business in that account without prior
				written authorization from the person in whose name the account is
				carried;
25. 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, or making oral or written statements
				contrary to or inconsistent with the disclosures contained in the prospectus or
				additional documents furnished;
26.
				Failing or refusing to furnish a customer, upon reasonable request, information
				to which the customer is entitled, or to respond to a formal written demand or
				complaint;
27. Entering into an
				agreement with any unlicensed broker-dealer or agent to receive selling
				concessions, discounts, commissions or allowances as consideration for services
				in connection with the distribution or sale of a security, or dividing or
				otherwise splitting agent commissions, profits or other compensation from the
				purchase or sale of securities with any person not also licensed as an agent
				for the same broker-dealer, or for a broker-dealer under direct or indirect
				common control;
28. Failing to
				disclose to a customer in writing, before a transaction is effected, any
				compensation agreement connected with that security which is in addition to
				compensation from the customer for that transaction;
29. In a principal transaction, stating or
				implying to the customer that the agent would not receive a commission or other
				similar remuneration when, in fact, the agent would receive such commission or
				remuneration;
30. 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;
31. Soliciting prospective customers who have
				informed the person that they do not want to be solicited, contacting customers
				or prospective customers by telephone at times before 8:00 a.m. or after 9:00
				p.m. or at any other time that the person knows or should know is unreasonable
				with respect to the person being called, or soliciting by telephone prospective
				customers who have had their telephone numbers registered on the Federal Trade
				Commission's national do-not-call registry;
32. Misrepresenting to any customer or
				prospective customer the qualifications of the broker-dealer, agent, or any
				other employee or person associated with the broker-dealer, or misrepresenting
				the nature of services being offered or the fees to be charged for such
				services, or omitting a material fact necessary to make any such
				representations not misleading in light of the circumstances under which they
				are made;
33. In connection with
				the offer, purchase, or sale of a security, leading a customer to believe that
				the person is in possession of material, non-public information that would
				affect the value of the security;
34. In connection with the solicitation of a
				purchase or sale of a security, engaging in a pattern or practice of making
				contradictory recommendations to different investors with similar investment
				objectives for some to sell and others to purchase the same security, at or
				about the same time, when not justified by the particular circumstances of each
				investor;
35. Failing to protect
				the security and confidentiality of the non-public personal information of any
				client;
36. As an agent, lending
				money or securities to, or borrowing money or securities from, a customer, or
				acting as a custodian for money, securities or an executed stock power of a
				customer, unless:
A. The broker-dealer has
				written procedures allowing such an arrangement; and
B. The customer is:
(1) a member of the agent's immediate family
				or another person whom the agent supports, directly or indirectly, to a
				material extent;
(2) a financial
				institution regularly engaged in the business of providing credit, financing,
				or loans, or other person that regularly arranges or extends credit in the
				ordinary course of business; or
(3)
				a licensed agent of the same broker-dealer, if the broker-dealer has given
				advance written authorization for the arrangement;