North Carolina Administrative Code › Title 18 - SECRETARY OF STATE › Chapter 06 - SECURITIES DIVISION › Subchapter A - RECODIFIED RULES › Section .1400 - REGISTRATION OF DEALERS AND SALESMEN › Section 06A .1414 - DISHONEST/UNETHICAL PRACTICES OF DEALERS AND SALESMEN

Current through Register Vol. 39, No. 2, July 15, 2024
(a) All dealers and salesmen shall observe
				  high standards of commercial honor and just and equitable principles of trade
				  in the conduct of their business and shall give particular attention to any
				  conflicts of interest that may arise or exist. Acts and practices, including
				  but not limited to those set forth in Paragraphs (b), (c), and (d) in this
				  Rule, are considered contrary to such standards and may constitute grounds for
				  denial, suspension or revocation of registration or censure of the registrant
				  or such other action authorized by statute.
(b) Dishonest or unethical business practices
				  in the securities business as used in
				  G.S.
				  78A-39(a)(2)g. with regard
				  to dealers include, but are not limited to, the following:
(1) Causing any unreasonable and
				  unjustifiable delay or engaging in a pattern of unreasonable and unjustifiable
				  delays, in the delivery of securities purchased by any of the customers, or in
				  the payment upon request of free credit balances reflecting completed
				  transactions of any of the customers;
(2) 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)
				  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 investment objectives, financial situation and needs, and any other
				  relevant information known by the dealer;
(4) Executing a transaction on behalf of a
				  customer without authorization to do so;
(5) Exercising any discretionary power in
				  effecting a transaction for customer's account without first obtaining written
				  discretionary authority from the customer, unless the discretionary power
				  relates solely to the time and/or price for the execution of orders;
(6) Extending, arranging for or participating
				  in arranging for credit to a customer in violation of the regulations of the
				  Securities and Exchange Commission or the regulations of the Federal Reserve
				  Board;
(7) Executing any
				  transaction in a margin account without obtaining from the customer a written
				  margin agreement prior to settlement date for the initial transaction in the
				  account;
(8) Failing to segregate
				  customers' free securities or securities in safekeeping;
(9) Hypothecating a customer's securities
				  without having a lien thereon unless a properly executed written consent of the
				  customer is first obtained, except as permitted by rules of the Securities and
				  Exchange Commission;
(10) 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;
(11) Entering
				  into a transaction for its own account with a customer with an unreasonable
				  mark-up or mark-down, or with a customer other than a salesman registered with
				  the dealer in which a commission is charged;
(12) 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 or indeterminate commission or
				  profit;
(13) Executing orders for
				  the purchase by a customer of securities not registered under the provisions of
				  the Act, unless the securities or transaction are exempt from registration
				  under the Act;
(14) Engaging in a
				  course of conduct constituting an egregious violation of the rules of a
				  national securities exchange or national securities association of which the
				  dealer is a member with respect to any customer, transaction or
				  business;
(15) Introducing customer
				  transactions on a "fully disclosed" basis to another dealer or salesman that is
				  not registered under
				  G.S.
				  78A-37 unless the customer is a person
				  described in
				  G.S.
				  78A-17(8);
(16) Unreasonably or unjustifiably failing to
				  furnish to a customer purchasing securities in an offering, no later than the
				  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;
(17) Offering to buy from or sell to any
				  person any security at a stated price unless such dealer 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;
(18) Representing that a security is being
				  offered to a customer "at the market" or a price relevant to the market price
				  unless such dealer knows or has reasonable grounds to believe that a market for
				  such security exists other than that made, created or controlled by such
				  dealer, or by any person for whom he is acting or with whom he is associated in
				  such distribution, or any person controlled by, controlling or under common
				  control with such dealer;
(19)
				  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 be 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 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,
				  however, nothing in this Part shall prohibit a dealer from entering bona fide
				  agency cross transactions for its customers;
(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 by others;
(20)
				  Guaranteeing a customer against loss in any securities account of such customer
				  carried by the dealer or in any securities transaction effected by the dealer
				  with or for such customer;
(21)
				  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 dealer 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 such
				  dealer believes that such quotation represents a bona fide bid for, or offer
				  of, such security;
(22) Using any
				  advertising or sales presentation in such a fashion as to be deceptive or
				  misleading. An example of such practice would be 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 works,
				  pictures, graphs or otherwise designed to supplement, detract from, supersede
				  or defeat the purpose or effect of any prospectus or disclosure;
(23) Failing to disclose to the customer that
				  the 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 such customer for the purchase or sale of such security, 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;
(24) Failing to make a
				  bona fide public offering of all of the securities allotted to a 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;
(25) Failing or
				  refusing to furnish a customer, upon reasonable request, information to which
				  he is entitled, or to respond to a formal written request or
				  complaint;
(26) Establishing,
				  maintaining or operating an account under fictitious name or containing
				  fictitious information;
(27)
				  Sharing directly or indirectly in profits or losses in the account of any
				  customer without the written authorization of the customer;
(28) Utilizing an agent or subagent in
				  effecting or attempting to effect purchases or sales of securities where such
				  agent or subagent is not registered as a salesman pursuant to
				  G.S.
				  78A-37;
(29) Associating, affiliating or entering
				  into any arrangement with any person not registered as a dealer pursuant to
				  G.S.
				  78A-37, for the purpose of engaging in the
				  business of effecting transactions in securities, where the employees of such
				  person, assisting the dealer in effecting transactions in securities, are not
				  either registered as salesmen of the dealer or the activities of these
				  employees are not limited to duties that are exclusively clerical in nature for
				  which the dealer has provided adequate supervision including instruction,
				  training and safeguards against violation of the Act;
(30) Associating, affiliating or entering
				  into any arrangement with any person not registered as a dealer pursuant to
				  G.S.
				  78A-37 for the purpose of engaging in the
				  business of effecting transactions in securities, where such person fails to
				  conspicuously disclose to all customers, in any advertisement or literature
				  published or distributed by such person:
(A)
				  The identity of the registered dealer;
(B) That such person is not subject to
				  regulation by the securities administrator of the State of North
				  Carolina;
(C) The manner, form, and
				  amount of compensation, commission or remuneration to be received by such
				  person;
(31)
				  Representing the availability of financial or investment planning,
				  consultation, or advisement when the representation does not accurately
				  describe the nature of the services offered, the qualifications of the person
				  offering the services, and the method of compensation for the
				  services;
(32) Engaging in any act
				  or a course of conduct which resulted in the issuance by a securities agency or
				  administrator of any state of an order to cease and desist the violation of the
				  provisions of any state's securities act or rules (or the equivalent of any
				  such order); or
(33) Any other acts
				  or practices that may be determined by the administrator to constitute
				  dishonest or unethical practices in the securities business.