North Carolina Administrative Code › Title 18 - SECRETARY OF STATE › Chapter 06 - SECURITIES DIVISION › Subchapter A - RECODIFIED RULES › Section .1800 - MISCELLANEOUS PROVISIONS INVESTMENT ADVISERS › Section 06A .1801 - DISHONEST OR UNETHICAL PRACTICES

Current through Register Vol. 39, No. 2, July 15, 2024
(a) An
				  investment adviser or an investment adviser covered under federal law is a
				  fiduciary and has a duty to act primarily for the benefit of its clients. The
				  provisions of this Section apply to investment advisers covered under federal
				  law only to the extent that the conduct alleged is fraudulent or deceptive, or
				  as otherwise permitted by the National Securities Markets Improvement Act of
				  1996 (Pub. L. No.
				  104-290). While the extent and nature of his duty
				  varies according to the nature of the relationship between an investment
				  adviser and its clients and the circumstances of each case, an investment
				  adviser or an investment adviser covered under federal law shall not engage in
				  unethical business practices, including the following:
(1) Recommending to a client to whom
				  investment supervisory, management or consulting services are provided the
				  purchase, sale or exchange of any security without reasonable grounds to
				  believe that the recommendation is suitable for the client on the basis of
				  information furnished by the client after reasonable inquiry concerning the
				  client's investment objectives, financial situation and needs, and any other
				  information known or acquired by the investment adviser after reasonable
				  examination of such of the client's financial records as may be provided to the
				  investment adviser;
(2) Placing an
				  order to purchase or sell a security for the account of a client without
				  authority to do so;
(3) Placing an
				  order to purchase or sell a security for the account of a client upon
				  instruction of a third party without first having obtained a written
				  third-party trading authorization from the client;
(4) Exercising any discretionary authority in
				  placing an order for the purchase or sale of securities for a client without
				  obtaining written discretionary authority from the client within 10 business
				  days after the date of the first transaction placed pursuant to oral
				  discretionary authority. Discretionary power does not include a power relating
				  solely to the price at which, or the time when, an order involving a definite
				  amount of a specified security shall be executed, or both;
(5) Inducing trading in a client's account
				  that is excessive in size or frequency in view of the financial resources,
				  investment objectives and character of the account;
(6) Borrowing money or securities from a
				  client unless the client is a dealer, an affiliate of the investment adviser,
				  or a financial institution engaged in the business of lending funds or
				  securities;
(7) Lending money to a
				  client unless the investment adviser is a financial institution engaged in the
				  business of lending funds or a dealer, or unless the client is an affiliate of
				  the investment adviser;
(8)
				  Misrepresenting to any advisory client, or prospective advisory client, the
				  qualifications of the investment adviser or any employee of the investment
				  adviser, or misrepresenting the nature of the advisory services being offered
				  or fees to be charged for such service, or omitting to state a material fact
				  necessary to make the statements made regarding qualifications, services or
				  fees, in light of the circumstances under which they are made, not
				  misleading;
(9) Providing a report
				  or recommendation to any advisory client prepared by someone other than the
				  adviser without disclosing that fact. (This prohibition does not apply to a
				  situation in which the adviser uses published research reports or statistical
				  analyses to render advice or where an adviser orders such a report in the
				  normal course of providing service.);
(10) Charging a client an advisory fee that
				  is unreasonable in the light of the type of services to be provided, the
				  experience and expertise of the adviser, the sophistication and bargaining
				  power of the client, and whether the adviser has disclosed that lower fees for
				  comparable services may be available from other sources;
(11) Failing to disclose to a client in
				  writing before entering into or renewing an advisory agreement with that client
				  any material conflict of interest relating to the adviser or any of its
				  employees which could reasonably be expected to impair the rendering of
				  unbiased and objective advice including:
(A)
				  Compensation arrangements connected with advisory services to clients which are
				  in addition to compensation from such clients for such services; and
(B) Charging a client an advisory fee for
				  rendering advice when a commission for executing securities transactions
				  pursuant to such advice will be received by the adviser or its
				  employees;
(12)
				  Guaranteeing a client that a specific result will be achieved (gain or no loss)
				  as a result of the advice which will be rendered;
(13) Publishing, circulating or distributing
				  any advertisement which does not comply with Rule 206(4)-1 under the Investment
				  Advisers Act of 1940;
(14)
				  Disclosing the identity, affairs or investments of any client to any third
				  party unless required by law to do so, or unless consented to by the
				  client;
(15) Taking any action,
				  directly or indirectly, with respect to those securities or funds in which any
				  client has any beneficial interest, where the investment adviser has custody or
				  possession of such securities or funds when the adviser's action is subject to
				  and does not comply with the safekeeping requirements of Rule 206(4)-2 under
				  the Investment Advisers Act of 1940, unless the investment adviser is exempt
				  from such requirements by virtue of Rule 206(4)-2(b);
(16) Entering into, extending or renewing any
				  investment advisory contract, other than a contract for impersonal advisory
				  services, unless such contract is in writing and discloses, in substance: the
				  services to be provided; the term of the contract; the advisory fee or the
				  formula for computing the fee; the amount or the manner of calculation of the
				  amount of the prepaid fee to be returned in the event of contract termination
				  or non-performance; whether the contract grants discretionary authority to the
				  adviser; and that no assignment of such contract shall be made by the
				  investment adviser without the consent of the other party to the
				  contract;
(17) Failing to disclose
				  to any client or prospective client all material facts with respect to:
(A) A financial condition of the adviser that
				  is reasonably likely to impair the ability of the adviser to meet contractual
				  commitments to clients, if the adviser has discretionary authority (express or
				  implied) or custody over such client's funds or securities, or requires
				  prepayment of advisory fees of more than five hundred dollars ($500.00) from
				  such client, six months or more in advance; or
(B) A legal or disciplinary event that is
				  material to an evaluation of the adviser's integrity or ability to meet
				  contractual commitments to clients; and
(18) Utilizing an agent or subagent who
				  satisfies the definition of an investment adviser representative as set forth
				  in G.S.
				  78C-2(3), where such agent
				  or subagent is not registered as an investment adviser representative pursuant
				  to G.S.
				  78C-16;
(19) Failing to establish, maintain, and
				  enforce written policies and procedures reasonably designed to prevent the
				  misuse of material nonpublic information contrary to the provisions of Section
				  204A of the Investment Advisers Act of 1940;
(20) Entering into, extending, or renewing
				  any advisory contract contrary to the provisions of Section 205 of the
				  Investment Advisers Act of 1940;
(21) Indicating in an advisory contract, any
				  condition, stipulation, or provisions binding any person to waive compliance
				  with any provision of this Act or of the Investment Advisers Act of 1940, or
				  any other practice that would violate Section 215 of the Investment Advisers
				  Act of 1940;
(22) Engaging in any
				  act, practice, or course of business which is fraudulent, deceptive, or
				  manipulative in contravention of Section 206(4) of the Investment Advisers Act
				  of 1940;
(23) Engaging in conduct
				  or any act, indirectly or through or by any other person, which would be
				  unlawful for such person to do directly under the provisions of this Act or any
				  rule or regulation thereunder.
The conduct set forth in Rule .1801(a) is not exclusive. It
					 also includes employing any device, scheme, or artifice to defraud or engaging
					 in any act, practice or course of business which operates or would operate as a
					 fraud or deceit. The federal statutory and regulatory provisions referenced
					 herein shall apply both to investment advisers and to investment advisers
					 covered under federal law, to the extent permitted by the National Securities
					 Markets Improvement Act of 1996 (Pub. L. No. 104-290).