North Carolina Administrative Code › Title 18 - SECRETARY OF STATE › Chapter 06 - SECURITIES DIVISION › Subchapter A - RECODIFIED RULES › Section .1700 - REGISTRATION OF INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES › Section 06A .1717 - CASH PAYMENTS FOR CLIENT SOLICITATIONS

Current through Register Vol. 39, No. 2, July 15, 2024
(a)
				  It shall be unlawful for any investment adviser required to be registered
				  pursuant to
				  G.S.
				  78C-16 to pay a cash fee, directly or
				  indirectly, to a solicitor with respect to solicitation activities unless:
(1) The investment adviser is registered
				  under the North Carolina Investment Advisers Act;
(2) The solicitor is not a person:
(A) subject to a Securities and Exchange
				  Commission ("the Commission") order issued under Section 203(f) of the
				  Investment Advisers Act of 1940 ("the 1940 Act"), or subject to an order of the
				  Administrator issued under
				  G.S.
				  78C-19 or
				  G.S.
				  78A-39; or
(B) convicted within the previous 10 years of
				  any felony or misdemeanor involving conduct described in Section
				  203(e)(2)(A)-(D) of the 1940 Act or described in
				  G.S.
				  78C-19(a)(2)c.; or
(C) who has been found by the Commission to
				  have engaged, or has been convicted of engaging, in any of the conduct
				  specified in Paragraphs (1), (5) or (6) of Section 203(e) of the 1940 Act, or
				  who has been found by the North Carolina Securities Division (the "Division")
				  to have engaged in or acted as accessory after the fact to, or has been
				  convicted of engaging in or acting as accessory after the fact to, a violation
				  of any provision of the North Carolina Investment Advisers Act, the North
				  Carolina Securities Act, or the Commodities Act (Chapters 78A, 78C, and 78D of
				  the North Carolina General Statutes); or
(D) who is subject to an order, judgment or
				  decree described in Section 203(e)(4) of the 1940 Act or in
				  G.S.
				  78C-19(a)(2)d.;
(3) Such cash fee is paid pursuant
				  to a written agreement to which the adviser is a party; and
(4) Such cash fee is paid to a solicitor:
(A) With respect to solicitation activities
				  for the provision of impersonal advisory services only; or
(B) Who is:
(i) a partner, officer, director or employee
				  of such investment adviser, or
(ii)
				  a partner, officer, director or employee of a person which controls, is
				  controlled by, or is under common control with such investment adviser;
				  provided that the status of such solicitor as a partner, officer, director or
				  employee of such investment adviser or other person, and any affiliation
				  between the investment adviser and such other person, is disclosed to the
				  client at the time of the solicitation or referral; or
(C) Other than a solicitor specified in Part
				  (a)(2)(A) or (B) of this Rule, if all of the following conditions are met:
(i) The written agreement required by
				  Paragraph (c) of this Rule;
(I) describes the
				  solicitation activities to be engaged in by the solicitor on behalf of the
				  investment adviser and the compensation to be received therefore;
(II) contains an undertaking by the solicitor
				  to perform his duties under the agreement in a manner consistent with the
				  instructions of the investment adviser and the provisions of the Act and the
				  rules thereunder; and
(III)
				  requires that the solicitor, at the time of any solicitation activities for
				  which compensation is paid or to be paid by the investment adviser, provide the
				  client with a current copy of the investment adviser's written disclosure
				  statement required by Rule .1707 of this Section ("Investment Adviser Brochure
				  Rule") and a separate written disclosure document described in Paragraph (b) of
				  this Rule;
(ii) The
				  investment adviser receives from the client, prior to, or at the time of,
				  entering into any written investment advisory contract with such client, a
				  signed and dated acknowledgment of receipt of the investment adviser's written
				  disclosure statement and the solicitor's written disclosure document. The
				  investment adviser shall retain a copy of each such acknowledgment and
				  solicitor disclosure document as part of the records required to be kept under
				  Subparagraph (a)(15) of Rule .1706 of this Section; and
(iii) The investment adviser makes a bona
				  fide effort to ascertain whether the solicitor has complied with the agreement,
				  and has a reasonable basis for believing that the solicitor has so
				  complied.