South Carolina Code of Regulations › Chapter 13 - ATTORNEY GENERAL › Article 2 - SECURITIES › Subarticle 4 - BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS, INVESTMENT ADVISER REPRESENTATIVES, AND FEDERAL COVERED INVESTMENT ADVISERS › Section 13-408 - Recordkeeping Requirements for Investment Advisers

Current through Register Vol. 48, No. 6, June 28, 2024
A. Every investment adviser registered or
				required to be registered under the South Carolina Uniform Securities Act of
				2005 shall make and keep true, accurate and current the following books,
				ledgers and records:
(1) A journal or
				journals, including cash receipts and disbursement records, and any other
				records of original entry forming the basis of entries in any ledger;
(2) General and auxiliary ledgers (or other
				comparable records) reflecting asset, liability, reserve, capital, income and
				expense accounts;
(3) A memorandum
				of each order given by the investment adviser for the purchase or sale of any
				security, of any instruction received by the investment adviser from a client
				concerning the purchase, sale, receipt or delivery of a particular security,
				and of any modification or cancellation of any such order or instruction. The
				memoranda shall show the terms and conditions of the order, instruction,
				modification or cancellation; shall identify the person connected with the
				investment adviser who recommended the transaction to the client and the person
				who placed the order; and shall show the account for which entered, the date of
				entry, and the bank or broker-dealer by or through who executed where
				appropriate. Orders entered pursuant to the exercise of discretionary power
				shall be so designated;
(4) All
				check books, bank statements, canceled checks and cash reconciliations of the
				investment adviser;
(5) All bills
				or statements (or copies of), paid or unpaid, relating to the investment
				adviser's business as an investment adviser;
(6) All trial balances, financial statements
				and internal audit working papers relating to the investment adviser's business
				as an investment adviser;
(7)
				Originals of all written communications received and copies of all written
				communications sent by the investment adviser relevant to (a) any
				recommendation made or proposed to be made and any advice given or proposed to
				be given, (b) any receipt, disbursement or delivery of funds or securities, or
				(c) the placing or execution of any order to purchase or sell any security,
				provided, however, (i) that the investment adviser shall not be required to
				keep any unsolicited market letters or other similar communications of general
				public distribution not prepared by or for the investment adviser, and (ii)
				that if the investment adviser sends any notice, circular or other
				advertisement offering any report, analysis, publication or other investment
				advisory service to more than ten persons, the investment adviser shall not be
				required to keep a record of the names and addresses of the persons to whom it
				was sent; except that if the notice, circular or advertisement is distributed
				to persons named on any list, the investment adviser shall retain with the copy
				of the notice, circular or advertisement a memorandum describing the list and
				its source;
(8) A list or other
				record of all accounts which identifies the accounts in which the investment
				adviser is vested with any discretionary power with respect to the funds,
				securities or transactions of any client;
(9) A copy of all powers of attorney and
				other evidences of the granting of any discretionary authority by any client to
				the investment adviser;
(10) A copy
				in writing of each agreement entered into by the investment adviser with any
				client, and all other written agreements otherwise relating to the investment
				adviser's business as an investment adviser;
(11) A file containing a copy of each notice,
				circular, advertisement, newspaper article, investment letter, bulletin, or
				other communication, including those by electronic media, that the investment
				adviser circulates or distributes, directly or indirectly, to two or more
				persons (other than persons connected with the investment adviser), and if the
				notice, circular, advertisement, newspaper, newspaper article, investment
				letter, bulletin, or other communication recommends the purchase or sale of a
				specific security and does not state the reasons for the recommendation, a
				memorandum of the investment adviser indicating the reasons for the
				recommendation;
(12) Records of
				Beneficial ownership (investment adviser or investment adviser representative)
(a) A record of every transaction in a
				security in which the investment adviser or any advisory representative (as
				hereinafter defined) of the investment adviser has, or by reason of any
				transaction acquires, any direct or indirect beneficial ownership, except:
(i) transactions effected in any account over
				which neither the investment adviser nor any advisory representative of the
				investment adviser has any direct or indirect influence or control;
				and
(ii) transactions in securities
				which are direct obligations of the United States. The record shall state the
				title and amount of the security involved; the date and nature of the
				transaction (i.e. purchase, sale or other acquisition of disposition); the
				price at which it was effected; and the name of the broker-dealer or bank with
				or through whom the transaction was effected. The record may also contain a
				statement declaring that the reporting or recording of any transaction shall
				not be construed as an admission that the investment adviser or advisory
				representative has any direct or indirect beneficial ownership in the security.
				A transaction shall be recorded not later than ten (10) days after the end of
				the calendar quarter in which the transaction was effected.
(b) For purposes of Subsection A
				(12) above, the following definitions will apply:
(i) "advisory representative" shall mean any
				partner, officer or director of the investment investment adviser; any employee
				who participates or participated in any way in the determination of which
				recommendations shall or should be made; any employee who, in connection with
				his duties, obtains any information concerning which securities are being
				recommended prior to the effective dissemination of the recommendations; and
				any of the following persons who obtain information concerning securities
				recommendations being made by the investment adviser prior to the effective
				dissemination of the recommendations:
(A) any
				person in a control relationship to the investment adviser;
(B) any affiliated person of a controlling
				person; and
(C) any affiliated
				person of an affiliated person;
(ii) "control" shall mean the power to
				exercise a controlling influence over the management or policies of a company,
				unless such power is solely the result of an official position with such
				company. Any person who owns beneficially, either directly or through one or
				more controlled companies, more than twenty-five percent (25%) of the voting
				securities of a company shall be presumed to control such company.
(c) An investment adviser shall
				not be deemed to have violated the provisions of Subsection A (12) above
				because of the failure to record securities transactions of any advisory
				representative if the investment adviser establishes that it instituted
				adequate procedures and used reasonable diligence to promptly obtain reports of
				all transactions required to be recorded;
(13) Records of Beneficial ownership (other)
(a) Notwithstanding the provisions of
				Subsection A (12) above, where the investment adviser is primarily engaged in a
				business or businesses other than advising investment advisory clients, a
				record must be maintained of every transaction in a security in which the
				investment adviser or any advisory representative (as hereinafter defined) of
				the investment adviser has, or by reason of any transaction acquires, any
				direct or indirect beneficial ownership, except:
(i) transactions effected in any account over
				which neither the investment adviser nor any advisory representative of the
				investment adviser has any direct or indirect influence or control;
				and
(ii) transactions in securities
				which are direct obligations of the United States. The record shall state the
				title and amount of the security involved; the date and nature of the
				transaction (i.e. purchase, sale, or other acquisition or disposition); the
				price at which it was effected; and the name of the broker-dealer or bank with
				or through whom the transaction was effected. The record may also contain a
				statement declaring that the reporting or recording of any transaction shall
				not be construed as an admission that the investment adviser or advisory
				representative has any direct or indirect beneficial ownership in the security.
				A transaction shall be recorded not later than 10 days after the end of the
				calendar quarter in which the transaction was effected.
(b) An investment adviser is "primarily
				engaged in a business or businesses other than advising investment advisory
				clients" when, for each of its most recent three (3) fiscal years or for the
				period of time since organization, whichever is lesser, the investment adviser
				derived from such other business or businesses, on an unconsolidated basis,
				more than fifty percent (50%) of:
(i) its
				total sales and revenues; and
(ii)
				its income (or loss) before income taxes and extraordinary items.
(c) For purposes of Subsection A
				(13) above, the following definitions will apply:
(i) "advisory representative", when used in
				connection with a company primarily engaged in a business or businesses other
				than advising investment advisory clients, shall mean any partner, officer,
				director, or employee of the investment adviser who participates in any way in
				the determination of which recommendation shall be made, or whose functions or
				duties relate to the determination of which securities are being recommended
				prior to the effective dissemination of the recommendations; and any of the
				following persons, who obtain information concerning securities recommendations
				being made by the investment adviser prior to the effective dissemination of
				such recommendations or of the information concerning the recommendations:
(A) any person in a control relationship to
				the investment adviser;
(B) any
				affiliated person of a controlling person; and
(C) any affiliated person of an affiliated
				person;
(ii) "control"
				shall mean the power to exercise a controlling influence over the management or
				policies of a company, unless such power is solely the result of an official
				position with such company. Any person who owns beneficially, either directly
				or through one or more controlled companies, more than twenty five percent
				(25%) of the voting securities of a company shall be presumed to control such
				company.
(d) An
				investment adviser shall not be deemed to have violated the provisions of
				Subsection A (13) above because of the failure to record securities
				transactions of any advisory representative if the investment adviser
				establishes that it instituted adequate procedures and used reasonable due
				diligence to promptly obtain reports of all transactions required to be
				recorded;
(14) A copy of
				each written statement and each amendment or revision, given or sent, to any
				client or prospective client of the investment adviser, and a record of the
				dates that each written statement and each amendment or revision, was given, or
				offered to be given, to any client or prospective client who subsequently
				became a client;
(15) For each
				client that was obtained by the adviser by means of a solicitor to whom a cash
				fee was paid by the adviser:
(a) evidence of
				a written agreement to which the adviser is a party related to the payment of
				such fee;
(b) a signed and dated
				acknowledgment of receipt from the client evidencing the client's receipt of
				the investment adviser's disclosure statement and a written disclosure
				statement of the solicitor; and
(c)
				a copy of the solicitor's written disclosure statement. The written agreement,
				acknowledgment and solicitor disclosure statement will be considered to be in
				compliance if such documents are in compliance with Rule 275.206(4)-3 of the
				Investment Advisers Act of 1940.
For purposes of this Rule, the term "solicitor" shall mean
				  any person or entity who, for compensation, acts as an agent of an investment
				  adviser in referring potential clients;
(16) All accounts, books, internal working
				papers, and any other records or documents that are necessary to form the basis
				for or demonstrate the calculation of the performance or rate of return of all
				managed accounts or securities recommendations in any notice, circular,
				advertisement, newspaper article, investment letter, bulletin, or other
				communication including but not limited to electronic media that the investment
				adviser circulates or distributes, directly, or indirectly, to two (2) or more
				persons (other than persons connected with the investment adviser); provided,
				however, that, with respect to the performance of managed accounts, the
				retention of all account statements, if they reflect all debits, credits, and
				other transactions in a client's account for the period of the statement, and
				all worksheets necessary to demonstrate the calculation of the performance or
				rate of return of all managed accounts shall be deemed to satisfy the
				requirements of this paragraph;
(17) A file containing a copy of all written
				communications received or sent regarding any complaints or litigation
				involving the investment adviser or any investment adviser representative or
				other employee, and any current or former customer or client;
(18) Written information about each
				investment advisory client that is the basis for making any recommendation or
				providing any investment advice to such client;
(19) Written procedures to supervise the
				activities of employees and investment adviser representatives that are
				reasonably designed to achieve compliance with applicable securities laws and
				regulations; and
(20) A file
				containing a copy of each document (other than any notices of general
				dissemination) that was filed with or received from any state or federal agency
				or self regulatory organization and that pertains to the registrant or its
				investment adviser representatives. The file should contain, but is not limited
				to, all applications, amendments, renewal filings, and
				correspondence.
(21) A copy, with
				original signatures of the investment adviser's appropriate signatory and the
				investment adviser representative, of each initial Form U-4 and each amendment
				to Disclosure Reporting Pages (DRPs Form U-4). Each copy must be retained by
				the investment adviser (filing on behalf of the investment adviser
				representative) and must be made available for inspection upon regulatory
				request.
(22) Where the investment
				adviser inadvertently held or obtained a client's securities or funds and
				returned them to the client within three business days, or has forwarded
				third-party checks within three business days, a ledger or other listing of all
				securities or funds held or obtained. Such ledger or other listing shall
				include the following information:
(a)
				Issuer;
(b) Type of Security and
				series;
(c) Date of
				issue;
(d) For debt instruments,
				the denomination, interest rate, and maturity date;
(e) Certificate number, including any
				alphabetical or other prefix or suffix;
(f) Name in which registered;
(g) Date given to the adviser;
(h) Date securities or funds were sent to
				client or sender, or date third-party checks were forwarded;
(i) Name and address to whom the securities
				or funds were sent, or third-party checks were forwarded;
(j) Form of delivery to client or sender, or
				copy of the form of delivery to client or sender; and
(k) Mail confirmation number, if applicable,
				or confirmation by client or sender of the fund's or security's
				return.
(23) If an
				investment adviser obtains possession of securities that are acquired from the
				issuer in a transaction or chain of transactions not involving any public
				offering that comply with the exception from custody, the investment adviser
				shall keep and maintain the following records:
(a) A record showing the issuer's or current
				transfer agent's name, address, phone number, and other applicable contact
				information pertaining to the party responsible for recording client interests
				in the securities; and
(b) A copy
				of any legend, shareholder agreement, or other agreement, showing that those
				securities are transferable only with prior consent of the issuer or holders of
				the outstanding securities of the issuer.