South Carolina Code of Regulations › Chapter 13 - ATTORNEY GENERAL › Article 2 - SECURITIES › Subarticle 5 - FRAUD AND LIABILITIES › Section 13-502 - Dishonest or Unethical Practices by Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers

Current through Register Vol. 48, No. 6, June 28, 2024
A. A person who is an investment adviser, an
				investment adviser representative or a federal covered investment adviser is a
				fiduciary and has a duty to act primarily for the benefit of its clients. The
				provisions of this regulation apply to federal covered investment advisers to
				the extent that the conduct alleged is fraudulent, 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
				this duty varies according to the nature of the relationship between an
				investment adviser, an investment adviser representative, or a federal covered
				investment adviser and its clients and the circumstances of each case, an
				investment adviser, an investment adviser representative, or a federal covered
				investment adviser shall not engage in prohibited fraudulent, deceptive, or
				manipulative conduct, including but not limited to 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 adviser after reasonable examination of
				the client's records as may be provided to the 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 ten (10) business days after the date of the first
				transaction placed pursuant to oral discretionary authority, unless the
				discretionary authority relates 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 and 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 broker-dealer, an affiliate of
				the adviser, or a financial institution engaged in the business of loaning
				funds or securities.
(7) Loaning
				money or securities to a client unless the adviser is a financial institution
				engaged in the business of loaning funds or the client is an affiliate of the
				adviser.
(8) Misrepresenting to any
				advisory client, or prospective advisory client, the qualifications of the
				adviser, its representatives, any employees, or affiliated persons or
				misrepresenting the nature of the advisory services being offered or fees to be
				charged for such services 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 adviser client prepared by someone other than the adviser, without
				disclosing that fact except that this prohibition does not apply to a situation
				where 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 unreasonable fee.
(11)
				Failing to disclose to a client in writing before any advice is rendered any
				material conflict of interest relating to the adviser, its representatives, any
				of its employees, or affiliated persons, 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 without disclosing that
				a commission for executing securities transactions pursuant to such advice will
				be received by the adviser, its representatives, its employees, or affiliated
				persons.
(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 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 adviser has custody or
				possession of such securities or funds when the adviser's action does not
				comply with the requirements of Rule
				206(4)-2 under the
				Investment Advisers Act of 1940.
(16) Entering into, extending or renewing any
				investment advisory contract 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 power to the adviser or its representatives and that no
				assignment of such contract shall be made by the adviser without the consent of
				the other party to the contract.
(17) Failing to establish, maintain, and
				enforce written policies and procedures reasonably designed to prevent the
				misuse of material nonpublic information in violation of Section
				204A of the Investment
				Advisers Act of 1940.
(18) Entering
				into, extending, or renewing any advisory contract which would violate section
				205 of the Investment Advisers Act of
				1940. This provision shall apply to all investment advisers registered or
				required to be registered under the South Carolina Uniform Securities Act of
				2005, notwithstanding whether such investment adviser would be exempt from
				federal registration pursuant to section
				203(b) of the Investment
				Advisers Act of 1940.
(19)
				Indicating, in an advisory contract, any condition, stipulation, or provisions
				binding any person to waive compliance with any provision of the South Carolina
				Uniform Securities Act of 2005 or of the Investment Advisers Act of 1940, or
				any other practice that would violate section 215 of the Investment Advisers
				Act of 1940.
(20) 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, notwithstanding the fact that such investment adviser is
				not registered or required to be registered under section
				203 of the Investment Advisers Act of
				1940.
(21) 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.
(22) 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 order
				thereunder.