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D.C. Municipal Regulations (Last Updated: September 13, 2017) |
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Title 26. INSURANCE, SECURITIES, AND BANKING |
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SubTilte 26-B. SECURITIES |
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Chapter 26-B1. BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS, AND INVESTMENT ADVISER REPRESENTATIVES |
Section 26-B174. FINANCIAL AND DISCIPLINARY INFORMATION THAT INVESTMENT ADVISERS MUST DISCLOSE TO CLIENTS
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174.1An investment adviser shall promptly disclose in writing the financial and disciplinary history of an investment adviser representative employed or associated with the investment adviser upon the request of a current or prospective client. Disclosure of financial and disciplinary history shall be consistent with the provisions of this section.
174.2It shall constitute a dishonest practice within the meaning of Section 207 (a)(9) of the Act (D.C. Offical Code § 31-5602.07(a)(9); D.C. Register at 47 DCR 7851) for any investment adviser to fail to disclose to any client or prospective client all material facts with respect to:
(a)A financial condition of the investment adviser that is reasonably likely to impair the ability of the investment adviser to meet contractual commitments to clients.
(b)A legal or disciplinary event that is material to an evaluation of the investment adviser's, a management person's, as defined in § 174.6, or an investment adviser representative's conduct or integrity, or ability to meet contractual commitments to clients.
(c)A failure to comply with any arbitration award issued in connection with doing business as an investment adviser, or investment adviser representative.
174.3It shall constitute a rebuttable presumption that the following legal or disciplinary events involving the investment adviser, or their representative (hereinafter referred to a "person"), that were not resolved in the persons favor or subsequently reversed, suspended, or vacated are material within the meaning of this section for a period of 10 years from the time of the event. No affirmative or negative presumption of materiality shall be created under this section for events not specifically set forth in this subsection.
(a)A criminal or civil action in a court of competent jurisdiction in which the person:
(1)Was convicted or pleaded guilty or nolo contendere ("no contest") to a felony or misdemeanor, or is the named subject of a pending criminal proceeding (any of the foregoing referred to hereafter as "action"), and such action involved: an investment related business; fraud, false statements, or omissions; wrongful taking of property; or bribery, forgery, counterfeiting, or extortion;
(2)Was found to have been involved in a violation of an investment-related statute or rule; or
(3)Was the subject of any order, judgment, or decree permanently or temporarily enjoining the person or otherwise limiting the person from engaging in any investment related activity.
(b)An administrative proceeding before the SEC, the Department, or any federal or state agency (any of the foregoing being referred to hereafter as "agency") in which the person:
(1)Was found to have caused an investment related business to lose its authorization to do business; or
(2)Was found to have been involved in a violation of an investment-related statute or rule, and was the subject of an order by the agency denying, suspending, or revoking the authorization of the person to act in, or barring or suspending the person's association with, an investment-related business; or otherwise significantly limiting the person's investment-related activities.
(c)An SRO proceedings in which the person:
(1)Was found to have caused an investment-related business to lose its authorization to do business; or
(2)Was found to have been in violation of the SRO's rules and was the subject of an order by the SRO barring or suspending the person from membership or from association with other members, or expelling the person from membership; fining the person more than $ 2,500; or otherwise significantly limiting the person's investment-related activities.
174.4For purposes of calculating the 10-year period during which events are presumed to be material under these regulations, the date of the reportable event shall be the date on which the final order, judgment, or decree was entered, or the date on which any rights of appeal from preliminary orders, judgments, or decrees lapsed.
174.5There shall be a rebuttable presumption that the following legal or disciplinary events involving the investment adviser or a management person of the adviser (any of the foregoing being referred to hereafter as "person") that were not resolved in the person's favor or subsequently reversed, suspended, or vacated are material for a period of ten years from the time of the event:
(a)A criminal or civil action in a court of competent jurisdiction in which the person:
(1)Was convicted, pleaded guilty or nolo contendere ("no contest") to a felony or misdemeanor, or is the named subject of a pending criminal proceeding (any of the foregoing referred to hereafter as "action"), and such action involved: an investment-related business, fraud, false statements, or omissions; wrongful taking of property; or bribery, forgery, counterfeiting, extortion;
(2)Was found to have been involved in a violation of an investment-related statute or regulation; or
(3)Was the subject of any order, judgment, or decree permanently or temporarily enjoining the person from, or otherwise limiting the person from, engaging in any investment-related activity.
(b)Administrative proceedings before the Department, United States Securities and Exchange Commission, any other federal regulatory agency or any other state agency (any of the foregoing being referred to hereafter as "agency") in which the person:
(1)Was found to have caused an investment-related business to lose its authorization to do business; or
(2)Was found to have been involved in a violation of an investment-related statute or regulation and was the subject of an order by the agency denying, suspending, or revoking the authorization of the person to act in, or barring or suspending the person's association with any investment-related business or otherwise significantly limiting the person's investment-related activities; or
(3)Was found to have engaged in an act or a course of conduct which resulted in the issuance by the agency of an order to cease and desist the violation of the provisions of any investment-related statute or rule.
(c)SRO proceedings in which the person:
(1)Was found to have caused an investment-related business to lose its authorization to do business; or
(2)Was found to have been involved in a violation of the SRO's rules and was the subject of an order by the SRO barring or suspending the person from membership or from association with other members, or expelling the person from membership; fining the person more than two thousand five hundred dollars ($ 2,500.00); or otherwise significantly limiting the person's investment-related activities.
174.6For purposes of this section:
(a)"Management person" means a person with power to exercise, directly or indirectly, a controlling influence over the management or policies of an investment adviser which is not a natural person or to determine the general investment advice given to clients;
(b)"Found" means determined or ascertained by adjudication or consent in a final SRO proceeding, administrative proceeding, or court action;
(c)"Investment-related" means pertaining to securities, commodities, banking, insurance, or real estate, including, but not limited to, citing as or being associated with a broker-dealer, investment company, investment adviser, government securities broker or dealer, municipal securities dealer, bank, savings and loan association, entity or person required to be registered under the Commodity Exchange Act (7 U.S.C. 1 et seq.), or fiduciary;
(d)"Involved" means acting or aiding, abetting, causing, counseling, commanding, inducing, conspiring, with or failure reasonably to supervise another in doing an act; and,
(e)"Self-Regulatory Organization" or "SRO" means any national securities or commodities exchange, registered association, or registered clearing agency.
174.7For purposes of calculating the ten-year period during which events are presumed to be material under § 176.3, the date of a reportable event shall be the date on which the final order, judgment, or decree was entered, or the date on which the time for review of or appeal from preliminary orders, judgments, or decrees expired.
174.8Compliance with this section shall not relieve any investment adviser from the obligations of any other disclosure requirement under the Act, the rules and regulations thereunder, or under any other federal or state law.
174.9With respect to federal covered advisers, the provisions of this section only apply to the extent the practice involves fraud or deceit and only to the extent permitted by Section 203A of the Investment Advisers Act of 1940.