Section 26-B176. UNLAWFUL, UNETHICAL OR DISHONEST CONDUCT OR PRACTICES

 

176.1For purposes of Section 207 (a)(9) of the Act (D.C. Offical Code § 31-5602.07(a)(9); D.C. Register at 47 DCR 7851), the following are deemed to be unlawful, unethical, or dishonest conduct or practice by an investment adviser or investment adviser representative of an investment adviser without limiting those terms to the practices specified herein:

 

(a)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 by the investment adviser;

 

(b)Exercising any discretionary power 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 power relates solely to the price at which, or the time when, an order involving a definite amount of a specific security shall be executed, or both;

 

(c)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;

 

(d)Placing an order to purchase or sell a security for the account of a client without authority to do so;

 

(e)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;

 

(f)Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser, or a depository institution engaged in the business of lending funds;

 

(g)Lending money to a client unless the investment adviser is a depository institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser;

 

(h)Misrepresenting to any advisory client, or prospective advisory client, the qualifications of the investment adviser or any employee of the investment adviser, or to misrepresent the nature of the advisory services being offered or fees to be charged for such service, or to omit 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;

 

(i)Providing a report or recommendation to any advisory client prepared by someone other than the investment adviser without disclosing that fact. 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;

 

(j)Charging a client an unreasonable advisory fee;

 

(k)Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the investment adviser or any of its employees which could reasonably be expected to impair the rendering of unbiased and objective advice including:

 

(1)Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; and,

 

(2)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 investment adviser or its employees;

 

(l)Guaranteeing a client that a specific result will be achieved (e.g. gain or no loss), with advice which will be rendered;

 

(m)Publishing, circulating or distributing any advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940;

 

(n)Disclosing the identity, affairs, or investments of any client unless required by law to do so, or unless consented to by the client;

 

(o)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 and the adviser's action does not comply with the requirements of Rule 206(4)-2 under the Investment Advisers Act of 1940; and,

 

(p)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, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or non-performance, whether the contract grants discretionary power 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.

 

(q)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.

 

(r)Entering into, extending or renewing any advisory contract contrary to the provisions of Section 205 of the Investment Advisers Act of 1940. This provision shall apply to all investment advisers licensed or required to be licensed under the Act.

 

(s)Indicating, including in an advisory contract, any condition, stipulation or provisions binding any person to waive compliance with any provision of the Act or of the Investment Advisers Act of 1940, or any other practice contrary to the provisions of Section 215 of the Investment Advisers Act of 1940.

 

(t)Engaging in any act, practice or course of business which is fraudulent, deceptive or manipulative, contrary to the provisions 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.

 

(u)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 the Act or any rule or regulation thereunder.

 

(v)Entering into any contract with a customer if the contract contains any condition, stipulation or provision binding the customer to waive any rights under the Act, or any rule or order thereunder.

 

176.2The conduct set forth in this section 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.

 

source

Final Rulemaking published at 40 DCR 6732 (September 24, 1993); as amended by Emergency Rulemaking published at 48 DCR 1987 (March 2, 2001) [EXPIRED]; as amended by Final Rulemaking published at 48 DCR 4106 (May 11, 2001).