Section 11-302 - Advisory activities.
§ 11-302. Advisory activities.
(a) Fraud, deceit, etc.- It is unlawful for any person who receives, directly or indirectly, any consideration from another person for advising the other person as to the value of securities or their purchase or sale, or for acting as an investment adviser or representative under § 11-101(h) and (i) of this title, whether through the issuance of analyses, reports, or otherwise, to:
(1) Employ any device, scheme, or artifice to defraud the other person;
(2) Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit on the other person;
(3) Engage in dishonest or unethical practices as the Commissioner may define by rule; or
(4) When acting as principal for the person's own account knowingly sell any security to or purchase any security from a client, or when acting in an agency capacity for a person other than such client knowingly effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of such transaction the capacity in which the person is acting and obtaining the consent of the client to such transaction.
(b) Prohibitions inapplicable to certain transactions.- The prohibitions of subsection (a)(4) of this section do not apply to any transaction with a customer of a broker-dealer if the broker-dealer is not acting as an investment adviser in relation to the transaction or to transactions by a federal covered adviser who is otherwise subject to the limitations on principal trades under the federal securities laws.
(c) Misrepresentations.- In the solicitation of or in dealings with advisory clients, it is unlawful for any person knowingly to make any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.
(d) Dissemination of information.-
(1) The Commissioner by rule or order may require that certain information be furnished or disseminated by investment advisers as appropriate in the public interest or for the protection of investors and advisory clients.
(2) To the extent determined by the Commissioner in the Commissioner's discretion, information furnished to clients or prospective clients of an investment adviser that would be in compliance with the disclosure requirements of the Investment Advisers Act of 1940 and the rules thereunder may be used in whole or partial satisfaction of this requirement.
(e) Required provisions in investment advisory contract.-
(1) Except as permitted by rule or order of the Commissioner, it is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract, unless it provides in writing that:
(i) The investment adviser shall not be compensated on the basis of a share of capital gains on or capital appreciation of the funds or any portion of the funds of the client;
(ii) An assignment of the contract may not be made by the investment adviser without the consent of the other party to the contract; and
(iii) The investment adviser, if a partnership, shall notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change.
(2) Paragraph (1)(i) of this subsection does not prohibit an investment advisory contract which provides for compensation based on the total value of a fund averaged over a definite period or as of definite dates or taken as of a definite date.
(3) "Assignment", as used in paragraph (1)(ii) of this subsection, includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of controlling block of the assignor's outstanding voting securities by a security holder of the assignor, but, if the investment adviser is a partnership, an assignment of an investment advisory contract is not considered to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.
(f) Taking or having custody of any securities or funds of a client.- It is unlawful for any investment adviser to take or have custody of any securities or funds of any client if:
(1) The Commissioner by rule prohibits custody; or
(2) In the absence of a rule, the investment adviser fails to notify the Commissioner that he has or may have custody.
(g) Exemptions.- The Commissioner by rule or order may adopt exemptions from subsections (a)(4), and (e)(1)(i), (ii), and (iii) of this section, where such exemptions are consistent with the public interest and within the purposes fairly intended by the policy and provisions of this title.
[An. Code 1957, art. 32A, § 14; 1975, ch. 311, § 2; 1987, ch. 11, § 1; 1989, ch. 805, § 1; 1990, ch. 6, § 2; 1992, ch. 619; 1993, ch. 5, § 1; 1997, ch. 613, § 2; 2009, chs. 301, 302.]