30-10-301. Fraudulent and other prohibited practices.
30-10-301. Fraudulent and other prohibited practices. (1) It is unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly, in, into, or from this state, to:
(a) employ any device, scheme, or artifice to defraud;
(b) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
(c) engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person.
(2) (a) 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, whether through the issuance of analysis or reports or otherwise:
(i) to employ any device, scheme, or artifice to defraud the other person;
(ii) to engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon the other person; or
(iii) without disclosing to the client in writing before the completion of the transaction the capacity in which the person is acting and obtaining the consent of the client to the transaction:
(A) acting as principal for the person's own account, to knowingly sell any security to or purchase any security from a client; or
(B) acting as agent for a person other than the client, to knowingly effect the sale or purchase of any security for the account of the client.
(b) The prohibitions of subsection (2)(a)(iii) do not apply to any transaction with a customer of a broker-dealer if the broker-dealer is not being compensated for rendering investment advice in relation to the transaction.
(3) In the solicitation of advisory clients, it is unlawful for a person to:
(a) make a false statement of a material fact; or
(b) omit a material fact necessary to make a statement not misleading in light of the circumstances under which it is made.
(4) Except as permitted by rule or order of the commissioner, it is unlawful for any investment adviser who is registered or required to be registered to enter into, extend, or renew any investment advisory contract unless it provides in writing that:
(a) the investment adviser may not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client;
(b) an assignment of the contract may not be made by the investment adviser without the consent of the other party to the contract; and
(c) 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.
(5) Subsection (4)(a) does not prohibit an investment advisory contract that provides for compensation based upon the total value of a fund averaged over a definite period or as of definite dates or taken as of a definite date. "Assignment", as used in subsection (4)(b), includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a 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.
(6) It is unlawful for an investment adviser to take or have custody of any securities or funds of any client if:
(a) the commissioner by rule prohibits custody; or
(b) in the absence of rule, the investment adviser fails to notify the commissioner that the investment adviser has or may have custody.
History: En. Sec. 5, Ch. 251, L. 1961; R.C.M. 1947, 15-2005; amd. Sec. 1, Ch. 280, L. 1981; amd. Sec. 9, Ch. 272, L. 1987; amd. Sec. 10, Ch. 533, L. 1997.