Current as of: February 2010 (a) Necessity of registration
Except as provided in subsection (b) of this section and section
80b-3a of this title, it shall be unlawful for any investment
adviser, unless registered under this section, to make use of the
mails or any means or instrumentality of interstate commerce in
connection with his or its business as an investment adviser.
(b) Investment advisers who need not be registered
The provisions of subsection (a) of this section shall not apply
to -
(1) any investment adviser all of whose clients are residents
of the State within which such investment adviser maintains his
or its principal office and place of business, and who does not
furnish advice or issue analyses or reports with respect to
securities listed or admitted to unlisted trading privileges on
any national securities exchange;
(2) any investment adviser whose only clients are insurance
companies;
(3) any investment adviser who during the course of the
preceding twelve months has had fewer than fifteen clients and
who neither holds himself out generally to the public as an
investment adviser nor acts as an investment adviser to any
investment company registered under subchapter I of this chapter,
or a company which has elected to be a business development
company pursuant to section 80a-53 of this title and has not
withdrawn its election. For purposes of determining the number of
clients of an investment adviser under this paragraph, no
shareholder, partner, or beneficial owner of a business
development company, as defined in this subchapter, shall be
deemed to be a client of such investment adviser unless such
person is a client of such investment adviser separate and apart
from his status as a shareholder, partner, or beneficial owner;
(4) any investment adviser that is a charitable organization,
as defined in section 3(c)(10)(D) of the Investment Company Act
of 1940 [15 U.S.C. 80a-3(c)(10)(D)], or is a trustee, director,
officer, employee, or volunteer of such a charitable organization
acting within the scope of such person's employment or duties
with such organization, whose advice, analyses, or reports are
provided only to one or more of the following:
(A) any such charitable organization;
(B) a fund that is excluded from the definition of an
investment company under section 3(c)(10)(B) of the Investment
Company Act of 1940 [15 U.S.C. 80a-3(c)(10)(B)]; or
(C) a trust or other donative instrument described in section
3(c)(10)(B) of the Investment Company Act of 1940 [15 U.S.C.
80a-3(c)(10)(B)], or the trustees, administrators, settlors (or
potential settlors), or beneficiaries of any such trust or
other instrument;
(5) any plan described in section 414(e) of title 26, any
person or entity eligible to establish and maintain such a plan
under title 26, or any trustee, director, officer, or employee of
or volunteer for any such plan or person, if such person or
entity, acting in such capacity, provides investment advice
exclusively to, or with respect to, any plan, person, or entity
or any company, account, or fund that is excluded from the
definition of an investment company under section 3(c)(14) of the
Investment Company Act of 1940 [15 U.S.C. 80a-3(c)(14)]; or
(6) any investment adviser that is registered with the
Commodity Futures Trading Commission as a commodity trading
advisor whose business does not consist primarily of acting as an
investment adviser, as defined in section 80b-2(a)(11) of this
title, and that does not act as an investment adviser to -
(A) an investment company registered under subchapter I of
this chapter; or
(B) a company which has elected to be a business development
company pursuant to section 80a-53 of this title and has not
withdrawn its election.
(c) Procedure for registration; filing of application; effective
date of registration; amendment of registration
(1) An investment adviser, or any person who presently
contemplates becoming an investment adviser, may be registered by
filing with the Commission an application for registration in such
form and containing such of the following information and documents
as the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
investors:
(A) the name and form of organization under which the
investment adviser engages or intends to engage in business; the
name of the State or other sovereign power under which such
investment adviser is organized; the location of his or its
principal business office and branch offices, if any; the names
and addresses of his or its partners, officers, directors, and
persons performing similar functions or, if such an investment
adviser be an individual, of such individual; and the number of
his or its employees;
(B) the education, the business affiliations for the past ten
years, and the present business affiliations of such investment
adviser and of his or its partners, officers, directors, and
persons performing similar functions and of any controlling
person thereof;
(C) the nature of the business of such investment adviser,
including the manner of giving advice and rendering analyses or
reports;
(D) a balance sheet certified by an independent public
accountant and other financial statements (which shall, as the
Commission specifies, be certified);
(E) the nature and scope of the authority of such investment
adviser with respect to clients' funds and accounts;
(F) the basis or bases upon which such investment adviser is
compensated;
(G) whether such investment adviser, or any person associated
with such investment adviser, is subject to any disqualification
which would be a basis for denial, suspension, or revocation of
registration of such investment adviser under the provisions of
subsection (e) of this section; and
(H) a statement as to whether the principal business of such
investment adviser consists or is to consist of acting as
investment adviser and a statement as to whether a substantial
part of the business of such investment adviser, consists or is
to consist of rendering investment supervisory services.
(2) Within forty-five days of the date of the filing of such
application (or within such longer period as to which the applicant
consents) the Commission shall -
(A) by order grant such registration; or
(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the
grounds for denial under consideration and opportunity for
hearing and shall be concluded within one hundred twenty days of
the date of the filing of the application for registration. At
the conclusion of such proceedings the Commission, by order,
shall grant or deny such registration. The Commission may extend
the time for conclusion of such proceedings for up to ninety days
if it finds good cause for such extension and publishes its
reasons for so finding or for such longer period as to which the
applicant consents.
The Commission shall grant such registration if the Commission
finds that the requirements of this section are satisfied and that
the applicant is not prohibited from registering as an investment
adviser under section 80b-3a of this title. The Commission shall
deny such registration if it does not make such a finding or if it
finds that if the applicant were so registered, its registration
would be subject to suspension or revocation under subsection (e)
of this section.
(d) Other acts prohibited by subchapter
Any provision of this subchapter (other than subsection (a) of
this section) which prohibits any act, practice, or course of
business if the mails or any means or instrumentality of interstate
commerce are used in connection therewith shall also prohibit any
such act, practice, or course of business by any investment adviser
registered pursuant to this section or any person acting on behalf
of such an investment adviser, irrespective of any use of the mails
or any means or instrumentality of interstate commerce in
connection therewith.
(e) Censure, denial, or suspension of registration; notice and
hearing
The Commission, by order, shall censure, place limitations on the
activities, functions, or operations of, suspend for a period not
exceeding twelve months, or revoke the registration of any
investment adviser if it finds, on the record after notice and
opportunity for hearing, that such censure, placing of limitations,
suspension, or revocation is in the public interest and that such
investment adviser, or any person associated with such investment
adviser, whether prior to or subsequent to becoming so associated -
(1) has willfully made or caused to be made in any application
for registration or report required to be filed with the
Commission under this subchapter, or in any proceeding before the
Commission with respect to registration, any statement which was
at the time and in the light of the circumstances under which it
was made false or misleading with respect to any material fact,
or has omitted to state in any such application or report any
material fact which is required to be stated therein.
(2) has been convicted within ten years preceding the filing of
any application for registration or at any time thereafter of any
felony or misdemeanor or of a substantially equivalent crime by a
foreign court of competent jurisdiction which the Commission
finds -
(A) involves the purchase or sale of any security, the taking
of a false oath, the making of a false report, bribery,
perjury, burglary, any substantially equivalent activity
however denominated by the laws of the relevant foreign
government, or conspiracy to commit any such offense;
(B) arises out of the conduct of the business of a broker,
dealer, municipal securities dealer, investment adviser, bank,
insurance company, government securities broker, government
securities dealer, fiduciary, transfer agent, credit rating
agency, foreign person performing a function substantially
equivalent to any of the above, or entity or person required to
be registered under the Commodity Exchange Act [7 U.S.C. 1 et
seq.] or any substantially equivalent statute or regulation;
(C) involves the larceny, theft, robbery, extortion, forgery,
counterfeiting, fraudulent concealment, embezzlement,
fraudulent conversion, or misappropriation of funds or
securities or substantially equivalent activity however
denominated by the laws of the relevant foreign government; or
(D) involves the violation of section 152, 1341, 1342, or
1343 or chapter 25 or 47 of title 18, or a violation of (!1)
substantially equivalent foreign statute.
(3) has been convicted during the 10-year period preceding the
date of filing of any application for registration, or at any
time thereafter, of -
(A) any crime that is punishable by imprisonment for 1 or
more years, and that is not described in paragraph (2); or
(B) a substantially equivalent crime by a foreign court of
competent jurisdiction.
(4) is permanently or temporarily enjoined by order, judgment,
or decree of any court of competent jurisdiction, including any
foreign court of competent jurisdiction, from acting as an
investment adviser, underwriter, broker, dealer, municipal
securities dealer, government securities broker, government
securities dealer, transfer agent, credit rating agency, foreign
person performing a function substantially equivalent to any of
the above, or entity or person required to be registered under
the Commodity Exchange Act [7 U.S.C. 1 et seq.] or any
substantially equivalent statute or regulation, or as an
affiliated person or employee of any investment company, bank,
insurance company, foreign entity substantially equivalent to any
of the above, or entity or person required to be registered under
the Commodity Exchange Act or any substantially equivalent
statute or regulation, or from engaging in or continuing any
conduct or practice in connection with any such activity, or in
connection with the purchase or sale of any security.
(5) has willfully violated any provision of the Securities Act
of 1933 [15 U.S.C. 77a et seq.], the Securities Exchange Act of
1934 [15 U.S.C. 78a et seq.], the Investment Company Act of 1940
[15 U.S.C. 80a-1 et seq.], this subchapter, the Commodity
Exchange Act [7 U.S.C. 1 et seq.], or the rules or regulations
under any such statutes or any rule of the Municipal Securities
Rulemaking Board, or is unable to comply with any such provision.
(6) has willfully aided, abetted, counseled, commanded,
induced, or procured the violation by any other person of any
provision of the Securities Act of 1933 [15 U.S.C. 77a et seq.],
the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], the
Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.], this
subchapter, the Commodity Exchange Act [7 U.S.C. 1 et seq.], the
rules or regulations under any of such statutes, or the rules of
the Municipal Securities Rulemaking Board, or has failed
reasonably to supervise, with a view to preventing violations of
the provisions of such statutes, rules and regulations, another
person who commits such a violation, if such other person is
subject to his supervision. For the purposes of this paragraph no
person shall be deemed to have failed reasonably to supervise any
person, if -
(A) there have been established procedures, and a system for
applying such procedures, which would reasonably be expected to
prevent and detect, insofar as practicable, any such violation
by such other person, and
(B) such person has reasonably discharged the duties and
obligations incumbent upon him by reason of such procedures and
system without reasonable cause to believe that such procedures
and system were not being complied with.
(7) is subject to any order of the Commission barring or
suspending the right of the person to be associated with an
investment adviser;
(8) has been found by a foreign financial regulatory authority
to have -
(A) made or caused to be made in any application for
registration or report required to be filed with a foreign
securities authority, or in any proceeding before a foreign
securities authority with respect to registration, any
statement that was at the time and in light of the
circumstances under which it was made false or misleading with
respect to any material fact, or has omitted to state in any
application or report to a foreign securities authority any
material fact that is required to be stated therein;
(B) violated any foreign statute or regulation regarding
transactions in securities or contracts of sale of a commodity
for future delivery traded on or subject to the rules of a
contract market or any board of trade; or
(C) aided, abetted, counseled, commanded, induced, or
procured the violation by any other person of any foreign
statute or regulation regarding transactions in securities or
contracts of sale of a commodity for future delivery traded on
or subject to the rules of a contract market or any board of
trade, or has been found, by the foreign finanical (!2)
regulatory authority, to have failed reasonably to supervise,
with a view to preventing violations of statutory provisions,
and rules and regulations promulgated thereunder, another
person who commits such a violation, if such other person is
subject to his supervision; or
(9) is subject to any final order of a State securities
commission (or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that -
(A) bars such person from association with an entity
regulated by such commission, authority, agency, or officer, or
from engaging in the business of securities, insurance,
banking, savings association activities, or credit union
activities; or
(B) constitutes a final order based on violations of any laws
or regulations that prohibit fraudulent, manipulative, or
deceptive conduct.
(f) Bar or suspension from association with investment adviser;
notice and hearing
The Commission, by order, shall censure or place limitations on
the activities of any person associated, seeking to become
associated, or, at the time of the alleged misconduct, associated
or seeking to become associated with an investment adviser, or
suspend for a period not exceeding twelve months or bar any such
person from being associated with an investment adviser, if the
Commission finds, on the record after notice and opportunity for
hearing, that such censure, placing of limitations, suspension, or
bar is in the public interest and that such person has committed or
omitted any act or omission enumerated in paragraph (1), (5), (6),
(8), or (9) of subsection (e) of this section or has been convicted
of any offense specified in paragraph (2) or (3) of subsection (e)
of this section within ten years of the commencement of the
proceedings under this subsection, or is enjoined from any action,
conduct, or practice specified in paragraph (4) of subsection (e)
of this section. It shall be unlawful for any person as to whom
such an order suspending or barring him from being associated with
an investment adviser is in effect willfully to become, or to be,
associated with an investment adviser without the consent of the
Commission, and it shall be unlawful for any investment adviser to
permit such a person to become, or remain, a person associated with
him without the consent of the Commission, if such investment
adviser knew, or in the exercise of reasonable care, should have
known, of such order.
(g) Registration of successor to business of investment adviser
Any successor to the business of an investment adviser registered
under this section shall be deemed likewise registered hereunder,
if within thirty days from its succession to such business it shall
file an application for registration under this section, unless and
until the Commission, pursuant to subsection (c) or subsection (e)
of this section, shall deny registration to or revoke or suspend
the registration of such successor.
(h) Withdrawal of registration
Any person registered under this section may, upon such terms and
conditions as the Commission finds necessary in the public interest
or for the protection of investors, withdraw from registration by
filing a written notice of withdrawal with the Commission. If the
Commission finds that any person registered under this section, or
who has pending an application for registration filed under this
section, is no longer in existence, is not engaged in business as
an investment adviser, or is prohibited from registering as an
investment adviser under section 80b-3a of this title, the
Commission shall by order cancel the registration of such person.
(i) Money penalties in administrative proceedings
(1) Authority of Commission
In any proceeding instituted pursuant to subsection (e) or (f)
of this section against any person, the Commission may impose a
civil penalty if it finds, on the record after notice and
opportunity for hearing, that such person -
(A) has willfully violated any provision of the Securities
Act of 1933 [15 U.S.C. 77a et seq.], the Securities Exchange
Act of 1934 [15 U.S.C. 78a et seq.], subchapter I of this
chapter, or this subchapter, or the rules or regulations
thereunder;
(B) has willfully aided, abetted, counseled, commanded,
induced, or procured such a violation by any other person;
(C) has willfully made or caused to be made in any
application for registration or report required to be filed
with the Commission under this subchapter, or in any proceeding
before the Commission with respect to registration, any
statement which was, at the time and in the light of the
circumstances under which it was made, false or misleading with
respect to any material fact, or has omitted to state in any
such application or report any material fact which was required
to be stated therein; or
(D) has failed reasonably to supervise, within the meaning of
subsection (e)(6) of this section, with a view to preventing
violations of the provisions of this subchapter and the rules
and regulations thereunder, another person who commits such a
violation, if such other person is subject to his supervision;
and that such penalty is in the public interest.
(2) Maximum amount of penalty
(A) First tier
The maximum amount of penalty for each act or omission
described in paragraph (1) shall be $5,000 for a natural person
or $50,000 for any other person.
(B) Second tier
Notwithstanding subparagraph (A), the maximum amount of
penalty for each such act or omission shall be $50,000 for a
natural person or $250,000 for any other person if the act or
omission described in paragraph (1) involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a
regulatory requirement.
(C) Third tier
Notwithstanding subparagraphs (A) and (B), the maximum amount
of penalty for each such act or omission shall be $100,000 for
a natural person or $500,000 for any other person if -
(i) the act or omission described in paragraph (1) involved
fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement; and
(ii) such act or omission directly or indirectly resulted
in substantial losses or created a significant risk of
substantial losses to other persons or resulted in
substantial pecuniary gain to the person who committed the
act or omission.
(3) Determination of public interest
In considering under this section whether a penalty is in the
public interest, the Commission may consider -
(A) whether the act or omission for which such penalty is
assessed involved fraud, deceit, manipulation, or deliberate or
reckless disregard of a regulatory requirement;
(B) the harm to other persons resulting either directly or
indirectly from such act or omission;
(C) the extent to which any person was unjustly enriched,
taking into account any restitution made to persons injured by
such behavior;
(D) whether such person previously has been found by the
Commission, another appropriate regulatory agency, or a self-
regulatory organization to have violated the Federal
securities laws, State securities laws, or the rules of a self-
regulatory organization, has been enjoined by a court of
competent jurisdiction from violations of such laws or rules,
or has been convicted by a court of competent jurisdiction of
violations of such laws or of any felony or misdemeanor
described in subsection (e)(2) of this section;
(E) the need to deter such person and other persons from
committing such acts or omissions; and
(F) such other matters as justice may require.
(4) Evidence concerning ability to pay
In any proceeding in which the Commission may impose a penalty
under this section, a respondent may present evidence of the
respondent's ability to pay such penalty. The Commission may, in
its discretion, consider such evidence in determining whether
such penalty is in the public interest. Such evidence may relate
to the extent of such person's ability to continue in business
and the collectability of a penalty, taking into account any
other claims of the United States or third parties upon such
person's assets and the amount of such person's assets.
(j) Authority to enter order requiring accounting and disgorgement
In any proceeding in which the Commission may impose a penalty
under this section, the Commission may enter an order requiring
accounting and disgorgement, including reasonable interest. The
Commission is authorized to adopt rules, regulations, and orders
concerning payments to investors, rates of interest, periods of
accrual, and such other matters as it deems appropriate to
implement this subsection.
(k) Cease-and-desist proceedings
(1) Authority of Commission
If the Commission finds, after notice and opportunity for
hearing, that any person is violating, has violated, or is about
to violate any provision of this subchapter, or any rule or
regulation thereunder, the Commission may publish its findings
and enter an order requiring such person, and any other person
that is, was, or would be a cause of the violation, due to an act
or omission the person knew or should have known would contribute
to such violation, to cease and desist from committing or causing
such violation and any future violation of the same provision,
rule, or regulation. Such order may, in addition to requiring a
person to cease and desist from committing or causing a
violation, require such person to comply, or to take steps to
effect compliance, with such provision, rule, or regulation, upon
such terms and conditions and within such time as the Commission
may specify in such order. Any such order may, as the Commission
deems appropriate, require future compliance or steps to effect
future compliance, either permanently or for such period of time
as the Commission may specify, with such provision, rule, or
regulation with respect to any security, any issuer, or any other
person.
(2) Hearing
The notice instituting proceedings pursuant to paragraph (1)
shall fix a hearing date not earlier than 30 days nor later than
60 days after service of the notice unless an earlier or a later
date is set by the Commission with the consent of any respondent
so served.
(3) Temporary order
(A) In general
Whenever the Commission determines that the alleged violation
or threatened violation specified in the notice instituting
proceedings pursuant to paragraph (1), or the continuation
thereof, is likely to result in significant dissipation or
conversion of assets, significant harm to investors, or
substantial harm to the public interest, including, but not
limited to, losses to the Securities Investor Protection
Corporation, prior to the completion of the proceedings, the
Commission may enter a temporary order requiring the respondent
to cease and desist from the violation or threatened violation
and to take such action to prevent the violation or threatened
violation and to prevent dissipation or conversion of assets,
significant harm to investors, or substantial harm to the
public interest as the Commission deems appropriate pending
completion of such proceedings. Such an order shall be entered
only after notice and opportunity for a hearing, unless the
Commission, notwithstanding section 80b-11(c) of this title,
determines that notice and hearing prior to entry would be
impracticable or contrary to the public interest. A temporary
order shall become effective upon service upon the respondent
and, unless set aside, limited, or suspended by the Commission
or a court of competent jurisdiction, shall remain effective
and enforceable pending the completion of the proceedings.
(B) Applicability
This paragraph shall apply only to a respondent that acts,
or, at the time of the alleged misconduct acted, as a broker,
dealer, investment adviser, investment company, municipal
securities dealer, government securities broker, government
securities dealer, or transfer agent, or is, or was at the time
of the alleged misconduct, an associated person of, or a person
seeking to become associated with, any of the foregoing.
(4) Review of temporary orders
(A) Commission review
At any time after the respondent has been served with a
temporary cease-and-desist order pursuant to paragraph (3), the
respondent may apply to the Commission to have the order set
aside, limited, or suspended. If the respondent has been served
with a temporary cease-and-desist order entered without a prior
Commission hearing, the respondent may, within 10 days after
the date on which the order was served, request a hearing on
such application and the Commission shall hold a hearing and
render a decision on such application at the earliest possible
time.
(B) Judicial review
Within -
(i) 10 days after the date the respondent was served with a
temporary cease-and-desist order entered with a prior
Commission hearing, or
(ii) 10 days after the Commission renders a decision on an
application and hearing under subparagraph (A), with respect
to any temporary cease-and-desist order entered without a
prior Commission hearing,
the respondent may apply to the United States district court
for the district in which the respondent resides or has its
principal place of business, or for the District of Columbia,
for an order setting aside, limiting, or suspending the
effectiveness or enforcement of the order, and the court shall
have jurisdiction to enter such an order. A respondent served
with a temporary cease-and-desist order entered without a prior
Commission hearing may not apply to the court except after
hearing and decision by the Commission on the respondent's
application under subparagraph (A) of this paragraph.
(C) No automatic stay of temporary order
The commencement of proceedings under subparagraph (B) of
this paragraph shall not, unless specifically ordered by the
court, operate as a stay of the Commission's order.
(D) Exclusive review
Section 80b-13 of this title shall not apply to a temporary
order entered pursuant to this section.
(5) Authority to enter order requiring accounting and
disgorgement
In any cease-and-desist proceeding under paragraph (1), the
Commission may enter an order requiring accounting and
disgorgement, including reasonable interest. The Commission is
authorized to adopt rules, regulations, and orders concerning
payments to investors, rates of interest, periods of accrual, and
such other matters as it deems appropriate to implement this
subsection.Legislative History ________________________________________________________________________
U.S. Code Provisions: SecuritiesState Laws: Securities
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