CR 25-045 Rule Text

(3) Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources and character of the account; .

(4) Recommending to a client 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;.

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

(9) Placing an order for a client, or recommending that the client place an order, to purchase or sell a security through a broker-dealer or agent not registered under ch. 551, Stats., unless the client is a person described in s. 551.403 (2) (a), Stats., or s. DFI-Sec 5.12 5.13.

(10) Recommending to a client that the client engage the services of a broker-dealer, agent or investment adviser not registered under ch. 551, Stats., unless the client is a person described in s. 551.403 (2) (a), Stats., or s. DFI-Sec 5.12 5.13.

_Hlk198559552 SECTION 120. DFI-Sec 5.06 (13) is renumbered DFI-Sec 5.065 (1) and, as renumbered, is amended to read:

DFI-Sec 5.065 Application of prohibitions, distribution of materials, definitions. (1) The subsections of this section shall apply Section DFI-Sec 5.06 applies to an investment adviser representative of a federal covered investment adviser only to the extent permitted by section 203 (b) (2) of the investment advisers act Investment Advisers Act of 1940, and only to the extent the prohibited conduct involves fraud or deceit.

_Hlk198559610 SECTION 121. DFI-Sec 5.06 (16) (intro.) and (a) are amended to read:

DFI-Sec 5.06 (16) (intro.) Failing to disclose to clients in writing before any advice is rendered any material conflict of interest relating to the investment adviser, investment adviser representative or federal covered investment adviser, or any of its employees, or affiliated persons which could reasonably be expected to impair the rendering of unbiased and objective advice including but not limited to any of the following:

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

_Hlk198559673 SECTION 122. DFI-5.06 (17) (a) is renumbered DFI-Sec 5.06 (17) and, as renumbered, is amended to read:

DFI-Sec 5.06 (17) While acting as principal for its own advisory account, to knowingly sell selling any security to or purchase purchasing any security from a client, or while acting as broker-dealer for a person other than the client, to knowingly effect effecting any sale or purchase of any security for the account of the client, without disclosing to the client in writing before the completion of the transaction the capacity in which it is acting and obtaining the consent of the client to the transaction.

_Hlk198559831 SECTION 123. DFI-Sec 5.06 (17) (b) to (e) are renumbered DFI-Sec 5.065 (2) to (5), and DFI-Sec 5.065 (2), (3) (intro.), (a), (b), and (c), (4), and (5) (intro.), as renumbered, are amended to read:

DFI-Sec 5.065 (2) The prohibitions of this subsection shall in DFI-Sec 5.06 (17) do not apply to any transaction with a client of a broker-dealer if the broker-dealer is not acting as an investment adviser in relation to the transaction.

(3) The prohibitions of this subsection shall in DFI-Sec 5.06 (17) do not apply to any transaction with a client of a broker-dealer if the broker-dealer acts as an investment adviser solely:

(a) By means of publicly distributed written materials or publicly made oral statements; .

(b) By means of written materials or oral statements not purporting to meet the objectives or needs of specific individuals or accounts; .

(c) Through the issuance of statistical information containing no expressions of opinion as to the investment merits of a particular security; or.

(4) Publicly With regard to DFI-Sec 5.06 (17), publicly distributed written materials or publicly made oral statements shall disclose that, if the purchaser of the advisory communication uses the investment adviser's services in connection with the sale or purchase of a security which is a subject of the communication, the investment adviser may act as principal for its own account or as agent for another person. Compliance by the investment adviser with the foregoing disclosure requirement shall does not relieve it of any other disclosure obligations under ch. 551, Stats.

(5) In With regard to DFI-Sec 5.06 (17), in this subsection section:

_Hlk198559908 SECTION 124. DFI-Sec 5.06 (19) (intro.) and (b) (intro.) are amended to read:

DFI-Sec 5.06 (19) (intro.) Publishing, circulating, or distributing any advertisement which directly or indirectly does any one of the following:

(b) (intro.) Refers to past specific recommendations of the investment adviser, investment adviser representative or federal covered investment adviser that were or would have been profitable to any person; except that an investment adviser or investment adviser representative may furnish or offer to furnish a list of all recommendations made by the investment adviser, investment adviser representative or federal covered investment adviser within the immediately preceding period of not less than one year if the advertisement or list also includes both all of the following:

SECTION 125. DFI-Sec 5.06 (19) (g) is renumbered DFI-Sec 5.065 (6), and DFI-Sec 5.065 (6) (intro.), as renumbered, is amended to read:

DFI-Sec 5.065 (6) (intro.) In this subsection DFI-Sec 5.06 (19), the term “advertisement" includes any notice, circular, letter, or other written communication addressed to more than one person, or any notice or other announcement in any electronic or paper publication, by radio or television, or by any medium, that offers any one of the following:

_Hlk198560083 SECTION 126. DFI-Sec 5.06 (25) (intro.) is renumbered DFI-Sec 5.066 (1) and, as renumbered, is amended to read:

DFI-Sec 5.066 Additional prohibited conduct. (1) Paying a cash fee or any other economic benefit, directly or indirectly, in connection with solicitation activities is a "dishonest or unethical business practice" or “taking unfair advantage of a client" by an investment adviser or an investment adviser representative under s. 551.412 (4) (m), Stats., unless the requirements of pars. (a) through (d) are sub. (2) are met.

_Hlk198560186 SECTION 127. DFI-Sec 5.06 (25) (a) to (e) are renumbered DFI-Sec 5.066 (2) (a) to (e), and DFI-Sec 5.066 (2) (b) (intro.), 1., and 2., (c), (d) (intro.) and 1. to 5., and (e), as renumbered, are amended to read:

DFI-Sec 5.066 (2) (b) The cash fee or any other economic benefit is paid by the investment adviser with respect to solicitation activities that are impersonal in nature in that they are provided solely by means of one of the following means:

_Hlk169283058 1. Written material or oral statements which do not purport to meet the objectives or needs of the specific client; or .

2. Statistical information containing no expressions of opinions as to the merits of particular securities or investment advisers; or .

(c) The cash fee or any other economic benefit is paid pursuant to a written agreement to which the investment adviser is a party, and all of the following conditions are met:

1. The written agreement; does all of the following:

a. Describes the solicitation or referral activities to be engaged in by the solicitor on behalf of the investment adviser and the cash fee or any other economic benefit to be received for such activities; and .

b. Contains an undertaking by the solicitor to perform its duties under the agreement in a manner consistent with the instructions of the investment adviser and the provisions of ch. 551, Stats., and rules there under; and thereunder.

_Hlk169283844 c. Requires that the solicitor, at the time of any solicitation or referral activities for which a cash fee or any other economic benefit is paid or to be paid by the investment adviser, provide the client with a current copy of the investment adviser's disclosure document required under s. DFI-Sec 5.05 (8) and a separate disclosure statement as described in par. (d), either in paper or electronic format; and .

2. The investment adviser receives from the client, prior to or at the time of entering into any written investment advisory contract, a signed and dated acknowledgement of receipt of the investment adviser's written disclosure statement and the solicitor's written disclosure document; and .

3. The investment adviser makes a bona fide effort and has a reasonable basis for believing that the solicitor has complied with the agreement; and .

4. (cm) The requirements in subds. 1., 2. and 3. shall par. (c) do not apply if the solicitor is any of the following:

a. 1. A partner, officer, director or employee of such investment adviser; or .

b. 2. A partner, officer, director or employee of a person that controls, is controlled by, or is under common control with such investment adviser, provided the status of the solicitor is disclosed to the client at the time of the solicitation or referral.

(d) The separate written disclosure document required to be furnished by the solicitor to the client pursuant to par. (c) 1. c. shall contain all of the following information:

_Hlk169284548 1. The name of the solicitor; .

2. The name of the investment adviser; .

3. The nature of the relationship, including any affiliation, between the solicitor and the investment adviser; .

4. A statement that the solicitor will be compensated for solicitation or referral services by the investment adviser; .

5. The terms of the compensation arrangement including a description of the cash fee or any other economic benefit paid or to be paid to the solicitor; .

SECTION. 128. DFI-Sec 5.06 (25) and (26) are created to read:

DFI-Sec 5.06 (25) Accessing a client’s account by using the client’s own unique identifying information, such as username and password.

(26) Failing to act as a fiduciary for a client.

_Hlk169516507 SECTION 129. DFI-Sec 5.07 (2) (b) is amended to read:

_Hlk169516590 DFI-Sec 5.07 (2) (b) An agent of a broker-dealer that is also registered as an investment adviser, or notice filed as a federal covered investment adviser, shall also register as an investment adviser representative of that investment adviser or federal covered investment adviser pursuant to s. 551.404, Stats.

SECTION 130. DFI-Sec 5.09 (3) is created to read:

DFI-Sec 5.09 (3) The division may deny, suspend, or revoke the registration of an investment adviser or investment adviser representative, if the registrant is not of good business repute or conducts business in violation of such rules and regulations as the division prescribes for the protection of investors, customers, or prospective customers.

SECTION131. DFI-Sec 5.10 (1) is amended to read:

DFI-Sec 5.10 (1) Each investment adviser shall file a copy of its current form ADV Parts 1 and II 2 electronically with the Investment Adviser Registration Depository investment adviser registration depository.

SECTION 132. DFI-Sec 5.10 (3) is repealed.

SECTION 133. DFI-Sec 5.12 is repealed.

_Hlk169517897 SECTION 134. DFI-Sec 5.13 (1) (intro.) and (2) (intro.) and (a) are amended to read:

DFI-Sec 5.13 (1) (intro.)  For purposes of ss. 551.403 (2) and 551.404 (2), Stats., an investment adviser or an investment adviser representative is exempt from the registration requirement if its only transactions effected in this state are with any of the following:

_Hlk169518445 (2) (intro.) A solicitor is not required to be registered as an investment adviser or as an investment adviser representative if the solicitor is in compliance with all requirements of s. DFI-Sec 5.06 (25) DFI-Sec 5.066, and the solicitor satisfies par. (a) or (b) all of the following.

(a) Provides solicitation activities that are impersonal in nature as set forth in s. DFI-Sec 5.06 (25) s. DFI-Sec 5.066 and the solicitor to whom a cash fee or any other economic benefit is paid for such referral does not trigger any of the following as being a person:

_Hlk169518616 1. Subject to an order of the U.S. Securities & Exchange Commission issued under section 203(f) of the Investment Advisers Act of 1940;.

2. Subject to an order of the administrator, the securities administrator of any other state, the U.S. Securities and Exchange Commission, or any self regulatory self-regulatory organization denying, suspending, or revoking registration as a broker-dealer, agent, investment adviser, or investment adviser representative or barring the person from the securities or advisory industry or associating or affiliating with the securities or advisory industry, entered after notice and opportunity for hearing;.

3. Convicted within the previous ten years of any felony, or any misdemeanor involving conduct described in section 203(e)(2)(A) through (D) of the Investment Advisers Act of 1940;.

4. Convicted within the previous ten years of any felony, or any misdemeanor involving conduct described in s. 551.412 (4) (c), Stats. ; .

5. Found by the U.S. Securities & Exchange Commission to have engaged, or has been convicted of engaging in, any of the conduct specified in section 203(e)(1), (5) or (6) of the Investment Advisers Act of 1940;.

6. Found by the administrator to have engaged, or has been convicted of engaging in, any of the conduct specified in s. 551.412 (4) (a), (b) or (f), Stats. ; .

7. Subject to an order, judgment, or decree described in section 203(e)(4) of the Investment Advisers Act of 1940;.

8. Subject to an order, judgment, or decree described in s. 551.412 (4) (d), Stats.

SECTION 135. DFI-Sec 6.01 is amended to read:

DFI-Sec 6.01 An issuer of securities or any person who is an officer, director, or controlling person of the issuer is deemed to employ a “device, scheme, or artifice to defraud” the purchasers of the securities within the meaning of s. 551.501 (1), Stats., if the person applies or authorizes or causes to be applied any material part of the proceeds from the sale of the securities in any material way contrary to the purposes specified in the prospectus used in the offering of the securities and not reasonably related to the business of the issuer as described in the prospectus. For the purposes of this chapter, “prospectus” includes any written or oral representations, advertising, written offering memorandum, or similar document, in printed or electronic form, that is related to or used in the offering of the securities.

SECTION 136. DFI-Sec 6.02 is amended to read:

DFI-Sec 6.02 A person authorizing or causing the distribution of securities as a stock dividend by a corporation other than the issuer, without registration of the securities under ch. 551, Stats., or the securities act Securities Act of 1933, is deemed to employ a "device, scheme or artifice to defraud" the purchasers of the securities in broker-dealer transactions, within the meaning of s. 551.501 (1), Stats., if any of the following apply:

(1) The issuer of the securities was organized, or the securities were acquired, for the purpose of the distribution or in connection therewith with the distribution, either by the distributing corporation or by any person in control of, controlled by, or under common control with, the distributing corporation; or.

(2) The issuer has nominal assets or income at the time of the distribution; and if the person has reason to believe that the distribution will be followed by transactions in the securities effected through broker-dealers.

SECTION 137. DFI-Sec 6.03 is amended to read:

DFI-Sec 6.03 An issuer of outstanding securities registered under s. 551.303 or 551.304, Stats., or transactions in which are exempted from registration under s. DFI-Sec 2.02 (9) (o), or any controlling person of the issuer, is deemed to employ a “device, scheme or artifice to defraud" the purchasers of the securities within the meaning of s. 551.501 (1), Stats., if the issuer fails to provide adequate facilities for the transfer and delivery of the securities to the purchasers thereof without unreasonable delay, either directly or through its transfer agent for the securities.

SECTION 138. DFI-Sec 6.05 (1) (intro.) is amended to read:

DFI-Sec 6.05 (1) (intro.)  An Except as provided in sub. (2e), an issuer whose equity securities of any class have been registered under ch. 551, Stats., or predecessor laws or section 12 of the securities exchange act Securities Exchange Act of 1934, and which, on the date of the initial offer, notice, or solicitation relating to the proposed transaction, are held of record by 100 or more persons in this state, which number of holders constitutes 20% or more of the total number of holders of record of the securities, or any affiliated person of the issuer, is deemed to employ a “device, scheme or artifice to defraud" holders of the securities within the meaning of s. 551.501 (1), Stats., or to engage in an “act, practice or course of business which operates or would operate as a fraud or deceit" upon the holders, within the meaning of s. 551.501 (3), Stats., if the issuer or person enters into any transaction (including a series of transactions) in this state involving a purchase of any equity security of the issuer, other than an arm's length purchase by a person not affiliated with the issuer, which transaction has, or may have, either any of the following effects described in sub. (2) unless:

SECTION 139. DFI-Sec 6.05 (1) (a) to (e) are renumbered DFI-Sec 6.05 (2e) (a) to (e) and DFI-Sec 6.05 (2e) (a) 1. (intro.), a., b., and c., (b), (c), and (d), as renumbered, are amended to read:

DFI-Sec 6.05 (2e) (a) 1. (intro.) The terms of the transaction, including compensation for the equity securities to be purchased, are fair to all holders of the securities. The terms of the transaction shall be are presumed to be fair if:

_Hlk170469578 a. The compensation is no less than that independently recommended by 2 qualified, independent appraisers after reasonable investigation considering all relevant factors, and the issuer's board of directors states that the compensation is fair to security holders and was determined in good faith; .

b. The latest public offering of the securities occurred more than 10 years prior to the transaction, or the compensation is greater than the public offering price;.

c. More than 50% of the securities held by persons not affiliated with the issuer approve the transaction; and.

(b) The issuer or person mails or delivers to each holder of record of the securities and files with the division, at least 20 days prior to any purchase or shareholder vote authorizing the purchase (if required), a complete and accurate description of the transaction, including, without limitation, the identity of the parties to the transaction, the source and amount of funds, the purpose of the transaction, any material plans or proposals concerning the issuer, any contracts, arrangements, or understanding involving the issuer with respect to its equity securities, a statement of the intentions of all affiliated persons (if known), current financial information concerning the issuer including pro forma data showing the effect of the transaction, federal tax consequences of the transaction to security holders and the issuer, the nature of the market for the securities before and after the transaction, the price at which purchases will be made and the basis therefor, summaries in reasonable detail of all appraisal reports or opinions (including any contrary or additional to those relied upon) and a statement that copies of the reports or opinions will be provided upon request, a statement of all projected expenses in connection with the transaction, and all other material information; .

(c) If the transaction includes a tender offer or request, or invitation for tenders, the offeror shall:

1. Permit Permits tenders to be withdrawn at any time within 7 days and after 60 days from the date of the offer;.

2. Purchase Purchases on a pro rata basis those securities tendered within 10 days from the date of the offer, if more valid tenders are received within that period than the offeror has agreed to accept; and.