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CONNECTICUT STATUTES AND CODES
Sec. 36b-5. (Formerly Sec. 36-473). Prohibited activities of investment advisers and persons who solicit advisory business on behalf of investment advisers.
Sec. 36b-5. (Formerly Sec. 36-473). Prohibited activities of investment advisers and persons who solicit advisory business on behalf of investment advisers. (a)
No person who directly or indirectly receives compensation or other remuneration for
advising another person as to the value of securities or their purchase or sale, whether
through the issuance of analyses or reports or otherwise, shall: (1) Employ any device,
scheme or artifice to defraud the other person; (2) 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; or (3) engage in
any act, practice or course of business which operates or would operate as a fraud or
deceit upon such other person.
(b) (1) It is unlawful for any investment adviser that is registered or required to be registered under sections 36b-2 to 36b-33, inclusive, to have, enter into, extend or renew any investment advisory contract, whether written or oral, unless it is signed by the client or clients and discloses in writing: (A) That the investment adviser shall 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) that an assignment of the contract may not be made by the investment adviser without the consent of the other party to the contract; (C) that 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; (D) the fee arrangement between the investment adviser and the client or clients; and (E) the services which the investment adviser will render. (2) Subparagraph (A) of subdivision (1) of this subsection does not prohibit an investment advisory contract which provides for compensation based upon the total or net asset 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 subparagraph (B) of subdivision (1) of this subsection, includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of the beneficial ownership 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.
(c) It is unlawful for any investment adviser that is registered or required to be registered under sections 36b-2 to 36b-33, inclusive, to take or have custody of any securities or funds of any client if: (1) The commissioner by regulation prohibits custody; or (2) in the absence of a regulation, the investment adviser fails to notify the commissioner that he has or may have custody.
(d) Subparagraph (A) of subdivision (1) of subsection (b) of this section shall not be construed to prohibit performance fees permitted and determined in accordance with Section 205 of the Investment Advisers Act of 1940, and any rules or regulations adopted in accordance with said act.
(e) No person who directly or indirectly receives compensation or other remuneration for soliciting advisory business on behalf of a person subject to the prohibition contained in subsection (a) of this section shall, in connection with such solicitation: (1) Employ any device, scheme or artifice to defraud; (2) 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; or (3) engage in any act, practice or course of business which operates or would operate as a fraud or deceit.
(f) No person who directly or indirectly receives compensation or other remuneration for: (1) Advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise; or (2) soliciting advisory business on behalf of a person subject to the prohibition contained in subsection (a) of this section shall engage in any dishonest or unethical practice in connection with the rendering of such advice or in connection with such solicitation.
(P.A. 77-482, S. 4; P.A. 78-34, S. 3, 17; P.A. 79-396, S. 5, 11; P.A. 80-88, S. 4, 12; P.A. 82-149, S. 4, 16; P.A. 91-145, S. 2; P.A. 92-12, S. 95; P.A. 96-192, S. 3; P.A. 97-220, S. 2, 15.)
History: P.A. 78-34 designated previous provisions as Subsec. (a) and added Subsecs. (b) to (d); P.A. 79-396 added Subsec. (e); P.A. 80-88 required in Subsec. (b)(1) that contract be signed by client or clients, added word "have" and specified applicability to all contracts "whether in writing or oral"; P.A. 82-149 amended Subsec. (b)(1) by adding Subpara.s (iv) and (v) requiring the investment advisory contract to disclose the fee arrangement and the services which the investment advisor will render, effective October 1, 1983; P.A. 91-145 amended Subsec. (a) by making prohibitions applicable to persons who directly or indirectly receive compensation or other remuneration for advising another and adding prohibition on making any untrue statement of a material fact or omitting a necessary material fact, and added Subsec. (f) re prohibited activities of persons who solicit advisory business on behalf of investment advisors; P.A. 92-12 redesignated Subparas. in Subsec. (b) and made technical changes; Sec. 36-473 transferred to Sec. 36b-5 in 1995; P.A. 96-192 added Subsec. (g) to prohibit dishonest or unethical practices re compensated advice or solicitation; P.A. 97-220 made Subsecs. (b) and (c) applicable to investment advisers registered or required to be registered under Secs. 36b-2 to 36b-33, inclusive, deleted provision in Subsec. (b) re investment advisory contracts in effect on October 1, 1982, deleted former Subsec. (d) and redesignated former Subsecs. (e), (f) and (g) as Subsecs. (d), (e) and (f), effective July 1, 1997.
Annotations to former section 36-473:
Subsec. (a), (b) and (c) cited. 242 C. 17.
Annotations to present section:
Cited. 233 C. 352.
Subsec. (a):
Cited. 242 C. 17.
Liability does not require intent to defraud. 77 CA 621.
Subsec. (b):
Cited. 242 C. 17.
Subsec. (c):
Cited. 242 C. 17.
(b) (1) It is unlawful for any investment adviser that is registered or required to be registered under sections 36b-2 to 36b-33, inclusive, to have, enter into, extend or renew any investment advisory contract, whether written or oral, unless it is signed by the client or clients and discloses in writing: (A) That the investment adviser shall 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) that an assignment of the contract may not be made by the investment adviser without the consent of the other party to the contract; (C) that 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; (D) the fee arrangement between the investment adviser and the client or clients; and (E) the services which the investment adviser will render. (2) Subparagraph (A) of subdivision (1) of this subsection does not prohibit an investment advisory contract which provides for compensation based upon the total or net asset 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 subparagraph (B) of subdivision (1) of this subsection, includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of the beneficial ownership 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.
(c) It is unlawful for any investment adviser that is registered or required to be registered under sections 36b-2 to 36b-33, inclusive, to take or have custody of any securities or funds of any client if: (1) The commissioner by regulation prohibits custody; or (2) in the absence of a regulation, the investment adviser fails to notify the commissioner that he has or may have custody.
(d) Subparagraph (A) of subdivision (1) of subsection (b) of this section shall not be construed to prohibit performance fees permitted and determined in accordance with Section 205 of the Investment Advisers Act of 1940, and any rules or regulations adopted in accordance with said act.
(e) No person who directly or indirectly receives compensation or other remuneration for soliciting advisory business on behalf of a person subject to the prohibition contained in subsection (a) of this section shall, in connection with such solicitation: (1) Employ any device, scheme or artifice to defraud; (2) 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; or (3) engage in any act, practice or course of business which operates or would operate as a fraud or deceit.
(f) No person who directly or indirectly receives compensation or other remuneration for: (1) Advising another person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise; or (2) soliciting advisory business on behalf of a person subject to the prohibition contained in subsection (a) of this section shall engage in any dishonest or unethical practice in connection with the rendering of such advice or in connection with such solicitation.
(P.A. 77-482, S. 4; P.A. 78-34, S. 3, 17; P.A. 79-396, S. 5, 11; P.A. 80-88, S. 4, 12; P.A. 82-149, S. 4, 16; P.A. 91-145, S. 2; P.A. 92-12, S. 95; P.A. 96-192, S. 3; P.A. 97-220, S. 2, 15.)
History: P.A. 78-34 designated previous provisions as Subsec. (a) and added Subsecs. (b) to (d); P.A. 79-396 added Subsec. (e); P.A. 80-88 required in Subsec. (b)(1) that contract be signed by client or clients, added word "have" and specified applicability to all contracts "whether in writing or oral"; P.A. 82-149 amended Subsec. (b)(1) by adding Subpara.s (iv) and (v) requiring the investment advisory contract to disclose the fee arrangement and the services which the investment advisor will render, effective October 1, 1983; P.A. 91-145 amended Subsec. (a) by making prohibitions applicable to persons who directly or indirectly receive compensation or other remuneration for advising another and adding prohibition on making any untrue statement of a material fact or omitting a necessary material fact, and added Subsec. (f) re prohibited activities of persons who solicit advisory business on behalf of investment advisors; P.A. 92-12 redesignated Subparas. in Subsec. (b) and made technical changes; Sec. 36-473 transferred to Sec. 36b-5 in 1995; P.A. 96-192 added Subsec. (g) to prohibit dishonest or unethical practices re compensated advice or solicitation; P.A. 97-220 made Subsecs. (b) and (c) applicable to investment advisers registered or required to be registered under Secs. 36b-2 to 36b-33, inclusive, deleted provision in Subsec. (b) re investment advisory contracts in effect on October 1, 1982, deleted former Subsec. (d) and redesignated former Subsecs. (e), (f) and (g) as Subsecs. (d), (e) and (f), effective July 1, 1997.
Annotations to former section 36-473:
Subsec. (a), (b) and (c) cited. 242 C. 17.
Annotations to present section:
Cited. 233 C. 352.
Subsec. (a):
Cited. 242 C. 17.
Liability does not require intent to defraud. 77 CA 621.
Subsec. (b):
Cited. 242 C. 17.
Subsec. (c):
Cited. 242 C. 17.
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