§ 78C-8. Advisory activities. - North Carolina Statutes

Article2.

Fraudulent and ProhibitedPractices.

§ 78C‑8.  Advisoryactivities.

(a)        It is unlawful forany person who receives, directly or indirectly, any consideration from anotherperson for advising the other person as to the value of securities or theirpurchase or sale, whether through the issuance of analyses or reports orotherwise,

(1)        To employ anydevice, scheme, or artifice to defraud the other person,

(2)        To engage in anyact, practice, or course of business which operates or would operate as a fraudor deceit upon the other person, or

(3)        Acting as principalfor his own account, knowingly to sell any security to or purchase any securityfrom a client, or acting as broker for a person other than such client,knowingly to effect any sale or purchase of any security for the account ofsuch client, without disclosing to such client in writing before the completionof such transaction the capacity in which he is acting and obtaining theconsent of the client to such transaction.  The prohibitions of thissubdivision shall not apply to any transaction with a customer of a dealer ifsuch dealer is not acting as an investment adviser in relation to suchtransaction.

(b)        In the solicitationof advisory clients, it is unlawful for any person to make any untrue statementof a material fact, or omit to state a material fact necessary in order to makethe statements made, in light of the circumstances under which they are made,not misleading.

(c)        Except as may bepermitted by rule or order of the Administrator, it is unlawful for anyinvestment adviser to enter into, extend, or renew any investment advisorycontract unless it provides in writing:

(1)        That the investmentadviser shall not be compensated on the basis of a share of capital gains uponor capital appreciation of the funds or any portion of the funds of the client(unless otherwise provided by subsection (d) or (f) below);

(2)        That no assignmentof the contract may be made by the investment adviser without the consent ofthe other party to the contract; and

(3)        That the investmentadviser, if a partnership, shall notify the other party to the contract of anychange in the membership of the partnership within a reasonable time after thechange.

(d)        Subdivision (c)(1)does not apply to any person who is exempt from registration under theInvestment Advisers Act of 1940 by operation of Section 203(b)(3) of said actor by operation of any rule or regulation promulgated by the United StatesSecurities and Exchange Commission under or related to said Section 203(b)(3)provided that any reference in this subsection (d) to any statute, rule orregulation shall be deemed to incorporate said statute, rule or regulation (andany statute, rule or regulation referenced therein) as in effect on June 1,1988.  Subdivision (c)(1) does not prohibit an investment advisory contractwhich provides for compensation based upon the total value of a fund averagedover a definite period, or as of definite dates or taken as of a definitedate.  "Assignment," as used in subdivision (c)(2), includes anydirect or indirect transfer or hypothecation of an investment advisory contractby the assignor or of a controlling block of the assignor's outstanding votingsecurities by a security holder of the assignor; but, if the investment adviseris a partnership, no assignment of an investment advisory contract isconsidered to result from the death or withdrawal of a minority of the membersof the investment adviser having only a minority interest in the business ofthe investment adviser, or from the admission to the investment adviser of oneor more members who, after admission, will be only a minority of the membersand will have only a minority interest in the business.

(e)        It is unlawful forany investment adviser to take or have custody of any securities or funds ofany client in contravention of any rule or order of the Administratorprohibiting, limiting or regulating such custody.

(f)         The Administratormay by rule or order adopt exemptions from subdivision (a)(3) and subdivisions(c)(1), (c)(2) and (c)(3) where such exemptions are consistent with the publicinterest and within the purposes fairly intended by the policy and provisionsof this Chapter. (1987 (Reg. Sess., 1988), c. 1098, s. 1.)