SECTIONS 25230-25238

25230.  (a) It is unlawful for any investment adviser to conductbusiness as an investment adviser in this state unless the investmentadviser has first applied for and secured from the commissioner acertificate, then in effect, authorizing the investment adviser to doso or unless the investment adviser is exempted by the provisions ofChapter 1 (commencing with Section 25200) of this part or unless theinvestment adviser is subject to Section 25230.1. (b) No person, on behalf of an investment adviser that hasobtained a certificate pursuant to Section 25231, may, in this state:offer or negotiate for the sale of investment advisory services ofthe investment adviser; determine which recommendations shall be madeto, make recommendations to, or manage the accounts of, clients ofthe investment adviser; or determine the reports or analysesconcerning securities to be published by the investment adviser,unless the investment adviser and that person have complied withrules that the commissioner may adopt for the qualification andemployment of those persons. (c) The commissioner may, consistent with Section 25232.1, reviewthe disciplinary history of an investment adviser representative uponthe filing of notice of any of the following: (1) The employment, association, or transfer of the investmentadviser representative. (2) An amendment to the information filed by the investmentadviser representative at the time of employment, association, ortransfer. (3) The termination of employment or association of the investmentadviser representative.25230.1.  (a) A person that is registered under Section 203 of theInvestment Advisers Act of 1940 as an investment adviser is notsubject to the requirement of obtaining a certificate under Section25230, but may not conduct business in this state unless the personhas fewer than six clients as specified in Section 25202 or unlessthe person first complies with subdivision (b). An investment adviserrepresentative that has a place of business in this state may berequired to obtain a certificate pursuant to Section 25231. (b) A person subject to subdivision (a) shall: (1) File with the commissioner an annual notice, consisting ofthose documents filed with the Securities and Exchange Commissionpursuant to the securities laws that the commissioner by rule ororder deems appropriate or, in lieu thereof, a form prescribed by thecommissioner, and a consent to service of process under Section25240. (2) Pay the notice filing fee provided for in subdivision (d) ofSection 25608.1. (c) No investment adviser representative, on behalf of aninvestment adviser subject to subdivision (a), may, in this state:offer or negotiate for the sale of investment advisory services ofthe investment adviser; determine which recommendations shall be madeto, make recommendations to, or manage the accounts of, clients ofthe investment adviser; or determine the reports or analysisconcerning securities to be published by the investment adviser,unless the investment adviser representative has complied with rulesthat the commissioner may adopt for the qualification and employmentof investment adviser representatives. (d) Subdivision (a) does not prohibit the commissioner frominvestigating and bringing enforcement actions with respect to fraudor deceit, including and without limitation, fraud or deceit underSection 25235 and the rules of the commissioner adopted thereunder,against an investment adviser or an investment adviserrepresentative.25231.  (a) Any investment adviser, or any person who contemplatesbecoming an investment adviser, may apply for a certificate to act asan investment adviser by filing with the commissioner anapplication. The application shall be accompanied by the consent toservice of process specified in Section 25240 and shall containinformation, in such form and detail, as the commissioner may by ruleprescribe. (b) Unless otherwise provided by rule or order of thecommissioner, all investment adviser and investment adviserrepresentative applications, amendments, reports, notices, relatedfilings, and fees required to be filed with the commissioner pursuantto this title shall be filed electronically with and transmitted tothe Web-based Investment Adviser Registration Depository operated bythe Financial Industry Regulatory Authority.25232.  The commissioner may, after appropriate notice andopportunity for hearing, by order censure, deny a certificate to, orsuspend for a period not exceeding 12 months or revoke thecertificate of, an investment adviser, if the commissioner finds thatthe censure, denial, suspension, or revocation is in the publicinterest and that the investment adviser, whether prior or subsequentto becoming such, or any partner, officer or director thereof or anyperson performing similar functions or any person directly orindirectly controlling the investment adviser, whether prior orsubsequent to becoming such, or any employee of the investmentadviser while so employed has done any of the following: (a) Has willfully made or caused to be made in any application fora certificate or any report filed with the commissioner under thisdivision, or in any proceeding before the commissioner, any statementwhich was at the time and in the light of the circumstances underwhich it was made false or misleading with respect to any materialfact, or has willfully omitted to state in the application or reportany material fact which is required to be stated therein. (b) Has been either (1) convicted of or has pled nolo contendereto any felony or misdemeanor, or (2) held liable in a civil action byfinal judgment of a court based upon conduct showing moralturpitude, and the commissioner finds that the felony, misdemeanor orcivil action (A) involved the purchase or sale of any security, (B)arose out of the conduct of the business of a broker-dealer orinvestment adviser, (C) involved theft, or (D) involved the violationof Section 1341, 1342, or 1343 of Title 18 of the United StatesCode. (c) Is permanently or temporarily enjoined by order, judgment, ordecree of any court of competent jurisdiction from acting as aninvestment adviser, underwriter or broker-dealer or as an affiliatedperson or employee of any investment company, bank, or insurancecompany, or from engaging in or continuing any conduct or practice inconnection with that activity, or in connection with the purchase orsale of any security. (d) Is or has been subject to (1) any order of the Securities andExchange Commission or the securities administrator of any otherstate denying or revoking or suspending his or her registration as aninvestment adviser, or investment adviser representative, or as abroker or dealer or agent, (2) any order of any national securitiesassociation or national securities exchange (registered under theSecurities Exchange Act of 1934) suspending or expelling him or herfrom membership in that association or exchange or from associationwith any member thereof, or (3) any other order of the commission orany administrator, association, or exchange referred to in thissubdivision which is or has been necessary for the protection of anyinvestor. (e) Has willfully violated any provision of the Securities Act of1933, the Securities Exchange Act of 1934, the Investment AdvisersAct of 1940, the Investment Company Act of 1940, the CommodityExchange Act, or Title 4 (commencing with Section 25000), includingthe Franchise Investment Law, Division 5 (commencing with Section31000), or the California Commodity Law of 1990, Division 4.5(commencing with Section 29500), or of any rule or regulation underany of those statutes, or any order of the commissioner which is orhas been necessary for the protection of any investor. (f) Is or has been subject to (1) any order of the CommodityFutures Trading Commission denying registration to, or revoking orsuspending the registration of, that person under the CommodityExchange Act, (2) any order of any board of trade or commodityexchange, including, but not limited to, the New York MercantileExchange, the Chicago Mercantile Exchange, the Chicago Board ofTrade, or the Chicago Board Options Exchange, suspending or expellingthat person from membership in the board of trade or commodityexchange or from association with any member thereof, or (3) anyother order of the commission or any board or exchange referred to inthis subdivision which is or has been necessary for the protectionof any investor. (g) Has aided, abetted, counseled, commanded, induced, or procuredthe violation by any other person of any statute or rule orregulation referred to in subdivision (e). (h) Has violated any provision of this division or the rulesthereunder or, in the case of an applicant only, any similarregulatory scheme of the State of California or a foreignjurisdiction.25232.1.  The commissioner may, after appropriate notice andopportunity for hearing, by order censure, or suspend for a periodnot exceeding 12 months, or bar from any position of employment,management or control of any investment adviser, broker-dealer orcommodity adviser, any officer, director, partner, employee of, orperson performing similar functions for, an investment adviser, orany other person, if he or she finds that the censure, suspension orbar is in the public interest and that the person has committed anyact or omission enumerated in subdivision (a), (e), (f), or (g) ofSection 25232 or has been convicted of any offense or held liable inany civil action specified in subdivision (b) of Section 25232 or isenjoined from any act, conduct or practice specified in subdivision(c) of Section 25232 or is subject to any order specified insubdivision (d) of Section 25232.25232.2.  (a) It is unlawful for any person, as to whom an ordersuspending or revoking the person's certificate as an investmentadviser is in effect pursuant to Section 25232 or as to whom an ordersuspending or barring employment is in effect pursuant to Section25232.1, willfully to become or to be employed by any investmentadviser, broker-dealer or commodity adviser, without the consent ofthe commissioner, and it is unlawful for any investment adviser topermit a person as to whom an order is in effect pursuant to Section25212.1 or 25232.1 to become or to remain employed by the investmentadviser, without the consent of the commissioner, if such investmentadviser knew, or in the exercise of reasonable care should haveknown, of such order. (b) Any person as to whom an order suspending or barringemployment with or participation is issued pursuant to Section25232.1 may petition the commissioner for reinstatement or reductionof penalty as provided in and subject to the provisions of Section11522 of the Government Code.25232.3.  The commissioner may immediately revoke the certificate ofany investment adviser if the investment adviser fails to complywith any currently effective order of the commissioner which isnecessary for the protection of any investor, unless the investmentadviser secures a court order restraining the enforcement of thecommissioner's revocation order within 10 days of the date the orderis issued.25233.  No order may be entered under Section 25232, 25232.1, or25252 except after notice to the person affected thereby of theintention of the commissioner to enter that order and of the reasonstherefor and that upon receipt of a request the matter shall be setdown for hearing to commence within 15 business days after thatreceipt unless the person affected consents to a later date. If nohearing is requested within 30 days after the mailing of that noticeand none is ordered by the commissioner, the order may be enteredwithout hearing to remain in effect until it is modified or vacatedby the commissioner. In the case of an original application for acertificate, such a hearing shall be set down to commence within 15business days after receipt of a written request by the applicantmade 30 days or more after the filing of the application, even thoughno such notice by the commissioner has been given, unless theapplicant consents to a later date. If a hearing is requested orordered, it shall be held in accordance with the provisions of theAdministrative Procedure Act (Chapter 5 (commencing with Section11500) of Part 1 of Division 3 of Title 2 of the Government Code),and the commissioner shall have all of the powers granted thereunder.25234.  (a) No investment adviser licensed under this chapter shallin this state enter into, extend or renew any investment advisorycontract, or in any way perform any investment advisory contractentered into, extended or renewed on or after the effective date ofthis law, if that contract: (1) Provides for compensation to the investment adviser on thebasis of a share of capital gains upon or capital appreciation of thefunds or any portion of the funds of the client, except as may bepermitted by rule or order of the commissioner; (2) Fails to provide, in substance, that no assignment of thecontract shall be made by the investment adviser without the consentof the other party to the contract; (3) Fails to provide, in substance, that the investment adviser,if a partnership, will notify the other party to the contract of anychange in the membership of the partnership within a reasonable timeafter the change. (b) As used in this section, "investment advisory contract" meansany contract or agreement whereby a person agrees to act asinvestment adviser or to manage any investment or trading account fora person other than an investment company. Paragraph (1) ofsubdivision (a) of this section does not prohibit an investmentadvisory contract that provides for compensation based upon the totalvalue of a fund averaged over a definite period, or as of definitedates, or taken as of a definite date.25235.  It is unlawful for any investment adviser, directly orindirectly, in this state: (a) To employ any device, scheme, or artifice to defraud anyclient or prospective client. (b) To engage in any transaction, practice, or course of businesswhich operates or would operate as a fraud or deceit upon any clientor prospective client. (c) Acting as principal for his own account, knowingly to sell anysecurity to or purchase any security from a client for whom he isacting as investment adviser, or, acting as broker for a person otherthan such client, knowingly to effect any sale or purchase of anysecurity for the account of such client, without disclosing to suchclient in writing before the completion of the transaction thecapacity in which he is acting and obtaining the written consent ofthe client to such transaction. (d) To engage in any act, practice, or course of business which isfraudulent, deceptive, or manipulative. The commissioner shall, forthe purpose of this subdivision, by rule define and prescribe meansreasonably designed to prevent such acts, practices, and courses ofbusiness as are fraudulent, deceptive, or manipulative. (e) To represent that he is an investment counsel or to use thename "investment counsel" as descriptive of his business unless hisprincipal business consists of acting as investment adviser and asubstantial part of his business consists of rendering investmentadvisory services on the basis of the individual needs of hisclients.25236.  (a) No investment adviser licensed under this chapter shallconduct any business as such investment adviser in this state unlessthe investment adviser and all natural persons associated with suchinvestment adviser meet such specified and appropriate standards withrespect to training, experience and other qualifications as thecommissioner finds necessary or desirable. The commissioner mayestablish such standards by rule, which may (1) Appropriately classify investment advisers and personsassociated with investment advisers; (2) Specify that all or any portion of such standards shall beapplicable to any such class; and (3) Require persons in any such class to pass examinationsprescribed in accordance with such rules. (b) In addition to the fees imposed by Section 25608, thecommissioner may prescribe by rule reasonable fees and charges todefray the costs of carrying out this section, including, but notlimited to, fees for any examination administered by him or under hisdirection.25237.  The commissioner shall prescribe rules with respect toinvestment advisers licensed under this chapter who have custody oftheir clients' securities or funds or who have any power of attorneyfrom their clients to execute transactions as he or she finds to benecessary or appropriate in the public interest or for the protectionof investors. The rules may require a minimum capital for thoseinvestment advisers or prescribe a minimum ratio between net capitaland aggregate indebtedness or both, and may require a fidelity bond.25238.  No investment adviser licensed under this chapter and nonatural person associated with the investment adviser shall engage ininvestment advisory activities, or attempt to engage in investmentadvisory activities, in this state in contradiction of such rules asthe commissioner may prescribe designed to promote fair, equitableand ethical principles.