25230. (a) It is unlawful for any investment adviser to conduct
business as an investment adviser in this state unless the investment
adviser has first applied for and secured from the commissioner a
certificate, then in effect, authorizing the investment adviser to do
so or unless the investment adviser is exempted by the provisions of
Chapter 1 (commencing with Section 25200) of this part or unless the
investment adviser is subject to Section 25230.1.
(b) No person, on behalf of an investment adviser that has
obtained a certificate pursuant to Section 25231, may, in this state:
offer or negotiate for the sale of investment advisory services of
the investment adviser; determine which recommendations shall be made
to, make recommendations to, or manage the accounts of, clients of
the investment adviser; or determine the reports or analyses
concerning securities to be published by the investment adviser,
unless the investment adviser and that person have complied with
rules that the commissioner may adopt for the qualification and
employment of those persons.
(c) The commissioner may, consistent with Section 25232.1, review
the disciplinary history of an investment adviser representative upon
the filing of notice of any of the following:
(1) The employment, association, or transfer of the investment
adviser representative.
(2) An amendment to the information filed by the investment
adviser representative at the time of employment, association, or
transfer.
(3) The termination of employment or association of the investment
adviser representative.
25230.1. (a) A person that is registered under Section 203 of the
Investment Advisers Act of 1940 as an investment adviser is not
subject to the requirement of obtaining a certificate under Section
25230, but may not conduct business in this state unless the person
has fewer than six clients as specified in Section 25202 or unless
the person first complies with subdivision (b). An investment adviser
representative that has a place of business in this state may be
required 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 of
those documents filed with the Securities and Exchange Commission
pursuant to the securities laws that the commissioner by rule or
order deems appropriate or, in lieu thereof, a form prescribed by the
commissioner, and a consent to service of process under Section
25240.
(2) Pay the notice filing fee provided for in subdivision (d) of
Section 25608.1.
(c) No investment adviser representative, on behalf of an
investment adviser subject to subdivision (a), may, in this state:
offer or negotiate for the sale of investment advisory services of
the investment adviser; determine which recommendations shall be made
to, make recommendations to, or manage the accounts of, clients of
the investment adviser; or determine the reports or analysis
concerning securities to be published by the investment adviser,
unless the investment adviser representative has complied with rules
that the commissioner may adopt for the qualification and employment
of investment adviser representatives.
(d) Subdivision (a) does not prohibit the commissioner from
investigating and bringing enforcement actions with respect to fraud
or deceit, including and without limitation, fraud or deceit under
Section 25235 and the rules of the commissioner adopted thereunder,
against an investment adviser or an investment adviser
representative.
25231. (a) Any investment adviser, or any person who contemplates
becoming an investment adviser, may apply for a certificate to act as
an investment adviser by filing with the commissioner an
application. The application shall be accompanied by the consent to
service of process specified in Section 25240 and shall contain
information, in such form and detail, as the commissioner may by rule
prescribe.
(b) Unless otherwise provided by rule or order of the
commissioner, all investment adviser and investment adviser
representative applications, amendments, reports, notices, related
filings, and fees required to be filed with the commissioner pursuant
to this title shall be filed electronically with and transmitted to
the Web-based Investment Adviser Registration Depository operated by
the Financial Industry Regulatory Authority.
25232. The commissioner may, after appropriate notice and
opportunity for hearing, by order censure, deny a certificate to, or
suspend for a period not exceeding 12 months or revoke the
certificate of, an investment adviser, if the commissioner finds that
the censure, denial, suspension, or revocation is in the public
interest and that the investment adviser, whether prior or subsequent
to becoming such, or any partner, officer or director thereof or any
person performing similar functions or any person directly or
indirectly controlling the investment adviser, whether prior or
subsequent to becoming such, or any employee of the investment
adviser while so employed has done any of the following:
(a) Has willfully made or caused to be made in any application for
a certificate or any report filed with the commissioner under this
division, or in any proceeding before the commissioner, 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 willfully omitted to state in the application or report
any material fact which is required to be stated therein.
(b) Has been either (1) convicted of or has pled nolo contendere
to any felony or misdemeanor, or (2) held liable in a civil action by
final judgment of a court based upon conduct showing moral
turpitude, and the commissioner finds that the felony, misdemeanor or
civil action (A) involved the purchase or sale of any security, (B)
arose out of the conduct of the business of a broker-dealer or
investment adviser, (C) involved theft, or (D) involved the violation
of Section 1341, 1342, or 1343 of Title 18 of the United States
Code.
(c) Is permanently or temporarily enjoined by order, judgment, or
decree of any court of competent jurisdiction from acting as an
investment adviser, underwriter or broker-dealer or as an affiliated
person or employee of any investment company, bank, or insurance
company, or from engaging in or continuing any conduct or practice in
connection with that activity, or in connection with the purchase or
sale of any security.
(d) Is or has been subject to (1) any order of the Securities and
Exchange Commission or the securities administrator of any other
state denying or revoking or suspending his or her registration as an
investment adviser, or investment adviser representative, or as a
broker or dealer or agent, (2) any order of any national securities
association or national securities exchange (registered under the
Securities Exchange Act of 1934) suspending or expelling him or her
from membership in that association or exchange or from association
with any member thereof, or (3) any other order of the commission or
any administrator, association, or exchange referred to in this
subdivision which is or has been necessary for the protection of any
investor.
(e) Has willfully violated any provision of the Securities Act of
1933, the Securities Exchange Act of 1934, the Investment Advisers
Act of 1940, the Investment Company Act of 1940, the Commodity
Exchange Act, or Title 4 (commencing with Section 25000), including
the Franchise Investment Law, Division 5 (commencing with Section
31000), or the California Commodity Law of 1990, Division 4.5
(commencing with Section 29500), or of any rule or regulation under
any of those statutes, or any order of the commissioner which is or
has been necessary for the protection of any investor.
(f) Is or has been subject to (1) any order of the Commodity
Futures Trading Commission denying registration to, or revoking or
suspending the registration of, that person under the Commodity
Exchange Act, (2) any order of any board of trade or commodity
exchange, including, but not limited to, the New York Mercantile
Exchange, the Chicago Mercantile Exchange, the Chicago Board of
Trade, or the Chicago Board Options Exchange, suspending or expelling
that person from membership in the board of trade or commodity
exchange or from association with any member thereof, or (3) any
other order of the commission or any board or exchange referred to in
this subdivision which is or has been necessary for the protection
of any investor.
(g) Has aided, abetted, counseled, commanded, induced, or procured
the violation by any other person of any statute or rule or
regulation referred to in subdivision (e).
(h) Has violated any provision of this division or the rules
thereunder or, in the case of an applicant only, any similar
regulatory scheme of the State of California or a foreign
jurisdiction.
25232.1. The commissioner may, after appropriate notice and
opportunity for hearing, by order censure, or suspend for a period
not exceeding 12 months, or bar from any position of employment,
management or control of any investment adviser, broker-dealer or
commodity adviser, any officer, director, partner, employee of, or
person performing similar functions for, an investment adviser, or
any other person, if he or she finds that the censure, suspension or
bar is in the public interest and that the person has committed any
act or omission enumerated in subdivision (a), (e), (f), or (g) of
Section 25232 or has been convicted of any offense or held liable in
any civil action specified in subdivision (b) of Section 25232 or is
enjoined from any act, conduct or practice specified in subdivision
(c) of Section 25232 or is subject to any order specified in
subdivision (d) of Section 25232.
25232.2. (a) It is unlawful for any person, as to whom an order
suspending or revoking the person's certificate as an investment
adviser is in effect pursuant to Section 25232 or as to whom an order
suspending or barring employment is in effect pursuant to Section
25232.1, willfully to become or to be employed by any investment
adviser, broker-dealer or commodity adviser, without the consent of
the commissioner, and it is unlawful for any investment adviser to
permit a person as to whom an order is in effect pursuant to Section
25212.1 or 25232.1 to become or to remain employed by the investment
adviser, without the consent of the commissioner, if such investment
adviser knew, or in the exercise of reasonable care should have
known, of such order.
(b) Any person as to whom an order suspending or barring
employment with or participation is issued pursuant to Section
25232.1 may petition the commissioner for reinstatement or reduction
of penalty as provided in and subject to the provisions of Section
11522 of the Government Code.
25232.3. The commissioner may immediately revoke the certificate of
any investment adviser if the investment adviser fails to comply
with any currently effective order of the commissioner which is
necessary for the protection of any investor, unless the investment
adviser secures a court order restraining the enforcement of the
commissioner's revocation order within 10 days of the date the order
is issued.
25233. No order may be entered under Section 25232, 25232.1, or
25252 except after notice to the person affected thereby of the
intention of the commissioner to enter that order and of the reasons
therefor and that upon receipt of a request the matter shall be set
down for hearing to commence within 15 business days after that
receipt unless the person affected consents to a later date. If no
hearing is requested within 30 days after the mailing of that notice
and none is ordered by the commissioner, the order may be entered
without hearing to remain in effect until it is modified or vacated
by the commissioner. In the case of an original application for a
certificate, such a hearing shall be set down to commence within 15
business days after receipt of a written request by the applicant
made 30 days or more after the filing of the application, even though
no such notice by the commissioner has been given, unless the
applicant consents to a later date. If a hearing is requested or
ordered, it shall be held in accordance with the provisions of the
Administrative Procedure Act (Chapter 5 (commencing with Section
11500) 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 shall
in this state enter into, extend or renew any investment advisory
contract, or in any way perform any investment advisory contract
entered into, extended or renewed on or after the effective date of
this law, if that contract:
(1) Provides for compensation to the investment adviser 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, except as may be
permitted by rule or order of the commissioner;
(2) Fails to provide, in substance, that no assignment of the
contract shall be made by the investment adviser without the consent
of 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 any
change in the membership of the partnership within a reasonable time
after the change.
(b) As used in this section, "investment advisory contract" means
any contract or agreement whereby a person agrees to act as
investment adviser or to manage any investment or trading account for
a person other than an investment company. Paragraph (1) of
subdivision (a) of this section does not prohibit an investment
advisory contract that provides for compensation based upon the total
value of a fund averaged over a definite period, or as of definite
dates, or taken as of a definite date.
25235. It is unlawful for any investment adviser, directly or
indirectly, in this state:
(a) To employ any device, scheme, or artifice to defraud any
client or prospective client.
(b) To engage in any transaction, practice, or course of business
which operates or would operate as a fraud or deceit upon any client
or prospective client.
(c) Acting as principal for his own account, knowingly to sell any
security to or purchase any security from a client for whom he is
acting as investment adviser, or, acting as broker for a person other
than such client, knowingly to effect any sale or purchase of any
security for the account of such client, without disclosing to such
client in writing before the completion of the transaction the
capacity in which he is acting and obtaining the written consent of
the client to such transaction.
(d) To engage in any act, practice, or course of business which is
fraudulent, deceptive, or manipulative. The commissioner shall, for
the purpose of this subdivision, by rule define and prescribe means
reasonably designed to prevent such acts, practices, and courses of
business as are fraudulent, deceptive, or manipulative.
(e) To represent that he is an investment counsel or to use the
name "investment counsel" as descriptive of his business unless his
principal business consists of acting as investment adviser and a
substantial part of his business consists of rendering investment
advisory services on the basis of the individual needs of his
clients.
25236. (a) No investment adviser licensed under this chapter shall
conduct any business as such investment adviser in this state unless
the investment adviser and all natural persons associated with such
investment adviser meet such specified and appropriate standards with
respect to training, experience and other qualifications as the
commissioner finds necessary or desirable. The commissioner may
establish such standards by rule, which may
(1) Appropriately classify investment advisers and persons
associated with investment advisers;
(2) Specify that all or any portion of such standards shall be
applicable to any such class; and
(3) Require persons in any such class to pass examinations
prescribed in accordance with such rules.
(b) In addition to the fees imposed by Section 25608, the
commissioner may prescribe by rule reasonable fees and charges to
defray the costs of carrying out this section, including, but not
limited to, fees for any examination administered by him or under his
direction.
25237. The commissioner shall prescribe rules with respect to
investment advisers licensed under this chapter who have custody of
their clients' securities or funds or who have any power of attorney
from their clients to execute transactions as he or she finds to be
necessary or appropriate in the public interest or for the protection
of investors. The rules may require a minimum capital for those
investment advisers or prescribe a minimum ratio between net capital
and aggregate indebtedness or both, and may require a fidelity bond.
25238. No investment adviser licensed under this chapter and no
natural person associated with the investment adviser shall engage in
investment advisory activities, or attempt to engage in investment
advisory activities, in this state in contradiction of such rules as
the commissioner may prescribe designed to promote fair, equitable
and ethical principles.
25230. (a) It is unlawful for any investment adviser to conduct
business as an investment adviser in this state unless the investment
adviser has first applied for and secured from the commissioner a
certificate, then in effect, authorizing the investment adviser to do
so or unless the investment adviser is exempted by the provisions of
Chapter 1 (commencing with Section 25200) of this part or unless the
investment adviser is subject to Section 25230.1.
(b) No person, on behalf of an investment adviser that has
obtained a certificate pursuant to Section 25231, may, in this state:
offer or negotiate for the sale of investment advisory services of
the investment adviser; determine which recommendations shall be made
to, make recommendations to, or manage the accounts of, clients of
the investment adviser; or determine the reports or analyses
concerning securities to be published by the investment adviser,
unless the investment adviser and that person have complied with
rules that the commissioner may adopt for the qualification and
employment of those persons.
(c) The commissioner may, consistent with Section 25232.1, review
the disciplinary history of an investment adviser representative upon
the filing of notice of any of the following:
(1) The employment, association, or transfer of the investment
adviser representative.
(2) An amendment to the information filed by the investment
adviser representative at the time of employment, association, or
transfer.
(3) The termination of employment or association of the investment
adviser representative.
25230.1. (a) A person that is registered under Section 203 of the
Investment Advisers Act of 1940 as an investment adviser is not
subject to the requirement of obtaining a certificate under Section
25230, but may not conduct business in this state unless the person
has fewer than six clients as specified in Section 25202 or unless
the person first complies with subdivision (b). An investment adviser
representative that has a place of business in this state may be
required 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 of
those documents filed with the Securities and Exchange Commission
pursuant to the securities laws that the commissioner by rule or
order deems appropriate or, in lieu thereof, a form prescribed by the
commissioner, and a consent to service of process under Section
25240.
(2) Pay the notice filing fee provided for in subdivision (d) of
Section 25608.1.
(c) No investment adviser representative, on behalf of an
investment adviser subject to subdivision (a), may, in this state:
offer or negotiate for the sale of investment advisory services of
the investment adviser; determine which recommendations shall be made
to, make recommendations to, or manage the accounts of, clients of
the investment adviser; or determine the reports or analysis
concerning securities to be published by the investment adviser,
unless the investment adviser representative has complied with rules
that the commissioner may adopt for the qualification and employment
of investment adviser representatives.
(d) Subdivision (a) does not prohibit the commissioner from
investigating and bringing enforcement actions with respect to fraud
or deceit, including and without limitation, fraud or deceit under
Section 25235 and the rules of the commissioner adopted thereunder,
against an investment adviser or an investment adviser
representative.
25231. (a) Any investment adviser, or any person who contemplates
becoming an investment adviser, may apply for a certificate to act as
an investment adviser by filing with the commissioner an
application. The application shall be accompanied by the consent to
service of process specified in Section 25240 and shall contain
information, in such form and detail, as the commissioner may by rule
prescribe.
(b) Unless otherwise provided by rule or order of the
commissioner, all investment adviser and investment adviser
representative applications, amendments, reports, notices, related
filings, and fees required to be filed with the commissioner pursuant
to this title shall be filed electronically with and transmitted to
the Web-based Investment Adviser Registration Depository operated by
the Financial Industry Regulatory Authority.
25232. The commissioner may, after appropriate notice and
opportunity for hearing, by order censure, deny a certificate to, or
suspend for a period not exceeding 12 months or revoke the
certificate of, an investment adviser, if the commissioner finds that
the censure, denial, suspension, or revocation is in the public
interest and that the investment adviser, whether prior or subsequent
to becoming such, or any partner, officer or director thereof or any
person performing similar functions or any person directly or
indirectly controlling the investment adviser, whether prior or
subsequent to becoming such, or any employee of the investment
adviser while so employed has done any of the following:
(a) Has willfully made or caused to be made in any application for
a certificate or any report filed with the commissioner under this
division, or in any proceeding before the commissioner, 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 willfully omitted to state in the application or report
any material fact which is required to be stated therein.
(b) Has been either (1) convicted of or has pled nolo contendere
to any felony or misdemeanor, or (2) held liable in a civil action by
final judgment of a court based upon conduct showing moral
turpitude, and the commissioner finds that the felony, misdemeanor or
civil action (A) involved the purchase or sale of any security, (B)
arose out of the conduct of the business of a broker-dealer or
investment adviser, (C) involved theft, or (D) involved the violation
of Section 1341, 1342, or 1343 of Title 18 of the United States
Code.
(c) Is permanently or temporarily enjoined by order, judgment, or
decree of any court of competent jurisdiction from acting as an
investment adviser, underwriter or broker-dealer or as an affiliated
person or employee of any investment company, bank, or insurance
company, or from engaging in or continuing any conduct or practice in
connection with that activity, or in connection with the purchase or
sale of any security.
(d) Is or has been subject to (1) any order of the Securities and
Exchange Commission or the securities administrator of any other
state denying or revoking or suspending his or her registration as an
investment adviser, or investment adviser representative, or as a
broker or dealer or agent, (2) any order of any national securities
association or national securities exchange (registered under the
Securities Exchange Act of 1934) suspending or expelling him or her
from membership in that association or exchange or from association
with any member thereof, or (3) any other order of the commission or
any administrator, association, or exchange referred to in this
subdivision which is or has been necessary for the protection of any
investor.
(e) Has willfully violated any provision of the Securities Act of
1933, the Securities Exchange Act of 1934, the Investment Advisers
Act of 1940, the Investment Company Act of 1940, the Commodity
Exchange Act, or Title 4 (commencing with Section 25000), including
the Franchise Investment Law, Division 5 (commencing with Section
31000), or the California Commodity Law of 1990, Division 4.5
(commencing with Section 29500), or of any rule or regulation under
any of those statutes, or any order of the commissioner which is or
has been necessary for the protection of any investor.
(f) Is or has been subject to (1) any order of the Commodity
Futures Trading Commission denying registration to, or revoking or
suspending the registration of, that person under the Commodity
Exchange Act, (2) any order of any board of trade or commodity
exchange, including, but not limited to, the New York Mercantile
Exchange, the Chicago Mercantile Exchange, the Chicago Board of
Trade, or the Chicago Board Options Exchange, suspending or expelling
that person from membership in the board of trade or commodity
exchange or from association with any member thereof, or (3) any
other order of the commission or any board or exchange referred to in
this subdivision which is or has been necessary for the protection
of any investor.
(g) Has aided, abetted, counseled, commanded, induced, or procured
the violation by any other person of any statute or rule or
regulation referred to in subdivision (e).
(h) Has violated any provision of this division or the rules
thereunder or, in the case of an applicant only, any similar
regulatory scheme of the State of California or a foreign
jurisdiction.
25232.1. The commissioner may, after appropriate notice and
opportunity for hearing, by order censure, or suspend for a period
not exceeding 12 months, or bar from any position of employment,
management or control of any investment adviser, broker-dealer or
commodity adviser, any officer, director, partner, employee of, or
person performing similar functions for, an investment adviser, or
any other person, if he or she finds that the censure, suspension or
bar is in the public interest and that the person has committed any
act or omission enumerated in subdivision (a), (e), (f), or (g) of
Section 25232 or has been convicted of any offense or held liable in
any civil action specified in subdivision (b) of Section 25232 or is
enjoined from any act, conduct or practice specified in subdivision
(c) of Section 25232 or is subject to any order specified in
subdivision (d) of Section 25232.
25232.2. (a) It is unlawful for any person, as to whom an order
suspending or revoking the person's certificate as an investment
adviser is in effect pursuant to Section 25232 or as to whom an order
suspending or barring employment is in effect pursuant to Section
25232.1, willfully to become or to be employed by any investment
adviser, broker-dealer or commodity adviser, without the consent of
the commissioner, and it is unlawful for any investment adviser to
permit a person as to whom an order is in effect pursuant to Section
25212.1 or 25232.1 to become or to remain employed by the investment
adviser, without the consent of the commissioner, if such investment
adviser knew, or in the exercise of reasonable care should have
known, of such order.
(b) Any person as to whom an order suspending or barring
employment with or participation is issued pursuant to Section
25232.1 may petition the commissioner for reinstatement or reduction
of penalty as provided in and subject to the provisions of Section
11522 of the Government Code.
25232.3. The commissioner may immediately revoke the certificate of
any investment adviser if the investment adviser fails to comply
with any currently effective order of the commissioner which is
necessary for the protection of any investor, unless the investment
adviser secures a court order restraining the enforcement of the
commissioner's revocation order within 10 days of the date the order
is issued.
25233. No order may be entered under Section 25232, 25232.1, or
25252 except after notice to the person affected thereby of the
intention of the commissioner to enter that order and of the reasons
therefor and that upon receipt of a request the matter shall be set
down for hearing to commence within 15 business days after that
receipt unless the person affected consents to a later date. If no
hearing is requested within 30 days after the mailing of that notice
and none is ordered by the commissioner, the order may be entered
without hearing to remain in effect until it is modified or vacated
by the commissioner. In the case of an original application for a
certificate, such a hearing shall be set down to commence within 15
business days after receipt of a written request by the applicant
made 30 days or more after the filing of the application, even though
no such notice by the commissioner has been given, unless the
applicant consents to a later date. If a hearing is requested or
ordered, it shall be held in accordance with the provisions of the
Administrative Procedure Act (Chapter 5 (commencing with Section
11500) 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 shall
in this state enter into, extend or renew any investment advisory
contract, or in any way perform any investment advisory contract
entered into, extended or renewed on or after the effective date of
this law, if that contract:
(1) Provides for compensation to the investment adviser 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, except as may be
permitted by rule or order of the commissioner;
(2) Fails to provide, in substance, that no assignment of the
contract shall be made by the investment adviser without the consent
of 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 any
change in the membership of the partnership within a reasonable time
after the change.
(b) As used in this section, "investment advisory contract" means
any contract or agreement whereby a person agrees to act as
investment adviser or to manage any investment or trading account for
a person other than an investment company. Paragraph (1) of
subdivision (a) of this section does not prohibit an investment
advisory contract that provides for compensation based upon the total
value of a fund averaged over a definite period, or as of definite
dates, or taken as of a definite date.
25235. It is unlawful for any investment adviser, directly or
indirectly, in this state:
(a) To employ any device, scheme, or artifice to defraud any
client or prospective client.
(b) To engage in any transaction, practice, or course of business
which operates or would operate as a fraud or deceit upon any client
or prospective client.
(c) Acting as principal for his own account, knowingly to sell any
security to or purchase any security from a client for whom he is
acting as investment adviser, or, acting as broker for a person other
than such client, knowingly to effect any sale or purchase of any
security for the account of such client, without disclosing to such
client in writing before the completion of the transaction the
capacity in which he is acting and obtaining the written consent of
the client to such transaction.
(d) To engage in any act, practice, or course of business which is
fraudulent, deceptive, or manipulative. The commissioner shall, for
the purpose of this subdivision, by rule define and prescribe means
reasonably designed to prevent such acts, practices, and courses of
business as are fraudulent, deceptive, or manipulative.
(e) To represent that he is an investment counsel or to use the
name "investment counsel" as descriptive of his business unless his
principal business consists of acting as investment adviser and a
substantial part of his business consists of rendering investment
advisory services on the basis of the individual needs of his
clients.
25236. (a) No investment adviser licensed under this chapter shall
conduct any business as such investment adviser in this state unless
the investment adviser and all natural persons associated with such
investment adviser meet such specified and appropriate standards with
respect to training, experience and other qualifications as the
commissioner finds necessary or desirable. The commissioner may
establish such standards by rule, which may
(1) Appropriately classify investment advisers and persons
associated with investment advisers;
(2) Specify that all or any portion of such standards shall be
applicable to any such class; and
(3) Require persons in any such class to pass examinations
prescribed in accordance with such rules.
(b) In addition to the fees imposed by Section 25608, the
commissioner may prescribe by rule reasonable fees and charges to
defray the costs of carrying out this section, including, but not
limited to, fees for any examination administered by him or under his
direction.
25237. The commissioner shall prescribe rules with respect to
investment advisers licensed under this chapter who have custody of
their clients' securities or funds or who have any power of attorney
from their clients to execute transactions as he or she finds to be
necessary or appropriate in the public interest or for the protection
of investors. The rules may require a minimum capital for those
investment advisers or prescribe a minimum ratio between net capital
and aggregate indebtedness or both, and may require a fidelity bond.
25238. No investment adviser licensed under this chapter and no
natural person associated with the investment adviser shall engage in
investment advisory activities, or attempt to engage in investment
advisory activities, in this state in contradiction of such rules as
the commissioner may prescribe designed to promote fair, equitable
and ethical principles.
25230. (a) It is unlawful for any investment adviser to conduct
business as an investment adviser in this state unless the investment
adviser has first applied for and secured from the commissioner a
certificate, then in effect, authorizing the investment adviser to do
so or unless the investment adviser is exempted by the provisions of
Chapter 1 (commencing with Section 25200) of this part or unless the
investment adviser is subject to Section 25230.1.
(b) No person, on behalf of an investment adviser that has
obtained a certificate pursuant to Section 25231, may, in this state:
offer or negotiate for the sale of investment advisory services of
the investment adviser; determine which recommendations shall be made
to, make recommendations to, or manage the accounts of, clients of
the investment adviser; or determine the reports or analyses
concerning securities to be published by the investment adviser,
unless the investment adviser and that person have complied with
rules that the commissioner may adopt for the qualification and
employment of those persons.
(c) The commissioner may, consistent with Section 25232.1, review
the disciplinary history of an investment adviser representative upon
the filing of notice of any of the following:
(1) The employment, association, or transfer of the investment
adviser representative.
(2) An amendment to the information filed by the investment
adviser representative at the time of employment, association, or
transfer.
(3) The termination of employment or association of the investment
adviser representative.
25230.1. (a) A person that is registered under Section 203 of the
Investment Advisers Act of 1940 as an investment adviser is not
subject to the requirement of obtaining a certificate under Section
25230, but may not conduct business in this state unless the person
has fewer than six clients as specified in Section 25202 or unless
the person first complies with subdivision (b). An investment adviser
representative that has a place of business in this state may be
required 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 of
those documents filed with the Securities and Exchange Commission
pursuant to the securities laws that the commissioner by rule or
order deems appropriate or, in lieu thereof, a form prescribed by the
commissioner, and a consent to service of process under Section
25240.
(2) Pay the notice filing fee provided for in subdivision (d) of
Section 25608.1.
(c) No investment adviser representative, on behalf of an
investment adviser subject to subdivision (a), may, in this state:
offer or negotiate for the sale of investment advisory services of
the investment adviser; determine which recommendations shall be made
to, make recommendations to, or manage the accounts of, clients of
the investment adviser; or determine the reports or analysis
concerning securities to be published by the investment adviser,
unless the investment adviser representative has complied with rules
that the commissioner may adopt for the qualification and employment
of investment adviser representatives.
(d) Subdivision (a) does not prohibit the commissioner from
investigating and bringing enforcement actions with respect to fraud
or deceit, including and without limitation, fraud or deceit under
Section 25235 and the rules of the commissioner adopted thereunder,
against an investment adviser or an investment adviser
representative.
25231. (a) Any investment adviser, or any person who contemplates
becoming an investment adviser, may apply for a certificate to act as
an investment adviser by filing with the commissioner an
application. The application shall be accompanied by the consent to
service of process specified in Section 25240 and shall contain
information, in such form and detail, as the commissioner may by rule
prescribe.
(b) Unless otherwise provided by rule or order of the
commissioner, all investment adviser and investment adviser
representative applications, amendments, reports, notices, related
filings, and fees required to be filed with the commissioner pursuant
to this title shall be filed electronically with and transmitted to
the Web-based Investment Adviser Registration Depository operated by
the Financial Industry Regulatory Authority.
25232. The commissioner may, after appropriate notice and
opportunity for hearing, by order censure, deny a certificate to, or
suspend for a period not exceeding 12 months or revoke the
certificate of, an investment adviser, if the commissioner finds that
the censure, denial, suspension, or revocation is in the public
interest and that the investment adviser, whether prior or subsequent
to becoming such, or any partner, officer or director thereof or any
person performing similar functions or any person directly or
indirectly controlling the investment adviser, whether prior or
subsequent to becoming such, or any employee of the investment
adviser while so employed has done any of the following:
(a) Has willfully made or caused to be made in any application for
a certificate or any report filed with the commissioner under this
division, or in any proceeding before the commissioner, 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 willfully omitted to state in the application or report
any material fact which is required to be stated therein.
(b) Has been either (1) convicted of or has pled nolo contendere
to any felony or misdemeanor, or (2) held liable in a civil action by
final judgment of a court based upon conduct showing moral
turpitude, and the commissioner finds that the felony, misdemeanor or
civil action (A) involved the purchase or sale of any security, (B)
arose out of the conduct of the business of a broker-dealer or
investment adviser, (C) involved theft, or (D) involved the violation
of Section 1341, 1342, or 1343 of Title 18 of the United States
Code.
(c) Is permanently or temporarily enjoined by order, judgment, or
decree of any court of competent jurisdiction from acting as an
investment adviser, underwriter or broker-dealer or as an affiliated
person or employee of any investment company, bank, or insurance
company, or from engaging in or continuing any conduct or practice in
connection with that activity, or in connection with the purchase or
sale of any security.
(d) Is or has been subject to (1) any order of the Securities and
Exchange Commission or the securities administrator of any other
state denying or revoking or suspending his or her registration as an
investment adviser, or investment adviser representative, or as a
broker or dealer or agent, (2) any order of any national securities
association or national securities exchange (registered under the
Securities Exchange Act of 1934) suspending or expelling him or her
from membership in that association or exchange or from association
with any member thereof, or (3) any other order of the commission or
any administrator, association, or exchange referred to in this
subdivision which is or has been necessary for the protection of any
investor.
(e) Has willfully violated any provision of the Securities Act of
1933, the Securities Exchange Act of 1934, the Investment Advisers
Act of 1940, the Investment Company Act of 1940, the Commodity
Exchange Act, or Title 4 (commencing with Section 25000), including
the Franchise Investment Law, Division 5 (commencing with Section
31000), or the California Commodity Law of 1990, Division 4.5
(commencing with Section 29500), or of any rule or regulation under
any of those statutes, or any order of the commissioner which is or
has been necessary for the protection of any investor.
(f) Is or has been subject to (1) any order of the Commodity
Futures Trading Commission denying registration to, or revoking or
suspending the registration of, that person under the Commodity
Exchange Act, (2) any order of any board of trade or commodity
exchange, including, but not limited to, the New York Mercantile
Exchange, the Chicago Mercantile Exchange, the Chicago Board of
Trade, or the Chicago Board Options Exchange, suspending or expelling
that person from membership in the board of trade or commodity
exchange or from association with any member thereof, or (3) any
other order of the commission or any board or exchange referred to in
this subdivision which is or has been necessary for the protection
of any investor.
(g) Has aided, abetted, counseled, commanded, induced, or procured
the violation by any other person of any statute or rule or
regulation referred to in subdivision (e).
(h) Has violated any provision of this division or the rules
thereunder or, in the case of an applicant only, any similar
regulatory scheme of the State of California or a foreign
jurisdiction.
25232.1. The commissioner may, after appropriate notice and
opportunity for hearing, by order censure, or suspend for a period
not exceeding 12 months, or bar from any position of employment,
management or control of any investment adviser, broker-dealer or
commodity adviser, any officer, director, partner, employee of, or
person performing similar functions for, an investment adviser, or
any other person, if he or she finds that the censure, suspension or
bar is in the public interest and that the person has committed any
act or omission enumerated in subdivision (a), (e), (f), or (g) of
Section 25232 or has been convicted of any offense or held liable in
any civil action specified in subdivision (b) of Section 25232 or is
enjoined from any act, conduct or practice specified in subdivision
(c) of Section 25232 or is subject to any order specified in
subdivision (d) of Section 25232.
25232.2. (a) It is unlawful for any person, as to whom an order
suspending or revoking the person's certificate as an investment
adviser is in effect pursuant to Section 25232 or as to whom an order
suspending or barring employment is in effect pursuant to Section
25232.1, willfully to become or to be employed by any investment
adviser, broker-dealer or commodity adviser, without the consent of
the commissioner, and it is unlawful for any investment adviser to
permit a person as to whom an order is in effect pursuant to Section
25212.1 or 25232.1 to become or to remain employed by the investment
adviser, without the consent of the commissioner, if such investment
adviser knew, or in the exercise of reasonable care should have
known, of such order.
(b) Any person as to whom an order suspending or barring
employment with or participation is issued pursuant to Section
25232.1 may petition the commissioner for reinstatement or reduction
of penalty as provided in and subject to the provisions of Section
11522 of the Government Code.
25232.3. The commissioner may immediately revoke the certificate of
any investment adviser if the investment adviser fails to comply
with any currently effective order of the commissioner which is
necessary for the protection of any investor, unless the investment
adviser secures a court order restraining the enforcement of the
commissioner's revocation order within 10 days of the date the order
is issued.
25233. No order may be entered under Section 25232, 25232.1, or
25252 except after notice to the person affected thereby of the
intention of the commissioner to enter that order and of the reasons
therefor and that upon receipt of a request the matter shall be set
down for hearing to commence within 15 business days after that
receipt unless the person affected consents to a later date. If no
hearing is requested within 30 days after the mailing of that notice
and none is ordered by the commissioner, the order may be entered
without hearing to remain in effect until it is modified or vacated
by the commissioner. In the case of an original application for a
certificate, such a hearing shall be set down to commence within 15
business days after receipt of a written request by the applicant
made 30 days or more after the filing of the application, even though
no such notice by the commissioner has been given, unless the
applicant consents to a later date. If a hearing is requested or
ordered, it shall be held in accordance with the provisions of the
Administrative Procedure Act (Chapter 5 (commencing with Section
11500) 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 shall
in this state enter into, extend or renew any investment advisory
contract, or in any way perform any investment advisory contract
entered into, extended or renewed on or after the effective date of
this law, if that contract:
(1) Provides for compensation to the investment adviser 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, except as may be
permitted by rule or order of the commissioner;
(2) Fails to provide, in substance, that no assignment of the
contract shall be made by the investment adviser without the consent
of 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 any
change in the membership of the partnership within a reasonable time
after the change.
(b) As used in this section, "investment advisory contract" means
any contract or agreement whereby a person agrees to act as
investment adviser or to manage any investment or trading account for
a person other than an investment company. Paragraph (1) of
subdivision (a) of this section does not prohibit an investment
advisory contract that provides for compensation based upon the total
value of a fund averaged over a definite period, or as of definite
dates, or taken as of a definite date.
25235. It is unlawful for any investment adviser, directly or
indirectly, in this state:
(a) To employ any device, scheme, or artifice to defraud any
client or prospective client.
(b) To engage in any transaction, practice, or course of business
which operates or would operate as a fraud or deceit upon any client
or prospective client.
(c) Acting as principal for his own account, knowingly to sell any
security to or purchase any security from a client for whom he is
acting as investment adviser, or, acting as broker for a person other
than such client, knowingly to effect any sale or purchase of any
security for the account of such client, without disclosing to such
client in writing before the completion of the transaction the
capacity in which he is acting and obtaining the written consent of
the client to such transaction.
(d) To engage in any act, practice, or course of business which is
fraudulent, deceptive, or manipulative. The commissioner shall, for
the purpose of this subdivision, by rule define and prescribe means
reasonably designed to prevent such acts, practices, and courses of
business as are fraudulent, deceptive, or manipulative.
(e) To represent that he is an investment counsel or to use the
name "investment counsel" as descriptive of his business unless his
principal business consists of acting as investment adviser and a
substantial part of his business consists of rendering investment
advisory services on the basis of the individual needs of his
clients.
25236. (a) No investment adviser licensed under this chapter shall
conduct any business as such investment adviser in this state unless
the investment adviser and all natural persons associated with such
investment adviser meet such specified and appropriate standards with
respect to training, experience and other qualifications as the
commissioner finds necessary or desirable. The commissioner may
establish such standards by rule, which may
(1) Appropriately classify investment advisers and persons
associated with investment advisers;
(2) Specify that all or any portion of such standards shall be
applicable to any such class; and
(3) Require persons in any such class to pass examinations
prescribed in accordance with such rules.
(b) In addition to the fees imposed by Section 25608, the
commissioner may prescribe by rule reasonable fees and charges to
defray the costs of carrying out this section, including, but not
limited to, fees for any examination administered by him or under his
direction.
25237. The commissioner shall prescribe rules with respect to
investment advisers licensed under this chapter who have custody of
their clients' securities or funds or who have any power of attorney
from their clients to execute transactions as he or she finds to be
necessary or appropriate in the public interest or for the protection
of investors. The rules may require a minimum capital for those
investment advisers or prescribe a minimum ratio between net capital
and aggregate indebtedness or both, and may require a fidelity bond.
25238. No investment adviser licensed under this chapter and no
natural person associated with the investment adviser shall engage in
investment advisory activities, or attempt to engage in investment
advisory activities, in this state in contradiction of such rules as
the commissioner may prescribe designed to promote fair, equitable
and ethical principles.
