Haw. Code R. § 16-39-501 - Fraudulent practices of broker-dealers, broker-dealer agents, and agents of an issuer

The purpose of this section is to identify practices in the securities business that are generally associated with schemes to manipulate. A broker-dealer, broker-dealer agent, or agent of the issuer who engages in one or more of the following practices shall be deemed to have engaged in an "act, practice, or course of business that operates or would operate as a fraud or deceit" as used in section 485A-501, HRS; provided that this section is not intended to be all-inclusive, and thus, acts or practices not enumerated herein may also be deemed fraudulent:

(1) Unreasonable price/commission. Entering into a transaction with a customer in any security at a price not reasonably related to the current market price of the security or receiving an unreasonable commission or profit;

(2) Contradicting prospectus information. Contradicting or negating the importance of any information contained in a prospectus or other offering materials with intent to deceive or mislead or using any advertising or sales presentation in a deceptive or misleading manner;

(3) Insider information. In connection with the offer, sale, or purchase of a security, falsely leading a customer to believe that the broker-dealer or agent is in possession of material, non-public information which would impact on the value of the security;

(4) Contradictory recommendations. In connection with the solicitation of a sale or purchase of a security, engaging in a pattern or practice of making contradictory recommendations to different investors of similar investment objective for some to sell and others to purchase the same security, at or about the same time, when not justified by the particular circumstances of each investor;

(5) Bona fide distribution. Failing to make a bona fide public offering of all the securities allotted to a broker-dealer for distribution by, among other things, transferring securities to a customer, another broker-dealer or a fictitious account with the understanding that those securities will be returned to the broker-dealer or its nominees; or parking or withholding securities;

(6) Relating to OTC securities. Although nothing in this section precludes application of the general anti-fraud provisions against anyone for practices similar in nature to the practices discussed below, the following subparagraphs specifically apply only in connection with the solicitation of a purchase or sale of OTC unlisted non-NASDAQ equity securities:

(A) Bid/ask price disclosure. Failing to disclose the firm's present bid and ask price of a particular security at the time of solicitation;

(B) Commission disclosure. Failing to advise the customer, both at the time of solicitation and on the confirmation, of any and all compensation related to a specific securities transaction to be paid to the agent including commissions, sales charges, or concessions;

(C) Short inventory position. In connection with a principal transaction, failing to disclose, both at the time of solicitation and on the confirmation, a short inventory position in the firm's account of more than three per cent of the issued and outstanding shares of that class of securities of the issuer provided that this subparagraph shall apply only if the firm is a market maker at the time of the solicitation;

(D) Sales contests. Conducting sales contests in a particular security;

(E) Delay executing sell orders. After a solicited purchase by a customer, failing or refusing, in connection with a principal transaction, to promptly execute sell orders;

(F) Secondary market solicitation. Soliciting a secondary market transaction when there has not been a bona fide distribution in the primary market;

(G) Differing compensation. Engaging in a pattern of compensating an agent in different amounts for effecting sales and purchases in the same security;

(H) Manipulative, deceptive, or fraudulent acts. Effecting any transaction in, or inducing the purchase or sale of, any security by means of any manipulative, deceptive, or other fraudulent device or contrivance including but not limited to the use of boiler room tactics or use of fictitious or nominee accounts;

(I) Prospectus delivery. Failure to comply with any prospectus delivery requirement promulgated under federal law; or

(J) Penny stock sales. Effecting any transaction in, or inducing or attempting to induce the purchase or sale of, any penny stock by any customer except in accordance with the requirements as set forth in section 15(g) of the Securities Exchange Act.

Notes

Haw. Code R. § 16-39-501

[Eff 6/30/08] (Auth: HRS § 485A-606) (Imp: HRS § 485A-501)