15 CSR 30-51.169 - Fraudulent Practices of Broker-Dealers and Agents
(1) A
broker-dealer or agent who engaged in one (1) or more of the following
practices shall be deemed to have engaged in an "act, practice or course of
business which operates or would operate as a fraud" as used in section
409.5-501 of the Missouri
Securities Act of 2003 (the Act). This rule is not intended to be all inclusive
and acts or practices not enumerated in this rule may also be deemed
fraudulent:
(A) Entering into a transaction
with a customer in any security at an unreasonable price or at a price not
reasonably related to the current market price of the security or receiving an
unreasonable commission or profit;
(B) 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;
(C) 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, nonpublic information
which would have an impact on the value of the security;
(D) 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;
(E) Failing to make a
bona fide public offering of all the securities allotted to a broker-dealer for
distribution by, among other things-1) 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 2) parking
or withholding securities;
(F)
Although nothing in this rule precludes application of the general anti-fraud
provisions against anyone for practices similar in nature to the practices
discussed as follows, the following paragraphs specifically apply only in
connection with solicited offers or sales of designated securities in
transactions not exempted in the following:
1. Failing to disclose at the time of
solicitation, in either a principal or agency transaction, the price at which
the broker-dealer is currently selling or offering to sell the designated
security and the price at which the broker-dealer is currently buying or
offering to buy the designated security, and failing to disclose those prices,
which were in effect at the time of execution, on the trade confirmation of the
transaction;
2. Failing to
disclose, at the time of solicitation and on the trade confirmation, all
compensation to be paid to the agent as a result of the transaction;
3. In connection with a principal transaction
by a market maker, 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
five percent (5%) of the issued and outstanding shares of that class of
securities of the issuer;
4.
Conducting sales contests solely with respect to a particular
security;
5. Failing or refusing to
promptly execute sell orders on behalf of a customer;
6. Soliciting a secondary market transaction
when there has not been a bona fide distribution in the primary
market;
7. Engaging in a pattern of
enhancing the compensation of an agent with respect to sales and purchases in
the same security;
8. In connection
with the solicitation of a sale of an equity security, or a security containing
an equity component, in which the difference between the bid and ask price is
twenty-five percent (25%) or more of the ask price, to fail to-
A. Disclose to the customer the bid and ask
price of the designated security as well as its spread in both percentage and
dollar amounts at the time of solicitation; and
B. Include with the confirmation, in a form
satisfactory to the commissioner, written explanation of the bid and ask
price;
9. For the
purposes of subsection (1)(F), the following shall be exempt transactions:
A. Transactions in which the price of the
designated security is five dollars ($5) or more, provided, however, that if
the designated security is a unit composed of one (1) or more securities, the
unit price divided by the number of components of the unit other than warrants,
options, rights or similar securities must be five dollars ($5) or more, and
any component of the unit that is a warrant, option, right or similar security
or a convertible security must have an exercise price or conversion price of
five dollars ($5) or more;
B.
Transactions that are not recommended by the broker-dealer;
C. Transactions by a broker-dealer-
(I) Whose commissions, commission equivalents
and mark-ups from transactions in designated securities during each of the
immediately preceding three (3) months, and during eleven (11) or more of the
preceding twelve (12) months, did not exceed five percent (5%) of its total
commissions, commission-equivalents and mark-ups from transactions in
securities during those months; and
(II) Who has not been a market maker in the
designated security that is the subject of the transaction in the immediately
preceding twelve (12) months; and
D. Any transaction(s) that, upon prior
written request or upon its own motion, the commissioner conditionally or
unconditionally exempts as not encompassed within the purposes of subsection
(1)(F); and
10. For the
purposes of subsection (1)(F)-
A. The term
designated security shall mean any equity security other than a security-
(I) Registered, or approved for registration
upon notice of issuance, on a national securities exchange recognized under
409.2-201(6), RSMo;
(II) Exempted
as a foreign issuer pursuant to
15 CSR
30-54.260;
(III) Authorized, or approved for
authorization upon notice of issuance, for quotation in the National Market
System of the National Association of Securities Dealers Automated Quotation
System;
(IV) Issued by an
investment company registered under the Investment Company Act of
1940;
(V) That is a put option or
call option issued by The Options Clearing Corporation; or
(VI) Whose issuer has net tangible assets in
excess of four (4) million dollars, as demonstrated by financial statements
dated less than fifteen (15) months previously that the broker-dealer has
reviewed and has a reasonable basis to believe on the date of the transaction
with the person, there have been no adverse changes to the issuer's most
current financial statement and-
(a) In the
event the issuer is other than a foreign private issuer, the most recent
financial statements for the issuer have been audited and reported on by an
independent public accountant in accordance with the provisions of 17 CFR
210.2.02 ; or
(b) In the event the
issuer is a foreign private issuer, are the most recent financial statements
for the issuer that have been filed with the commissioner, furnished to the
commissioner pursuant to 17 CFR 240.12g3 - 2(b) or prepared in accordance with
generally accepted accounting principles in the country of incorporation,
audited in compliance with the requirements of that jurisdiction and reported
on by an accountant duly registered and in good standing in accordance with the
regulations of that jurisdiction;
(G) 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;
and
(H) Failure to comply with any
prospectus delivery requirement promulgated under federal law.
Notes
*Original authority: 409.2-201, RSMo 2003; 409.4-412, RSMo 2003; 409.5-501, RSMo 2003.
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