1. (a) Unfair, misleading, and unethical practices of broker-dealer or agent.

   1. (1) Each broker-dealer and agent shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.

   2. (2) The following conduct shall be considered unethical and grounds for denial, suspension, or revocation of a broker-dealer or agent registration, in addition to other unethical practices within the meaning of Arkansas Code §§ 23-42-308 and 23-42-507 of the Arkansas Securities Act, Arkansas Code § 23-42-101 et seq.:

      1. (A) Failure to timely complete the transaction. Engaging in a pattern of unreasonable delays in delivery of securities or remittance of funds necessary to complete the transaction within the timeframe customary in the trade;
      2. (B) Misrepresentations. Guaranteeing a customer against loss in any securities account of the customer carried by the broker-dealer or in any securities transaction effected by the broker-dealer with or for the customer, or making unjustified or untruthful representations that securities sold will subsequently become listed or traded, or making representations that a market will be established or that the securities will be subject to an increase in value;
      3. (C) Undisclosed fees. Charging undisclosed, unreasonable, and inequitable fees for services performed, including miscellaneous services such as collection of moneys due for principal, dividends, or interest, exchange or transfer of securities, appraisals, safekeeping, or custody of securities and other services related to its securities business, except where the fees are negotiated or have been previously disclosed to the customer;
      4. (D) Recommendations to customers.

2. (i) Recommending to a customer the purchase, sale, or exchange of any security when a broker-dealer or agent does not have reasonable grounds for believing that the recommendation is suitable for the customer upon the basis of the facts, if any, disclosed by the customer as to his or her other security holdings and as to his or her financial situation and needs, or encouraging a customer to invest beyond his or her immediate financial resources.

   1. (ii) It may be presumed that investments in nontraded direct participation programs including nontraded real estate investment trusts by unaccredited investors are deemed to be unsuitable if the aggregate investment in these securities exceeds ten percent (10%) of the investor’s liquid net worth;

      1. (E) Excessive trading. Inducing trading in a customer’s account that is excessive in size or frequency in view of the financial resources and character of the account exclusively for the purpose of accumulating profits;

      2. (F) Bond presales.

         1. (i)
3. (a) (a) Entering into a presale contract with respect to any bond that is required by laws of the State of Arkansas to be sold at public sale, or to obtain any beneficial interest, direct or indirect, in the initial purchase of any bonds with respect to which the broker-dealer has acted as fiscal agent.

4. (b) (b) Subdivision (a)(2)(F) of this section shall not apply to industrial bonds issued under the Municipalities and Counties Industrial Development Revenue Bond Law, Arkansas Code §§ 14-164-201 – 14-164-224, to school bonds for school districts if the requirements set forth in subdivision (a)(2)(F)(ii) of this section are met, or to any other bonds provided that it is shown to the satisfaction of the Securities Commissioner in the case of the other bonds that such an arrangement is to the benefit of the issuer.

   1. (c) (c) For the purposes of this subdivision (a)(2)(F), the following terms shall have the indicated meanings, unless the context requires otherwise:

   2. (1) (1) “Bonds” means bond, notes, and other evidence of indebtedness, both in definitive and in temporary form, whether as notes or bonds, issued by or in the name of any:

      1. (A) (A) County;
      2. (B) (B) City;
      3. (C) (C) Town;
      4. (D) (D) School district;
      5. (E) (E) Improvement district;
      6. (F) (F) State educational institution; or
      7. (G) (G) Other public issuer;
   3. (2) (2) “Fiscal agent” means any broker-dealer employed for compensation to advise and assist in the sale of an issuer’s bonds; and

   4. (3) (3) “Presale contract” means any contract for the sale and purchase of bonds entered into prior to the date advertised for the public sale of the bonds.

      1. (ii) The prohibition set forth in subdivision (a)(2)(F)(i) of this section shall not apply to school bonds for a school district for which a broker-dealer serves as fiscal agent if each of the following conditions are met:
5. (a) (a) The broker-dealer shall disclose in the preliminary official statement for each bond issue that it has reserved the right to submit a competitive bid;

6. (b) (b) The broker-dealer shall advise the school district prior to the date bids are to be received whether it will submit a bid;

   1. (c) (c) In the event that the only bid received by the school district is from the broker-dealer, acceptance of the bid by the school district is subject to same day review and approval by the commissioner;

      1. (d) (d) The broker-dealer will receive prior to the date bids are received, written authorization from the issuer in compliance with MSRB Rule G-23; and

7. (e) (e) All bids shall be submitted by electronic or sealed bid only;

   1. (G) Fiscal agent or underwriter. Encouraging a person to issue bonds in amounts exceeding those not reasonable within its ability to repay, falsely and willfully leading a person to believe the broker-dealer will see that all bonds will be sold or failing to reveal to the person with which it is doing business a financial interest in other enterprises, such as construction companies, who may receive proceeds from the sale of the bonds;

      1. (H) Adjusted trading.

         1. (i) Utilizing a trading technique whereby a transaction or a series of transactions is executed wherein a party to the transaction or series of transactions attempts to defer the recognition of a decrease in the value of a security by the following:
8. (a) (a) The sale of a security at a price other than at market value;

9. (b) (b) The purchase of a security at a price other than at market value; or

   1. (c) (c) The use of fees, payments, or other consideration in such a manner that the composite design of the related transactions is to defer the recognition of a loss or decrease.

      1. (ii)
10. (a) (a) Adjusted trading may occur if more than one (1) broker-dealer or more than one (1) customer is involved in the transaction.

11. (b) (b) Adjusted trading may occur whether the security is for future delivery, current delivery, or if the security is not yet issued.

    1. (c) (c) If any consideration is given other than normal payment for the security at its market value by any party to the series of purchases or sales, the consideration shall be considered in determining if the trading technique as a whole constitutes adjusted trading;

       1. (I) Markups.

          1. (i) Charging excessive markups or entering into a transaction with or for a customer at a price not reasonably related to the current market price of the security.
          2. (ii) Bids and offers should correspond with the actual market.
          3. (iii) Markups may vary, for among other reasons, as a result of such factors as quantity, quality, market conditions, risk to the broker-dealer, and maturity, but should in all transactions be reasonable and fully competitive;
       2. (J) Market value. Representing that a security is being offered to a customer “at the market” or a price relevant to the market price unless the broker-dealer knows or has reasonable grounds to believe that a market for the security exists other than that made, created, or controlled by the broker-dealer, or by any person for whom the broker-dealer is acting or with whom the broker-dealer is associated in the distribution, or any person controlled by, controlling, or under common control with the broker-dealer, or offering to buy from or sell to any person any security at a stated price unless such broker-dealer is prepared to purchase or sell, as the case may be, at such price and under such conditions as are stated at the time of such offer to buy or sell;
       3. (K) Favorable price. Effecting a transaction for or with a customer without exercising reasonable diligence to ascertain the best market price for the subject security so that the resultant price to the customer is as favorable as possible under prevailing market conditions;
       4. (L) Interpositioning. Interjecting a third party between the broker-dealer and the best available market or the broker-dealer and the customer except in cases where the broker-dealer can demonstrate that based on knowledge at the time of the transaction, the total cost of proceeds of the transaction was equal to or better than the prevailing inter-dealer market for the security;
       5. (M) Controlling persons or affiliates. Failing to disclose that the broker-dealer is controlled by, controlling, affiliated with, or under common control with the issuer of any security before entering into any contract with or for a customer for the purchase or sale of a security, the existence of the control to the customer, and if the disclosure is not made in writing, it shall be supplemented by the giving or sending of written disclosure at or before the completion of the transaction;
       6. (N) Fictitious accounts. Establishing or maintaining an account containing fictitious or disguised information;
       7. (O) Unauthorized transactions. Causing the execution of a transaction which is unauthorized by a customer or the sending of a confirmation in order to cause a customer to accept transactions not actually agreed upon or exercising any discretionary power in effecting a transaction for a customer’s account without first obtaining written discretionary authority from the customer, unless the discretionary power relates solely to the time and/or price for the execution of orders;
       8. (P) Misuse of customers’ funds or securities. Borrowing or unauthorized use of customers’ funds or securities;
       9. (Q) Misleading advertising. Using any advertising or sales material in such a fashion as to be deceptive or misleading;
       10. (R) Outside sales activities. Effecting securities or non-securities transactions not recorded on the regular books or records of the broker-dealer unless the activity is authorized in writing by the broker-dealer and the authorization is maintained in the broker-dealer’s records;
       11. (S) Sharing profits. Sharing directly or indirectly in profits or losses in the account of any customer without the written authorization of the customer and the broker-dealer which the agent represents, or without notice to the customer dividing or otherwise splitting the agent’s commission, profits, or other compensation from the purchase or sale of securities;
       12. (T) Furnishing information. Failing or refusing to furnish a customer, upon reasonable request, information to which he or she is entitled, or to respond to a formal written demand or complaint;
       13. (U) Misuse of firm name. Implying that a broker-dealer is a bank or other kind of financial institution, provided this does not prohibit the use of the term “investment banker”;
       14. (V) Furnishing documents and testimony. Unreasonably failing to promptly deliver or provide documents or information in possession of or under control of the registrant, or appear to provide testimony or documents to the commissioner after receipt of a written request from the commissioner;

       15. (W) Dishonest use of certifications, professional designations, senior-specific certifications, or senior-specific professional designations.

           1. (i) The use of a certification, professional designation, senior-specific certification, or senior-specific professional designation by any person in connection with the offer, sale, or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing, or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to securities that indicates or implies that the user has special certification or training in advising or servicing clients in such a way as to mislead any person shall be a dishonest and unethical practice within the meaning of subsection (a) of this section.
           2. (ii) The prohibited use of certifications or professional designations includes, but is not limited to, the following:
12. (a) (a) Use of a certification or professional designation by a person who has not actually earned or is otherwise ineligible to use the certification or designation;

13. (b) (b) Use of a nonexistent or self-conferred certification or professional designation;

    1. (c) (c) Use of a certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the person using the certification or professional designation does not have; and

       1. (d) (d) Use of a certification or professional designation that was obtained from a designating or certifying organization that meets the following:
    2. (1) (1) Is primarily engaged in the business of instruction in sales and/or marketing;
    3. (2) (2) Does not have reasonable standards or procedures for assuring the competency of its designees or certificants;
    4. (3) (3) Does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct; or

    5. (4) (4) Does not have reasonable continuing education requirements for its designees or certificants in order to maintain the designation or certificate.

       1. (iii) There is a rebuttable presumption that a designation or certifying organization is not disqualified solely for purposes of subdivision (a)(2)(W)(ii)(d) of this section when the organization has been accredited by the following:
14. (a) (a) The American National Standards Institute;

15. (b) (b) The National Commission for Certifying Agencies; or

    1. (c) (c) An organization that is on the United States Department of Education’s list entitled “Accrediting Agencies Recognized for Title IV Purposes” and the designation or credential issued therefrom does not primarily apply to sales and/or marketing.

       1. (iv) In determining whether a combination of words (or an acronym standing for a combination of words) constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing clients, factors to be considered shall include the following:
16. (a) (a) Use of one (1) or more words such as “senior”, “retirement”, “elder”, or like words, combined with one (1) or more words such as “certified”, “registered”, “chartered”, “adviser”, “specialist”, “consultant”, “planner”, or like words, in the name of the certification or professional designation; and

17. (b) (b) The manner in which those words are combined.

    1. (v)
18. (a) (a) For purposes of this subdivision (a)(2)(W), a certification or professional designation does not include a job title within an organization that is licensed or registered by a state or federal financial services regulatory agency, when that job title indicates seniority or standing within the organization, or specifies an individual’s area of specialization within the organization.

19. (b) (b) For purposes of this subdivision (a)(2)(W)(v)(a), financial services regulatory agency includes, but is not limited to, an agency that regulates broker-dealers, investment advisers, or investment companies as defined under the Investment Company Act of 1940.

    1. (vi) Nothing in this section shall limit the commissioner’s authority to enforce existing provisions of law;

       1. (X) Failing to comply with laws or rules. Failing to comply with any applicable provision of conduct rules, any applicable fair practice or ethical standard, or any other applicable law or rule related to conducting business involving securities promulgated by the United States Securities and Exchange Commission or any self-regulatory organization; and
       2. (Y) Other unfair, misleading, and unethical practices. The unfair, misleading, or unethical practices set forth above are not exclusive of other activities such as forgery, embezzlement, nondisclosure or misstatement of material facts, manipulations, and various deceptions, which shall be considered grounds for suspension or revocation, and the commissioner may suspend or revoke a registration when necessary or appropriate in the public interest.

20. (b) Fraudulent, deceptive, dishonest, or unethical practices of investment advisers and investment adviser representatives.

    1. (1) Investment advisers and representatives have a duty to act primarily for the benefit of their clients.
    2. (2) All investment advisers and representatives shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.
    3. (3) The provisions of this section shall apply to investment advisers and representatives that are neither registered nor required to register pursuant to Arkansas Code § 23-42-301(c) of the Arkansas Securities Act only to the extent permitted by the National Securities Markets Improvement Act of 1996, Pub. L. No. 104-290.

    4. (4) The following conduct shall constitute fraudulent or deceptive practices and shall be considered grounds for denial, suspension, or revocation of an investment adviser or representative registration or for the issuance of a cease and desist order or other action under Arkansas Code § 23-42-209 of the Arkansas Securities Act, in addition to other dishonest or unethical practices within the meaning of Arkansas Code §§ 23-42-307 and 23-42-308 of the Arkansas Securities Act:

       1. (A)

          1. (i) Recommending to a client to whom investment supervisory, management, or consulting services are provided the purchase, sale, or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client’s investment objectives, financial situation and needs, risk tolerance, and any other information known or acquired by the investment adviser after reasonable analysis of the client’s information and records as may be provided to the investment adviser.
          2. (ii) Investments in nontraded direct participation programs including nontraded real estate investment trusts by unaccredited investors are deemed to be unsuitable if the aggregate investment in these securities exceeds ten percent (10%) of the investor’s liquid net worth;
       2. (B) Placing an order to purchase or sell a security for the account of a client without authority to do so;
       3. (C) Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third-party trading authorization from the client;
       4. (D) Exercising any discretionary authority in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client, unless the discretionary authority relates solely to the price at which, or the time when, an order involving a definite amount of specified securities shall be executed, or both;
       5. (E) Inducing trading in a client’s account that is excessive in size or frequency in view of the financial resources, investment objectives, and character of the account;
       6. (F) Borrowing money, securities, or anything of value from a client unless the client is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds or securities;
       7. (G) Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds, a broker-dealer, or the client is an affiliate of the investment adviser;
       8. (H) Misrepresenting to any client or prospective advisory client the qualifications of the investment adviser or any employee of the investment adviser, or misrepresenting the nature of the advisory services being offered or fees to be charged for the service, or omitting to state a material fact necessary to make the statements made regarding qualifications, services, or fees, in light of the circumstances under which they are made, not misleading;

       9. (I)

          1. (i) Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing that fact.
          2. (ii) This prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders a report in the normal course of providing service;
       10. (J) Charging a client an advisory fee that is unreasonable in light of the type of service to be provided, the experience and expertise of the investment adviser, or the bargaining power of the client, or, without notice to the client, dividing or otherwise splitting the advisory fee or other compensation derived from the advisory services;

       11. (K) Failing to disclose to a client in writing before entering into or renewing an advisory agreement with that client any material conflict of interest relating to the adviser or any of its employees that could reasonably be expected to impair the rendering of unbiased and objective advice including, but not limited to, the following:

           1. (i) Compensation arrangements connected with advisory services to clients which are in addition to compensation from the clients for the services; and
           2. (ii) The fact that an advisory fee for rendering advice will be charged to the client when a commission for executing securities transactions pursuant to the advice will be received by the adviser or its employees;
       12. (L) Guaranteeing a client that a specific result will be achieved (gain or no loss) as a result of the advice that will be rendered;

       13. (M)

           1. (i) As a means reasonably designed to prevent fraudulent, deceptive, or manipulative acts, practices, or courses of business within the meaning of the Arkansas Securities Act, it is unlawful for any investment adviser registered or required to be registered under the Arkansas Securities Act, directly or indirectly, to disseminate any advertisement that violates any of subdivisions (b)(4)(M)(ii) – (v) of this section.
           2. (ii) General prohibitions. An advertisement may not:
21. (a) (a) Include any untrue statement of a material fact, or omit to state a material fact necessary in order to make the statement made, in the light of the circumstances under which it was made, not misleading;

22. (b) (b) Include a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the commissioner;

    1. (c) (c) Include information that would reasonably be likely to cause an untrue or misleading implication or inference to be drawn concerning a material fact relating to the investment adviser;

       1. (d) (d) Discuss any potential benefits to clients or investors connected with or resulting from the investment adviser’s services or methods of operation without providing fair and balanced treatment of any material risks or material limitations associated with the potential benefits;
23. (e) (e) Include or exclude performance results or present performance time periods in a manner that is not fair and balanced; or

24. (f) (f) Otherwise be materially misleading.

    1. (iii) Testimonials and endorsements.
25. (a) (a) An advertisement may not include any testimonial or endorsement, and an adviser may not provide compensation, directly or indirectly, for a testimonial or endorsement unless the investment adviser complies with the conditions in subdivisions (b)(4)(M)(iii)(b) – (d) of this section, subject to the exemptions in subdivision (b)(4)(M)(iii)(e) of this section.

26. (b) (b) Required disclosures. The investment adviser discloses, or reasonably believes that the person giving the testimonial or endorsement discloses, the following at the time the testimonial or endorsement is disseminated:

    1. (1) (1) Clearly and prominently:

       1. (A) (A) That the testimonial was given by a current client or investor, and the endorsement was given by a person other than a current client or investor, as applicable;
       2. (B) (B) That cash or noncash compensation was provided for the testimonial or endorsement, if applicable; and
       3. (C) (C) A brief statement of any material conflicts of interest on the part of the person giving the testimonial or endorsement resulting from the investment adviser's relationship with such person;
    2. (2) (2) The material terms of any compensation arrangement, including a description of the compensation provided or to be provided, directly or indirectly, to the person for the testimonial or endorsement; and

    3. (3) (3) A description of any material conflicts of interest on the part of the person giving the testimonial or endorsement resulting from the investment adviser's relationship with such person and/or any compensation arrangement.

       1. (c) (c) Adviser oversight and compliance. The investment adviser must have:
    4. (1) (1) A reasonable basis for believing that the testimonial or endorsement complies with the requirements of this subdivision (b)(4)(M); and

    5. (2) (2) A written agreement with any person giving a testimonial or endorsement that describes the scope of the agreed-upon activities and the terms of compensation for those activities.

       1. (d) (d) Disqualification. An investment adviser may not compensate a person, directly or indirectly, for a testimonial or endorsement if the adviser knows, or in the exercise of reasonable care should know, that the person giving the testimonial or endorsement is an ineligible person at the time the testimonial or endorsement is disseminated.

27. (e) (e) Exemptions.

    1. (1) (1) A testimonial or endorsement disseminated for no compensation or de minimis compensation is not required to comply with subdivisions (b)(4)(M)(iii)(c)(2) and (b)(4)(M)(iii)(d) of this section.

    2. (2) (2) A testimonial or endorsement by the investment adviser's partners, officers, directors, or employees, or a person that controls, is controlled by, or is under common control with the investment adviser, or is a partner, officer, director, or employee of such a person is not required to comply with subdivisions (b)(4)(M)(iii)(b) and (b)(4)(M)(iii)(c)(2) of this section, provided that the affiliation between the investment adviser and such person is readily apparent to or is disclosed to the client or investor at the time the testimonial or endorsement is disseminated and the investment adviser documents such person's status at the time the testimonial or endorsement is disseminated.

       1. (iv) Third-party ratings. An advertisement may not include any third-party rating, unless the investment adviser:
28. (a) (a) Has a reasonable basis for believing that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses, and is not designed or prepared to produce any predetermined result; and

29. (b) (b) Clearly and prominently discloses, or the investment adviser reasonably believes that the third-party rating clearly and prominently discloses:

    1. (1) (1) The date on which the rating was given and the period of time upon which the rating was based;
    2. (2) (2) The identity of the third party that created and tabulated the rating; and

    3. (3) (3) If applicable, that compensation has been provided directly or indirectly by the adviser in connection with obtaining or using the third-party rating.

       1. (v) Performance. An investment adviser may not include in any advertisement:

30. (a) (a) Any presentation of gross performance, unless the advertisement also presents net performance:

    1. (1) (1) With at least equal prominence to, and in a format designed to facilitate comparison with, the gross performance; and
    2. (2) (2) Calculated over the same time period and using the same type of return and methodology as the gross performance;

31. (b) (b) Any performance results of any portfolio or any composite aggregation of related portfolios in each case other than any private fund, unless the advertisement includes performance results of the same portfolio or composite aggregation for one-year, five-year, and ten-year periods, each presented with equal prominence and ending on a date that is no less recent than the most recent calendar year-end, except that if the relevant portfolio did not exist for a particular prescribed period, then the life of the portfolio must be substituted for that period;

    1. (c) (c) Any statement, express or implied, that the calculation or presentation of performance results in the advertisement has been approved or reviewed by the commissioner;

       1. (d) (d) Any related performance, unless it includes all related portfolios, provided that related performance may exclude any related portfolios if:
    2. (1) (1) The advertised performance results are not materially higher than if all related portfolios had been included; and
    3. (2) (2) The exclusion of any related portfolio does not alter the presentation of any applicable time periods prescribed by subdivision (b)(4)(M)(v)(b) of this section;
32. (e) (e) Any extracted performance, unless the advertisement provides, or offers to provide promptly, the performance results of the total portfolio from which the performance was extracted;

33. (f) (f) Any hypothetical performance unless the investment adviser:

    1. (1) (1) Adopts and implements policies and procedures reasonably designed to ensure that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement;
    2. (2) (2) Provides sufficient information to enable the intended audience to understand the criteria used and assumptions made in calculating such hypothetical performance; and
    3. (3) (3) Provides (or, if the intended audience is an investor in a private fund, provides, or offers to provide promptly) sufficient information to enable the intended audience to understand the risks and limitations of using such hypothetical performance in making investment decisions, provided that the investment adviser need not comply with the other conditions on performance in subdivisions (b)(4)(M)(v)(b), (d), and (e) of this section; and

34. (g) (g) Any predecessor performance unless:

    1. (1) (1) The person or persons who were primarily responsible for achieving the prior performance results manage accounts at the advertising adviser;
    2. (2) (2) The accounts managed at the predecessor investment adviser are sufficiently similar to the accounts managed at the advertising investment adviser that the performance results would provide relevant information to clients or investors;
    3. (3) (3) All accounts that were managed in a substantially similar manner are advertised unless the exclusion of any such account would not result in materially higher performance and the exclusion of any account does not alter the presentation of any applicable time periods prescribed in subdivision (b)(4)(M)(v)(b) of this section; and

    4. (4) (4) The advertisement clearly and prominently includes all relevant disclosures, including that the performance results were from accounts managed at another entity.

       1. (vi) Definitions. For purposes of this subdivision (b)(2)(M):

35. (a) (a) “Advertisement” means:

    1. (1) (1) Any direct or indirect communication an investment adviser makes to more than one (1) person, or to one (1) or more persons if the communication includes hypothetical performance, that offers the investment adviser's investment advisory services with regard to securities to prospective clients or investors in a private fund advised by the investment adviser or offers new investment advisory services with regard to securities to current clients or investors in a private fund advised by the investment adviser, but does not include:

       1. (A) (A) Extemporaneous, live, oral communications;
       2. (B) (B) Information contained in a statutory or regulatory notice, filing, or other required communication, provided that such information is reasonably designed to satisfy the requirements of such notice, filing, or other required communication; or

       3. (C) (C) A communication that includes hypothetical performance that is provided:

          1. (i) (i) In response to an unsolicited request for such information from a prospective or current client or investor in a private fund advised by the investment adviser; or
          2. (ii) (ii) To a prospective or current investor in a private fund advised by the investment adviser in a one-on-one communication; and
    2. (2) (2) Any endorsement or testimonial for which an investment adviser provides compensation, directly or indirectly, but does not include any information contained in a statutory or regulatory notice, filing, or other required communication, provided that such information is reasonably designed to satisfy the requirements of such notice, filing, or other required communication;

36. (b) (b) “De minimis compensation” means compensation paid to a person for providing a testimonial or endorsement of a total of fifty dollars ($50.00) or less, or the equivalent value in noncash compensation, during the preceding twelve (12) months;

    1. (c) (c) “Disqualifying action” means an opinion or order by a state or federal securities regulator barring, suspending, or prohibiting the person from acting in any capacity under securities laws;

       1. (d) (d) “Disqualifying event” means any of the following events that occurred within ten (10) years prior to the person disseminating an endorsement or testimonial:
    2. (1) (1) A conviction by a court of competent jurisdiction within the United States of any felony or a misdemeanor involving conduct described in Arkansas Code § 23-42-308(a)(2)(C) of the Arkansas Securities Act;
    3. (2) (2) An injunction by a court of competent jurisdiction within the United States from engaging in or continuing any conduct or practice involving any aspect of the securities business; or
    4. (3) (3) The entry of any final order by the commissioner or a securities administrator of another state, any national securities, commodities, banking, or insurance agency, jurisdiction, exchange, or self-regulatory organization to include all orders listed within Arkansas Code § 23-42-308(a)(2)(F) of the Arkansas Securities Act;

37. (e) (e) “Endorsement” means any statement by a person other than a current client or investor in a private fund advised by the investment adviser that:

    1. (1) (1) Indicates approval, support, or recommendation of the investment adviser or its supervised persons or describes that person's experience with the investment adviser or its supervised persons;
    2. (2) (2) Directly or indirectly solicits any current or prospective client or investor to be a client of, or an investor in, a private fund advised by the investment adviser; or
    3. (3) (3) Refers any current or prospective client or investor to be a client of, or an investor in, a private fund advised by the investment adviser;
38. (f) (f) “Extracted performance” means the performance results of a subset of investments extracted from a portfolio;
39. (g) (g) “Gross performance” means the performance results of a portfolio (or portions of a portfolio that are included in extracted performance, if applicable) before the deduction of all fees and expenses that a client or investor has paid or would have paid in connection with the investment adviser's investment advisory services to the relevant portfolio;

40. (h)

    1. (1) (h)(1) “Hypothetical performance” means performance results that were not actually achieved by any portfolio of the investment adviser.

    2. (2) (2) “Hypothetical performance” includes, but is not limited to:

       1. (A) (A) Performance derived from model portfolios;
       2. (B) (B) Performance that is backtested by the application of a strategy to data from prior time periods when the strategy was not actually used during those time periods; and
       3. (C) (C) Targeted or projected performance returns with respect to any portfolio or to the investment advisory services with regard to securities offered in the advertisement.

    3. (3) (3) “Hypothetical performance” does not include:

       1. (A) (A) An interactive analysis tool where a client or investor, prospective client, or investor uses the tool to produce simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices, provided that the investment adviser:

          1. (i) (i) Provides a description of the criteria and methodology used, including the investment analysis tool's limitations and key assumptions;
          2. (ii) (ii) Explains that the results may vary with each use and over time;
          3. (iii) (iii) If applicable, describes the universe of investments considered in the analysis, explains how the tool determines which investments to select, discloses if the tool favors certain investments and, if so, explains the reason for the selectivity and states that other investments not considered may have characteristics similar or superior to those being analyzed; and
          4. (iv) (iv) Discloses that the tool generates outcomes that are hypothetical in nature; or

       2. (B) (B) Predecessor performance that is displayed in compliance with subdivision (b)(4)(M)(v)(g) of this section;

          1. (i) (i) “Ineligible person” means a person who is subject to a disqualifying action or is subject to any disqualifying event, and the following persons with respect to the ineligible person:
    4. (1) (1) Any employee, officer, or director of the ineligible person and any other individuals with similar status or functions within the scope of association with the ineligible person;
    5. (2) (2) If the ineligible person is a partnership, all general partners; and
    6. (3) (3) If the ineligible person is a limited liability company managed by elected managers, all elected managers;

41. (j)

    1. (1) (j)(1) “Net performance” means the performance results of a portfolio (or portions of a portfolio that are included in extracted performance, if applicable) after the deduction of all fees and expenses that a client or investor has paid or would have paid in connection with the investment adviser's investment advisory services to the relevant portfolio including, if applicable, advisory fees, advisory fees paid to underlying investment vehicles, and payments by the investment adviser for which the client or investor reimburses the investment adviser.

    2. (2) (2) For purposes of this subdivision (b)(4)(M), net performance:

       1. (A) (A) May reflect the exclusion of custodian fees paid to a bank or other third-party organization for safekeeping funds and securities; and/or

       2. (B) (B) If using a model fee, must reflect one (1) of the following:

          1. (i) (i) The deduction of a model fee when doing so would result in performance figures that are no higher than if the actual fee had been deducted; or
          2. (ii) (ii) The deduction of a model fee that is equal to the highest fee charged to the intended audience to whom the advertisement is disseminated;

42. (k)

    1. (1) (k)(1) “Portfolio” means a group of investments managed by the investment adviser.

    2. (2) (2) A portfolio may be an account or a private fund and includes, but is not limited to, a portfolio for the account of the investment adviser or its advisory affiliate (as defined in the Form ADV Glossary of Terms);

       1. (l) (l) “Predecessor performance” means investment performance achieved by a group of investments consisting of an account or a private fund that was not advised at all times during the period shown by the investment adviser advertising the performance;

          1. (m) (m) “Private fund” has the same meaning as in 23 CAR § 300-303(h);
43. (n) (n) “Related performance” means the performance results of one (1) or more related portfolios, either on a portfolio-by-portfolio basis or as a composite aggregation of all portfolios falling within stated criteria;
44. (o) (o) “Related portfolio” means a portfolio with substantially similar investment policies, objectives, and strategies as those of the services being offered in the advertisement;
45. (p) (p) “Supervised person” has the same meaning as in 23 CAR § 300-303(k)(5)(C);

46. (q) (q) “Testimonial” means any statement by a current client or investor in a private fund advised by the investment adviser:

    1. (1) (1) About the client or investor's experience with the investment adviser or its supervised persons;
    2. (2) (2) That directly or indirectly solicits any current or prospective client or investor to be a client of, or an investor in, a private fund advised by the investment adviser; or
    3. (3) (3) That refers any current or prospective client or investor to be a client of, or an investor in, a private fund advised by the investment adviser; and

47. (r) (r) “Third-party rating” means a rating or ranking of an investment adviser provided by a person who is not a related person (as defined in the Form ADV Glossary of Terms), and such person provides such ratings or rankings in the ordinary course of its business;

    1. (N) Disclosing the identity, affairs, or investment of any client to any third party unless required by law to do so, or unless consented to by the client;

       1. (O) Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where the investment adviser has custody or possession of securities or funds in the absence of compliance with the provisions of 23 CAR § 300-309(b);

       2. (P) Entering into, extending, or renewing any investment advisory contract, other than a contract for impersonal advisory services, unless the contract is fair and reasonable, in writing, dated, and discloses, in substance, the following:

          1. (i) The services to be provided;
          2. (ii) The term of the contract;
          3. (iii) The investment objectives, risk tolerance levels, annual income, net worth, and liquid net worth for the client;
          4. (iv) The advisory fee or the formula for computing the fee;
          5. (v) The amount or the manner of calculation of the amount of the prepaid fee to be returned in the event of contract termination or nonperformance;
          6. (vi) Whether the contract grants discretionary power to the adviser; and
          7. (vii) That no assignment of the contract shall be made by the investment adviser without the consent of the other party to the contract;

       3. (Q)

          1. (i) Limiting, attempting to limit, or representing to a client the existence of any limitation on the client’s ability to execute recommended transactions through any broker-dealer he or she may choose.
          2. (ii) An affiliate of the investment adviser may be recommended as long as the affiliate relationship is fully disclosed to the client in writing, and that the recommended affiliate is in the client’s best interest;
       4. (R) Unreasonably failing to deliver or provide documents or information in possession of or under control of the registrant, or appear to provide testimony or documents to the commissioner, after receipt of a written request from the commissioner;
       5. (S) Failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information contrary to the provisions of Section 204A of the Investment Advisers Act of 1940;

       6. (T)

          1. (i) Entering into, extending, or renewing any advisory contract contrary to the provisions of Section 205 of the Investment Advisers Act of 1940.
          2. (ii) This provision shall apply to all advisers and investment adviser representatives registered or required to be registered under the Arkansas Securities Act, notwithstanding whether the adviser or representative would be exempt from federal registration pursuant to Section 203(b) of the Investment Advisers Act of 1940;
       7. (U) Indicating, in an advisory contract, any condition, stipulation, or provision binding any person to waive compliance with any provision of the Arkansas Securities Act or of the Investment Advisers Act of 1940, waive rights to seek remedies under state or federal securities laws, or any other practice contrary to the provisions of Section 215 of the Investment Advisers Act of 1940;
       8. (V) Engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative and contrary to the provisions of Section 206(4) of the Investment Advisers Act of 1940, notwithstanding the fact that the investment adviser or investment adviser representative is not registered or required to be registered under Section 203 of the Investment Advisers Act of 1940;
       9. (W) Engaging in conduct or any act, indirectly or through or by any other person, which would be unlawful for a person to do directly under the provisions of the Arkansas Securities Act or this part;

       10. (X)

           1. (i) Dishonest use of certifications, professional designations, senior-specific certifications, or senior-specific professional designations.
           2. (ii) The use of a certification, professional designation, senior-specific certification, or senior-specific professional designation by any person in connection with the offer, sale, or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing, or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to securities that indicates or implies that the user has special certification or training in advising or servicing clients in such a way as to mislead any person shall be a dishonest and unethical practice within the meaning of this subsection.
           3. (iii) The prohibited use of certifications or professional designations includes, but is not limited to, the following:
48. (a) (a) Use of a certification or professional designation by a person who has not actually earned or is otherwise ineligible to use such certification or designation;

49. (b) (b) Use of a nonexistent or self-conferred certification or professional designation;

    1. (c) (c) Use of a certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the person using the certification or professional designation does not have; and

       1. (d) (d) Use of a certification or professional designation that was obtained from a designating or certifying organization that meets the following:
    2. (1) (1) Is primarily engaged in the business of instruction in sales and/or marketing;
    3. (2) (2) Does not have reasonable standards or procedures for assuring the competency of its designees or certificants;
    4. (3) (3) Does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct; or

    5. (4) (4) Does not have reasonable continuing education requirements for its designees or certificants in order to maintain the designation or certificate.

       1. (iv) There is a rebuttable presumption that a designation or certifying organization is not disqualified solely for purposes of subdivision (b)(4)(X)(iii)(d) of this section when the organization has been accredited by the following:
50. (a) (a) The American National Standards Institute;

51. (b) (b) The National Commission for Certifying Agencies; or

    1. (c) (c) An organization that is on the United States Department of Education’s list entitled “Accrediting Agencies Recognized for Title IV Purposes” and the designation or credential issued therefrom does not primarily apply to sales and/or marketing.

       1. (v) In determining whether a combination of words (or an acronym standing for a combination of words) constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing clients, factors to be considered shall include the following:
52. (a) (a) Use of one (1) or more words such as “senior”, “retirement”, “elder”, or like words combined with one (1) or more words such as “certified”, “registered”, “chartered”, “adviser”, “specialist”, “consultant”, “planner”, or like words in the name of the certification or professional designation; and

53. (b) (b) The manner in which those words are combined.

    1. (vi)
54. (a) (a) For purposes of this subdivision (b)(4)(X), a certification or professional designation does not include a job title within an organization that is licensed or registered by a state or federal financial services regulatory agency when that job title indicates seniority or standing within the organization or specifies an individual’s area of specialization within the organization.

55. (b) (b) For purposes of this subdivision (b)(4)(X)(vi), financial services regulatory agency includes, but is not limited to, an agency that regulates broker-dealers, investment advisers, or investment companies as defined under the Investment Company Act of 1940.

    1. (vii) Nothing in this subdivision (b)(4)(X) shall limit the commissioner’s authority to enforce existing provisions of law;

       1. (Y) Accessing a client's account by using the client's own unique identifying information, such as username and password;
       2. (Z) Failure to establish, maintain, and enforce a required policy or procedure; or

       3. (AA)

          1. (i) Other fraudulent, deceptive, dishonest, or unethical practices.
          2. (ii) The activities set forth above are not all-inclusive.
          3. (iii) Any other activities employing any device, scheme, or artifice to defraud or engaging in any act, practice, or course of business that operates, or 23 CAR § 300-503 would operate, as a fraud or deceit shall constitute grounds for denial, suspension, or revocation under Arkansas Code § 23-42-308 of the Arkansas Securities Act, or for the institution of a cease and desist order or other action under Arkansas Code § 23-42-209 of the Arkansas Securities Act.
          4. (c) Rules of practice and procedure regarding denial, suspension, or revocation. The rules of practice and procedure to be followed in proceedings for the denial, suspension, or revocation of a broker-dealer, agent, or investment adviser application or registration are set forth in the Arkansas Administrative Procedure Act, Arkansas Code § 25-15-201 et seq., and 23 CAR § 300-601 et seq.

Codification Notes: The Investment Company Act of 1940 is codified at 15 U.S.C. § 80a-1 et seq. The Investment Advisers Act of 1940 is codified at 15 U.S.C. § 80b-1 et seq.