1. (a) The procedures set forth in this subsection are applicable to investment advisers licensed pursuant to Section 25230 of the Code. References to an investment adviser representative shall mean both an investment adviser representative and an associated person of an investment adviser, as those terms are defined in Section 25009.5(a) of the Code.

   1. (1) Upon employment of an individual as an investment adviser representative, the investment adviser shall:

      1. (A) Obtain a properly executed application for registration, Form U4,
      2. (B) Obtain for its records evidence that such investment adviser representative meets the qualification requirements of Section 260.236 of these rules, and

      3. (C) Have the responsibility and duty to ascertain by reasonable investigation the good character, business reputation, qualifications, and experience of an individual upon employment or engagement as an investment adviser representative. Where an individual has previously been reported to the Central Registration Depository (“CRD”), the investment adviser shall obtain and review a copy of Form U5 filed with CRD by such individual's most recent previous employer, together with any amendments thereto.

         The investment adviser shall conduct the investigation required by this section no later than thirty (30) days following the filing of Form U4 with CRD, or demonstrate that it has made a reasonable effort to comply with this section. Upon completion of the investigation, the investment adviser shall take whatever action is deemed appropriate in accordance with sound business practice and the protection of investors.

         Evidence of compliance with Section 260.236 and investigation of the investment adviser representative shall be maintained as a part of the records of the investment adviser as required by Section 260.241.3 of these rules.

   2. (2) Upon employment or engagement of an individual as an investment adviser representative, the investment adviser shall file Form U4 with CRD in accordance with its procedures, and pay the fee prescribed by Section 25608(p) for transmission to the Commissioner. Form U4, including any Disclosure Reporting Page(s), shall be completed in accordance with the form instructions. The filing of Form U4 with CRD does not constitute an automatic “approval” of the filing by the Commissioner. Investment advisers shall not consider an investment adviser representative “registration” with CRD approved until approved by the Commissioner and the approval has been received by CRD. If requested by the Commissioner, additional information, documentation or detail pertaining to Form U4 or the investment adviser representative's compliance with the qualification requirements shall be filed directly with the Commissioner within 15 days from the date of the request. In accordance with Section 250.16, Form U4 may be abandoned if the Commissioner does not receive the requested information within the time prescribed. The Commissioner shall “reject” with CRD an abandoned Form U4.
   3. (3) Within thirty (30) days of any changes to the information contained in Form U4, an amendment to Form U4 shall be filed with CRD. If Form U4 is being amended due to a disciplinary occurrence, a copy of the amendment shall be filed with the Commissioner upon request.

   4. (4) Within thirty (30) days after the termination of an individual as an investment adviser representative, Form U5 shall be filed with CRD in accordance with the form instructions. Form U5 shall clearly state the reason(s) for termination. If an investment adviser representative has been terminated for cause, Form U5 shall, upon request, be filed directly with the Commissioner.

      An investment adviser shall be responsible for the acts, practices, and conduct of an investment adviser representative in connection with acting as an investment adviser representative on its behalf until such time as the investment adviser representative has been terminated and Form U5 has been filed with CRD. No civil liability in favor of any private party shall arise against any person as a result of this provision, except as expressly provided in the Code.

2. (b) The procedures set forth in this subsection are applicable to investment adviser representatives subject to the provisions of Section 25230.1(c) of the Code.

   1. (1) The reporting of an investment adviser representative shall be made by completing Form U4 in accordance with the form instructions and by filing Form U4 with CRD in accordance with its procedures, and by paying the fee prescribed by Section 25608.1(d) for transmission to the Commissioner.

      The filing of Form U4 with CRD does not constitute an automatic “approval” of the filing by the Commissioner. An investment adviser representative “registration” with CRD shall not be considered approved until approved by the Commissioner and the approval has been received by CRD. If requested by the Commissioner, additional information, documentation or detail pertaining to Form U4 or the investment adviser representative's compliance with the qualification requirements shall be filed directly with the Commissioner within 15 days from the date of the request. In accordance with Section 250.16, Form U4 may be abandoned if the Commissioner does not receive the requested information within the time prescribed. The Commissioner shall “reject” with CRD an abandoned Form U4.

   2. (2) Within thirty (30) days of any changes to the information contained in Form U4, an amendment to Form U4 shall be filed with CRD. If Form U4 is amended due to a disciplinary occurrence, a copy of the amendment shall be filed directly with the Commissioner upon request.
   3. (3) Within thirty (30) days after the termination of an individual as an investment adviser representative, Form U5 shall be filed with IARD in accordance with the form instructions. Form U5 shall clearly state the reason(s) for termination. If an investment adviser representative is terminated for cause, Form U5 shall, upon request, be filed directly with the Commissioner.
3. (c) The notices in subsection (j) of Section 260.231 are hereby made part of Form U4 and Form U5.

Note: Authority cited: Sections 25230, 25230.1, 25231 and 25610, Corporations Code. Reference: Sections 25230, 25230.1, 25231, 25236, 25241, 25510, 25608(p), 25612.3 and 25612.5, Corporations Code.

History

1. New section filed 3-4-2003; operative 4-3-2003 (Register 2003, No. 10).

2. Amendment of section heading, subsections (a), (a)(1)(A) and (C) and Note filed 3-6-2007; operative 4-5-2007 (Register 2007, No. 10).

3. Amendment of subsections (a)(1)(A), (a)(1)(C), (a)(2)-(4) and (b)(1)-(c) and amendment of Note filed 9-24-2009; operative 10-24-2009 (Register 2009, No. 39).