TITLE 6

Commerce and Trade

SUBTITLE IV

Commercial Development

CHAPTER 73. SECURITIES ACT

Subchapter III. Provisions Relating to Broker-Dealers, Broker-Dealer Agents, Issuer Agents, Investment Advisers, Federal Covered Advisers, and Investment Adviser Representatives


(a) It is unlawful for any person to transact business in this State as a broker-dealer or agent unless the person is registered under this chapter.

(b) It is unlawful for any broker-dealer or issuer to employ an agent unless the agent is registered.

(c) It is unlawful for any person to transact business in this State as an investment adviser or as an investment adviser representative unless:

(1) The person is registered under this chapter; or

(2) The person has no place of business in this State; and

a. The person's only clients in this State are investment companies as defined in the Investment Company Act of 1940 [15 U.S.C. § 80a-1 et seq.], other investment advisers, federal covered advisers, broker-dealers, banks, trust companies, savings and loan associations, insurance companies, employee benefit plans with assets of not less than $1,000,000, and governmental agencies or instrumentalities, whether acting for themselves or as trustees with investment control, or other institutional investors as are designated by rule or order of the Director; or

b. During the preceding 12-month period has had not more than 5 clients, other than those specified in paragraph (c)(2)a. of this section, who are residents of this State.

(d) It is unlawful for any person required to be registered as an investment adviser under this chapter to employ an investment adviser representative unless the investment adviser representative is registered under this chapter.

(e) It is unlawful for any federal covered adviser to employ, supervise or associate with an investment adviser representative having a place of business located in this State unless such investment adviser representative is registered under this chapter or is exempt from registration.

(f) Except with respect to advisers whose only clients are those described in paragraph (c)(2) of this section, it is unlawful for any federal covered adviser to conduct advisory business in this State unless such person complies with the provisions of § 73-302(g) through (k) of this title. Notwithstanding the provisions of this subsection, until October 10, 1999, the Director may require the registration of any federal covered adviser for which fees required by § 73-302 have not been paid promptly following written notification from the Director regarding the nonpayment or underpayment of any such fee. A federal covered adviser shall be considered to have promptly paid such fees if they are remitted to the Director within 15 days following such person's receipt of written notification from the Director.

6 Del. C. 1953, § 7313; 59 Del. Laws, c. 208, § 1; 63 Del. Laws, c. 161, § 1; 68 Del. Laws, c. 181, § 14; 70 Del. Laws, c. 186, § 1; 71 Del. Laws, c. 162, § 15; 78 Del. Laws, c. 175, §§ 41-48, 98, 118; 79 Del. Laws, c. 182, § 3.;

(a) A broker-dealer, agent, investment adviser or investment adviser representative may obtain an initial registration by filing with the Director or the Director's designee an application together with a consent to service of process pursuant to § 73-702 of this title. The application shall contain whatever information the Director by rule requires concerning such matters as:

(1) The applicant's form and place of organization;

(2) The applicant's proposed method of doing business;

(3) The qualifications and business history of the applicant; in the case of the broker-dealer or investment adviser, the qualifications and business history of any partner, officer or director, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer or investment adviser;

(4) Any injunction or administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business and any conviction of a felony;

(5) Subject to the limitations of § 15 of the Securities Exchange Act of 1934 [15 U.S.C. § 78o] and § 222 of the Investment Advisers Act of 1940 [15 U.S.C. § 80b-18a], the applicant's financial condition and history; and

(6) any information to be furnished or disseminated to any client or prospective client, if the applicant is an investment adviser.

The Director may by rule or order require an applicant for initial registration to publish an announcement of the application in 1 or more specified newspapers published in this State. If no denial order is in effect and no proceeding is pending under § 73-304 of this title, registration becomes effective at noon of the thirtieth day after a complete application is filed. The Director may by rule or order specify an earlier effective date, and may by order defer the effective date until noon of the thirtieth day after the filing of any amendment.

(b) When an agent begins or terminates a connection with a broker-dealer or issuer, or begins or terminates those activities which make said person an agent, the agent as well as the broker-dealer or issuer shall promptly notify the Director. Every registration of an agent expires when the agent terminates the agent's connection with a broker-dealer or issuer, though the person may still be subject to disciplinary action by the Director under § 73-304(e) of this title. When such an agent begins a connection with another broker-dealer or another issuer, the agent shall file an application for initial registration as provided in subsection (a) of this section and shall pay a filing fee prescribed by subsection (l) of this section. Unless the Director takes action under § 73-303 or § 73-304 of this title, the agent's registration shall become effective 30 days after receipt of a complete application by the Director (or by the Director's designee) and shall continue in effect until it expires under the provisions of subsection (e) of this section, or under the provisions of this subsection, whichever would earlier occur. The Director shall be empowered to waive the 30-day period at the Director's discretion.

(c) When an investment adviser representative begins or terminates employment with an investment adviser, the investment adviser representative as well as the investment adviser shall promptly notify the Director. Every registration of an investment adviser representative expires when the investment adviser representative terminates the investment adviser's connection with an investment adviser, though the person may still be subject to disciplinary action by the Director under § 73-304(e) of this title. When such an investment adviser representative begins a connection with another investment adviser or federal covered adviser, the representative shall, unless exempt from registration, file an application for initial registration as provided in subsection (a) of this section and shall pay a filing fee prescribed by subsection (l) of this section. Unless the Director takes action under § 73-303 or § 73-304 of this title, the said investment adviser representative registration shall become effective 30 days after receipt of a complete application by the Director (or by the Director's designee) and shall continue in effect until it expires under the provisions of subsection (e) of this section, or under the provisions of this subsection, whichever would earlier occur. The Director shall be empowered to waive the 30-day period at the Director's discretion.

(d) When an investment adviser representative for a federal covered adviser begins or terminates employment with the federal covered adviser, the investment adviser representative shall promptly notify the Director. Every registration of such an investment adviser representative expires when the investment adviser representative terminates his or her connection with the federal covered adviser, though the person may still be subject to disciplinary action by the Director under § 73-304(e) of this title. When such an investment adviser representative begins a connection with another federal covered adviser or investment adviser, the representative shall, unless exempt from registration, file an application for initial registration as provided in subsection (a) of this section and shall pay a filing fee prescribed by subsection (l) of this section. Unless the Director takes action under § 73-303 or § 73-304 of this title, the said investment adviser representative registration shall become effective 30 days after the receipt of a complete application by the Director (or by the Director's designee) and shall continue in effect until it expires under the provisions of subsection (e) of this section, or under the provisions of this subsection, whichever would earlier occur. The Director shall be empowered to waive the 30-day period at the Director's discretion.

(e) Every registration or notice filing under this section expires December 31 unless renewed.

(f) A broker-dealer or investment adviser may obtain a renewal registration by filing with the Director an application containing whatever information the Director by rule requires to keep current the information contained in the application for initial registration. A broker-dealer, investment adviser or issuer may obtain a renewal registration for the agents or investment adviser representatives associated with it by filing with the Director an application containing the names of the agents or investment adviser representatives associated with it and a certification that, to the best knowledge, information and belief of such broker-dealer, investment adviser or issuer, there has been no change in the information contained in such agent's or investment adviser representative's application for registration then currently in effect, or if there has been any change, specifying the same. Every application for renewal registration shall become effective on the date it is received by the Director or upon the expiration of the previous registration, whichever date is later.

(g) Except with respect to federal covered advisers whose only clients are those described in § 73-301(c)(2) of this title, a federal covered adviser shall file with the Director, prior to acting as a federal covered adviser in this State, such documents as have been filed with the Securities and Exchange Commission as the Director, by rule or order, may require.

(h) A notice filing under this section expires on December 31 (unless renewed) and may be renewed by filing prior to its expiration such documents as have been filed with the Securities and Exchange Commission as required by the Director, along with a renewal fee.

(i) A federal covered adviser may terminate a notice filing by providing the Director notice of such termination, which shall be effective upon receipt by the Director.

(j) The Director, by rule or order, may waive any or all of the provisions of this section.

(k) The Director may suspend the investment advisory activities in this State of any federal covered adviser that fails to comply with the requirements of this section.

(l) Fees.

(1) Broker-dealers and agents. — Every applicant for initial or renewal registration as a broker-dealer shall pay a filing fee of $300 and every applicant for initial, transfer or renewal registration as an agent shall pay a registration fee of $65.

(2) Investment advisers and investment adviser representatives. — Every applicant for initial or renewal registration as an investment adviser who is subject to registration under this chapter shall pay a filing fee of $300, and every applicant for initial, transfer or renewal registration as an investment adviser representative who is subject to registration under this chapter shall pay a registration fee of $65.

(3) Federal covered advisers. — Every person acting as a federal covered adviser in this State shall pay an initial and renewal notice filing fee of $300.

(m) A registered broker-dealer or investment adviser may file an application for registration of a successor, whether or not the successor is then in existence, for the unexpired portion of the year. There shall be no filing fee.

(n) The Director may, by rule or order, require a minimum capital for registered broker-dealers, subject to the limitations of § 15 of the Securities Exchange Act of 1934 [15 U.S.C. § 78o], and establish minimum financial requirements for investment advisers, subject to the limitations of § 222 of the Investment Advisers Act of 1940 [15 U.S.C. § 80b-18a], which may include different requirements for those investment advisers who maintain custody of clients' funds or securities or who have discretionary authority over same and those investment advisers who do not.

(o) The Director may, by rule or order, require registered broker-dealers, agents and investment advisers who have custody of or discretionary authority over client funds or securities, to post bonds in amounts as the Director may prescribe, subject to the limitations of § 15 of the Securities Exchange Act of 1934 [15 U.S.C. § 78o] (for broker-dealers) and § 222 of the Investment Advisers Act of 1940 [15 U.S.C. § 80b-18a] (for investment advisers), and may determine their conditions. Any appropriate deposit of cash or securities shall be accepted in lieu of any bond so required. No bond may be required of any registrant whose net capital, or, in the case of an investment adviser, whose minimum financial requirements, which may be defined by rule, exceeds the amounts required by the Director. Every bond shall provide for suit thereon by any person who has a cause of action under § 73-605 of this title and, if the Director by rule or order requires, by any person who has a cause of action not arising under this chapter. Every bond shall provide that no suit may be maintained to enforce any liability on the bond unless brought within the time limitations of § 73-605(e) of this title.

6 Del. C. 1953, § 7314; 59 Del. Laws, c. 208, § 1; 65 Del. Laws, c. 220, §§ 1-3; 67 Del. Laws, c. 274, §§ 3-5; 68 Del. Laws, c. 181, §§ 4, 15, 28; 70 Del. Laws, c. 186, § 1; 71 Del. Laws, c. 162, § 16; 78 Del. Laws, c. 175, §§ 49-68, 99, 118; 79 Del. Laws, c. 182, § 3.;

(a) Every registered broker-dealer and investment adviser shall make and keep such accounts, correspondence, memoranda, papers, books and other records as the Director prescribes by rule or order, except as provided by § 15 of the Securities Exchange Act 1934 [15 U.S.C. § 78o] (in the case of a broker-dealer) and § 222 of the Investment Advisers Act of 1940 [15 U.S.C. § 80b-18a] (in the case of an investment adviser). All records so required, with respect to an investment adviser, shall be preserved for such period as the Director prescribes by rule or order.

(b) With respect to investment advisers, the Director may require that certain information be furnished or disseminated as necessary or appropriate in the public interest or for the protection of investors and advisory clients. To the extent determined by the Director in the Director's discretion, information furnished to clients or prospective clients of an investment adviser that would be in compliance with the Investment Advisers Act of 1940 [15 U.S.C. § 80b-1 et seq.] and the rules thereunder may be used in whole or partial satisfaction of this requirement.

(c) Every registered broker-dealer and every registered investment adviser shall file such financial reports as the Director may prescribe by rule or order, except as provided by § 15 of the Securities Exchange Act of 1934 [15 U.S.C. § 78o] (in the case of a broker-dealer) and § 222 of the Investment Advisers Act of 1940 [15 U.S.C. § 80b-18a] (in the case of an investment adviser).

(d) If the information contained in any document filed with the Director is or becomes inaccurate or incomplete in any material respect, the registrant or federal covered adviser shall file a correcting amendment promptly if the document is filed with respect to a registrant, or when such amendment is required to be filed with the Securities and Exchange Commission if the document is filed with respect to a federal covered adviser, unless notification of the correction has been given under § 73-302(b), (c) or (d) of this title.

(e) All the records referred to in subsection (a) of this section are subject at any time or from time to time to such reasonable periodic, special or other examinations by representatives of the Director, within or without this State, as the Director deems necessary or appropriate in the public interest or for the protection of investors. For the purpose of avoiding unnecessary duplication of examinations, the Director, insofar as the Director deems it practicable in administering this subsection, may cooperate with the securities administrators of other states, the Securities and Exchange Commission, and any national securities exchange or national securities association registered under the Securities Exchange Act of 1934 [15 U.S.C. § 78a et seq.].

6 Del. C. 1953, § 7315; 59 Del. Laws, c. 208, § 1; 67 Del. Laws, c. 274, § 6; 70 Del. Laws, c. 186, § 1; 71 Del. Laws, c. 162, § 17; 78 Del. Laws, c. 175, §§ 69, 100, 118; 79 Del. Laws, c. 182, § 3.;

(a) The Director may by order deny, suspend or revoke any registration if the Director finds that the order is in the public interest and that the applicant or registrant or, in the case of a broker-dealer or investment adviser, any partner, officer, director or any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer or investment adviser:

(1) Has filed an application for registration which as of its effective date, or as of any date after filing in the case of an order denying effectiveness, was incomplete in any material respect or contained any statement which was, in light of the circumstances under which it was made, false or misleading with respect to any material fact; or

(2) Has wilfully violated or wilfully failed to comply with any provision of this chapter; or

(3) Has been convicted of a felony, infamous crime, or other crime involving moral turpitude; or

(4) Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities business; or

(5) Is the subject of a cease and desist order of the Director or of an order of the Director denying, suspending or revoking registration as a broker-dealer, agent, investment adviser or investment adviser representative; or

(6) Is the subject of an order entered within the past 10 years by the securities administrator of any other state or by the Securities and Exchange Commission either ordering the person to cease and desist from engaging in or continuing any conduct or practice involving any aspect of the securities business, or suspending, denying or revoking registration as a broker-dealer, agent, investment adviser, or investment adviser representative, or the substantial equivalent of those terms as defined in this chapter; or is suspended or expelled from a national securities exchange or national securities association registered under the Securities Exchange Act of 1934 [15 U.S.C. § 78a et seq.] either by action of a national securities exchange or national securities association, the effect of which action has not been stayed by administrative or judicial order; or is the subject of a United States post office fraud order; or

(7) Has engaged in dishonest or unethical practices within or outside this State; or

(8) Is insolvent, either in the sense that the person's liabilities exceed the person's assets or in the sense that the person cannot meet the person's obligations as they mature; or

(9) Is not qualified on the basis of such factors as training, experience, and knowledge of the securities business, except as otherwise provided in subsection (b) of this section; or

(10) Has failed reasonably to supervise (A) the person's agents or employees if the person is a broker-dealer or broker-dealer agent with supervisory responsibilities, or (B) the person's adviser representatives or employees if the person is an investment adviser or investment adviser representative with supervisory responsibilities, and the Director may infer such failure from an agent's, investment adviser representative's or employee's violations; or

(11) Has failed to pay the proper filing fee, but the Director shall vacate any denial or suspension order when the deficiency has been corrected; or

(12) Has violated or failed to comply with any lawful order issued by the Director; or

(13) Has within the past 10 years been a partner, officer, director, controlling person or any person occupying a similar status or performing similar functions in a broker-dealer or investment adviser whose registration in this State or any state, or with the Securities and Exchange Commission, has been revoked for disciplinary reasons, or whose membership in a national securities exchange or national securities association has been terminated for disciplinary reasons.

(b) The following provisions govern the application of paragraph (a)(9) of this section:

(1) The Director may not enter an order against a broker-dealer or investment adviser on the basis of the lack of qualification of any person other than:

a. The broker-dealer or investment adviser himself or herself (if the person is an individual);

b. An agent of the broker-dealer; or

c. An investment adviser representative.

(2) The Director may not enter an order solely on the basis of lack of experience if the applicant or registrant is qualified by training in or knowledge of securities, or both.

(3) The Director shall consider that an agent who will work under the supervision of a registered broker-dealer need not have the same qualifications as a broker-dealer and that an investment adviser representative who will work under the supervision of a registered investment adviser or federal covered adviser need not have the same qualifications as an investment adviser or federal covered adviser.

(4) The Director may by rule provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants.

(c) The Director may by order summarily postpone or suspend registration pending final determination of any proceeding under this section. Upon the entry of an order, the Director shall promptly notify the applicant or registrant, as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser representative, that it has been entered and of the reasons therefore and that within 15 days after the receipt of a written request the matter will be set down for a hearing. If no hearing is requested and none is ordered by the Director, the order will remain in effect until it is modified or vacated by the Director. If a hearing is requested or ordered, the Director, after notice of and opportunity for hearing, may modify or vacate the order or extend it until final determination.

(d) If the Director finds that any registrant or applicant for registration is no longer in existence or has ceased to do business as a broker-dealer, agent, investment adviser or investment adviser representative, or is subject to an adjudication of mental incompetence or to the control of a committee, conservator or guardian, or cannot be located after reasonable search, the Director may by order cancel the registration or application.

(e) Withdrawal from registration as a broker-dealer, agent, investment adviser or investment adviser representative becomes effective 90 days after receipt of an application to withdraw or within such shorter period of time as the Director may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or impose conditions upon the withdrawal is instituted within 90 days after the application is filed. If a proceeding is pending or instituted, withdrawal becomes effective at such time and upon such conditions as the Director by order determines. If no proceeding is pending or instituted, a withdrawal automatically becomes effective, but the Director may nevertheless institute a revocation or suspension proceeding, and impose fines, costs and restitution, within 2 years after withdrawal becomes effective and enter a revocation or suspension as of the last date on which registration was effective.

(f) No order may be entered under any part of this section except the first sentence of subsection (c) of this section without:

(1) Appropriate prior notice to the applicant or registrant (as well as the employer or prospective employer if the applicant or registrant is an agent or investment adviser representative);

(2) Opportunity for a hearing; and

(3) Written findings of fact and conclusions of law.

The Director or the Director's designee shall control the procedures and the conduct of the parties at the hearing.

(g) [Repealed.]

6 Del. C. 1953, § 7316; 59 Del. Laws, c. 208, § 1; 67 Del. Laws, c. 274, §§ 7-9; 68 Del. Laws, c. 181, §§ 5-11, 13, 25; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 560, § 4; 71 Del. Laws, c. 162, §§ 18-22; 78 Del. Laws, c. 175, §§ 70, 101, 118; 79 Del. Laws, c. 182, § 3.;

(a) It is unlawful for an investment adviser, federal covered adviser or investment adviser representative, all as defined in this chapter, to employ any device, scheme or artifice to defraud another person, or to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon another person.

(b) It is unlawful for an investment adviser, federal covered adviser or investment adviser representative, all as defined in this chapter, in connection with giving investment advice or otherwise acting as an investment adviser, federal covered adviser or investment adviser representative to make any untrue statement of fact that a reasonable client or prospective client would deem material or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.

(c) It is unlawful for any investment adviser or investment adviser representative to enter into, extend or renew any investment advisory contract unless it provides in writing:

(1) That the investment adviser or investment adviser representative shall not be compensated 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;

(2) That no assignment of a contract may be made by the investment adviser or investment adviser representative without the consent of the other party to the contract; and

(3) That the investment adviser or investment adviser representative, if a partnership, shall notify the other party to the contract of any change in the membership or the partnership within a reasonable time after the change.

(d) Subsection (c) of this section does not prohibit an investment advisory contract which 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. "Assignment,'' as used in subsection (c) of this section, includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor; but if the investment adviser is a partnership, no assignment of an investment contract is considered to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of 1 or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.

(e) It is unlawful for any investment adviser or investment adviser representative to take or have custody of any securities or funds of a client if:

(1) The Director by rule prohibits custody; or

(2) In the absence of rule, the investment adviser or investment adviser representative fails to notify the Director that such adviser or representative has or may have custody.

6 Del. C. 1953, § 7317; 59 Del. Laws, c. 208, § 1; 68 Del. Laws, c. 181, § 26; 70 Del. Laws, c. 186, § 1; 71 Del. Laws, c. 162, § 23; 78 Del. Laws, c. 175, §§ 71-73, 102, 118; 79 Del. Laws, c. 182, § 3.;

(a) It is unlawful for any broker-dealer, agent, investment adviser or investment adviser representative to effect transactions in, trade or quote any security unless such security is covered by regulations under the Securities Exchange Act of 1934 [15 U.S.C. § 78a et seq.] or unless the filing provisions of this chapter have been complied with in regard to such security.

(b) Except as provided otherwise by § 18 of the Securities Act of 1933 [15 U.S.C. § 77r], the Director is empowered to suspend trading in any security for a period of 10 days in the public interest.

6 Del. C. 1953, § 7318; 59 Del. Laws, c. 208, § 1; 71 Del. Laws, c. 162, § 24; 78 Del. Laws, c. 175, §§ 103, 118; 79 Del. Laws, c. 182, § 3.;