Current Status Introducing Body:Senate Bill Number:246 Ratification Number:548 Act Number:455 Primary Sponsor:Lourie Type of Legislation:GB Subject:Bond, persons not required to post Date Bill Passed both Bodies:May 28, 1992 Computer Document Number:246 Governor's Action:S Date of Governor's Action:Jun 15, 1992 Introduced Date:Jan 08, 1991 Date of Last Amendment:Mar 31, 1992 Last History Body:------ Last History Date:Jun 15, 1992 Last History Type:Act No. 455 Scope of Legislation:Statewide All Sponsors:Lourie Type of Legislation:General Bill
Bill Body Date Action Description CMN
---- ------ ------------ ------------------------------ ---
246 ------ Jun 15, 1992 Act No. 455
246 ------ Jun 15, 1992 Signed by Governor
246 ------ Jun 04, 1992 Ratified R 548
246 House May 28, 1992 Read third time, enrolled for
ratification
246 House May 27, 1992 Read second time
246 House May 14, 1992 Committee Report: Favorable 26
246 House Apr 02, 1992 Introduced, read first time, 26
referred to Committee
246 Senate Apr 01, 1992 Read third time, sent to House
246 Senate Mar 31, 1992 Amended, read second time
246 Senate Mar 26, 1992 Committee Report: Favorable 02
with amendment
246 Senate Jan 08, 1991 Introduced and read first 02
time, referred to Committee
246 Senate Oct 15, 1990 Prefiled, referred to 02
Committee
View additional legislative information at the LPITS web site.
(A455, R548, S246)
AN ACT TO AMEND SECTION 35-1-510, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE UNIFORM SECURITIES ACT AND BONDS OR DEPOSITS OF BROKER-DEALERS, AGENTS, AND INVESTMENT ADVISERS, SO AS TO REQUIRE INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES TO POST SURETY BONDS IN THE AMOUNT OF TEN THOUSAND DOLLARS FOR INVESTMENT ADVISERS AND FIVE THOUSAND DOLLARS FOR INVESTMENT ADVISER REPRESENTATIVES UNDER CERTAIN CIRCUMSTANCES, AND PROVIDE THAT NO BOND IS REQUIRED FOR CERTAIN BROKER-DEALERS OR AGENTS OR FOR CERTAIN INVESTMENT ADVISERS OR INVESTMENT ADVISER REPRESENTATIVES; TO AMEND SECTION 35-1-1220, RELATING TO FRAUD OR DECEIT IN ADVISING AS TO SECURITIES, SO AS TO SPECIFY AND INCLUDE ADDITIONAL ACTS OF ILLEGALITY UNDER THE COVERAGE OF THIS SECTION, AND ALLOW THE SECURITIES COMMISSIONER BY RULE OR ORDER TO ADOPT CERTAIN EXEMPTIONS; TO AMEND SECTION 35-1-1230, RELATING TO THE UNIFORM SECURITIES ACT AND INVESTMENT ADVISORY CONTRACTS, SO AS TO PROVIDE THAT THE COMMISSIONER MAY BY RULE OR ORDER ADOPT EXEMPTIONS FROM THE PROVISIONS OF THIS SECTION WHERE SUCH EXEMPTIONS ARE CONSISTENT WITH THE PUBLIC INTEREST AND WITHIN THE PURPOSES FAIRLY INTENDED BY THE POLICY AND PROVISIONS OF CHAPTER 1, TITLE 35; AND TO AMEND SECTION 35-1-20, AS AMENDED, RELATING TO DEFINITIONS UNDER THE UNIFORM SECURITIES ACT, SO AS TO PROVIDE THAT THE TERM "INVESTMENT ADVISER" ALSO INCLUDES FINANCIAL PLANNERS AND OTHER PERSONS WHO, AS AN INTEGRAL COMPONENT OF OTHER FINANCIALLY RELATED SERVICES, PROVIDE INVESTMENT ADVISORY SERVICES TO OTHERS FOR COMPENSATION AND AS A PART OF A BUSINESS OR WHO HOLD THEMSELVES OUT AS PROVIDING THE INVESTMENT ADVISORY SERVICES TO OTHERS FOR COMPENSATION.
Be it enacted by the General Assembly of the State of South Carolina:
Surety bonds
SECTION 1. Section 35-1-510 of the 1976 Code, as last amended by Act 612 of 1990, is further amended to read:
"Section 35-1-510. (A) Registered broker-dealers, agents, investment advisers, and investment adviser representatives shall post surety bonds in amounts of fifty thousand dollars for broker-dealers and investment advisers and ten thousand dollars for agents and investment adviser representatives, conditioned that the registrant will comply with the provisions of this chapter and those orders and regulations as the commissioner may from time to time prescribe. The bond may be so drawn as to cover the original registration and any renewal of the registration. Any appropriate deposit of cash or securities must be accepted in lieu of the bond. Every bond must provide that no suit may be maintained to enforce any liability on the bond unless brought within three years after the sale or other act upon which the suit is based and must also provide that the liability of the surety on each bond to all persons aggrieved may in no event exceed in the aggregate the penal sum of the bond.
(B) Notwithstanding the provisions of subsection (A), investment advisers and investment adviser representatives shall post surety bonds in the amount of ten thousand dollars for investment advisers and five thousand dollars for investment adviser representatives where such persons:
(1) are registered with the Securities and Exchange Commission;
(2) do not have custody of or general power of attorney over their clients' funds and such lack of custody or power of attorney is specified by the client's agreement with the investment adviser or investment adviser representative. A limited power of attorney which does not allow custody over their client's funds does not require higher bonding requirements as provided in subsection (A); and
(3) file annually with the Securities Commissioner a current statement of financial condition.
No bond is required for broker-dealers or agents who are members of the National Association of Security Dealers, Inc., or the Securities Investor Corporation or for investment advisers or investment adviser representatives who, in addition to the requirements of this subsection, maintain professional liability insurance providing coverage for errors and omissions in the minimum amount of one hundred thousand dollars where such policy of insurance is approved by the commissioner."
Further unlawful activity; exemptions
SECTION 2. Section 35-1-1220 of the 1976 Code is amended to read:
"Section 35-1-1220. It is unlawful for any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise;
(1) to employ any device, scheme, or artifice to defraud the other person;
(2) to engage in any act, practice, or course of business which would operate as a fraud or deceit upon the other person;
(3) acting as principal for his own account, knowingly to sell any security to or purchase any security from a client, or acting as broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the client to such transaction. The prohibitions of this subparagraph shall not apply to any transaction with a customer of a broker-dealer if such broker-dealer is not acting as an investment adviser in relation to such transaction; or
(4) to engage in dishonest or unethical practices as the commissioner may define by rule.
The commissioner may by rule or order adopt exemptions from item (3) of this section where such exemptions are consistent with the public interest and within the purposes fairly intended by the policy and provisions of this chapter."
Provision for exemptions
SECTION 3. Section 35-1-1230 of the 1976 Code is amended to read:
"Section 35-1-1230. Except as may be permitted by rule or order of the commissioner, it is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract unless it provides in writing that:
(1) the investment adviser 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) no assignment of the contract may be made by the investment adviser without the consent of the other party to the contract; and
(3) the investment adviser, if a partnership, shall notify the other party to the contract of any change in the membership of the partnership within a reasonable time after the change.
Item (1) 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 time. `Assignment', as used in item (2), 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 advisory 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 one or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business.
The commissioner may by rule or order adopt exemptions from the provisions of this section where such exemptions are consistent with the public interest and within the purposes fairly intended by the policy and provisions of this chapter."
"Investment adviser" further defined
SECTION 4. Section 35-1-20(6) of the 1976 Code is amended to read:
"(6) `Investment adviser' means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. `Investment adviser' also includes financial planners and other persons who, as an integral component of other financially related services, provide the foregoing investment advisory services to others for compensation and as part of a business or who hold themselves out as providing the foregoing investment advisory services to others for compensation. `Investment adviser' does not include (a) a bank, savings institution, or trust company; (b) a lawyer, accountant, engineer, or teacher whose performance of these services is solely incidental to the practice of his profession; (c) a broker-dealer whose performance of these services is solely incidental to the conduct of his business as a broker-dealer and who receives no special compensation for them; (d) a publisher of any bona fide newspaper, news magazine, or business or financial publication of general, regular, and paid circulation; (e) a person whose advice, analyses, or reports relate only to securities exempted by item (1) of Section 35-1-310; (f) a person who has no place of business in this State if (i) his only clients in this State are other investment advisers, broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit-sharing trusts, or other financial institutions or institutional buyers, whether acting for themselves or as trustees or (ii) during any period of twelve consecutive months he does not direct business communications into this State in any manner to more than five clients other than those specified in clause (i), whether or not he or any of the persons to whom the communications are directed is then present in this State; or (g) such other persons not within the intent of this item as the Securities Commissioner may by rule or order designate."
Time effective
SECTION 5. This act takes effect upon approval by the Governor.
Approved the 15th day of June, 1992.