6.10.401    FRAUDULENT AND UNETHICAL PRACTICES PROHIBITED BY BROKER-DEALERS AND SALESMEN

(1) For purposes of 30-10-201 and 30-10-301, MCA, fraudulent and unethical practices means, but is not limited to:

(a) engaging in a pattern of unreasonable and unjustifiable delays in either or both the:

(i) delivery of securities purchased by a customer;

(ii) payment upon request of free credit balances reflecting completed transactions of a customer;

(b) inducing trading in a customer's account which is excessive in size or frequency in view of the financial resources and character of the account;

(c) recommending to a customer the purchase, sale, or exchange of a security without grounds to believe that the transaction or recommendation is suitable for the customer based upon reasonable inquiry concerning the customer's investment objectives, financial situation and needs, and any other relevant information known by the broker-dealer;

(d) executing a transaction on behalf of a customer without authorization to do so;

(e) 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 or price for the execution of orders or to both time and price for the execution of orders;

(f) executing a transaction in a margin account without securing from the customer a properly executed written margin agreement promptly after the initial transaction in the account;

(g) failing to segregate a customer's fully paid securities or securities held in safekeeping; 

(h) hypothecating a customer's securities without having a lien thereon unless the broker-dealer secures from the customer a properly executed written consent promptly after the initial transaction, except as permitted by rules of the Securities and Exchange Commission;

(i) entering into a transaction with or for a customer at a price not reasonably related to the current market price of the security or receiving an unreasonable commission or profit;

(j) failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and any additional documents, which together include all information set forth in the final prospectus;

(k) charging unreasonable and inequitable fees for services performed, including miscellaneous services such as collection of monies 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;

(l) offering to buy from or sell to a person a security at a stated price unless the broker-dealer is prepared to purchase or sell, as the case may be, at the price and under the conditions stated at the time of the offer to buy or sell;

(m) 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 a person for whom he is acting or with whom he is associated in the distribution, or by a person controlled by, controlling, or under common control with the broker-dealer;

(n) effecting a transaction in, or inducing the purchase or sale of, a security by means of a manipulative, deceptive, or fraudulent device, practice, plan, program, design, or contrivance which may include but is not limited to:

(i) effecting a transaction in a security which involves no change in the beneficial ownership thereof;

(ii) entering an order for the purchase or sale of a security with the knowledge that an order of substantially the same size, at substantially the same time and substantially the same price, for the sale of the security, has been or will be entered by or for the same or different parties for the purpose of creating a false or misleading appearance of active trading in the security or a false or misleading appearance with respect to the market for the security. A broker-dealer may, however, enter a bono fide agency cross transaction for its customers.

(iii) effecting, alone or with one or more other person, a series of transactions in a security creating actual or apparent active trading in the security or raising or depressing the price of the security by others.

(o) guaranteeing a customer against loss in a securities account of the customer carried by the broker-dealer, or in a securities transaction effected by the broker-dealer with or for the customer;

(p) publishing or circulating, or causing to be published or circulated, a notice, circular, sales material, newspaper article, investment service, or communication of any kind which purports to:

(i) report a transaction as a purchase or sale of a security unless the broker-dealer believes that the transaction was a bona fide purchase or sale of the security; or

(ii) quote the bid price or asked price for a security, unless the broker-dealer believes that the quotation represents a bona fide bid for, or offer of, the security; (q) using sales material or sales presentations in a deceptive or misleading fashion;

(r) failing to disclose that the broker-dealer is controlled by, controlling, affiliated with, or under common control with, the issuer of a security before entering into a contract with, or for, a customer. If the disclosure is not made in writing, it must be supplemented by giving, or sending a written disclosure at, or before, the completion of the transaction;

(s) failing to make a bona fide public offering of each security allotted to a broker-dealer for distribution, whether acquired as an underwriter, as a selling group member, or from a member participating in the distribution as an underwriter or selling group member;

(t) failing or refusing to furnish a customer, upon reasonable request, information to which he is entitled, or to respond to a formal written request or complaint; or

(u) engaging in other conduct such as forgery, embezzlement, nondisclosure, incomplete disclosure or misstatement of material facts, or manipulative or deceptive practices.

(2) For purposes of 30-10-201(13)(g), MCA, "unethical practices" by a salesman means, but is not limited to:

(a) engaging in the practice of lending or borrowing money or securities from a customer; or acting as a custodian for money, securities, or an executed stock power of a customer;

(b) effecting securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer prior to execution of the transaction;

(c) establishing or maintaining an account containing fictitious information in order to execute transactions which would otherwise be prohibited;

(d) sharing directly or indirectly in profits or losses in the account of a customer without the written authorization of the customer and the broker-dealer which the agent represents;

(e) dividing or otherwise splitting the agent's commissions, profits, or other compensation from the purchase or sale of a security with a person not also registered as an agent for the same broker-dealer, or for a broker-dealer under direct or indirect common control;

(f) engaging in conduct specified in (1)(b), (1)(c), (1)(d), (1)(e), (1)(f), (1)(i), (1)(j), (1)(n), (1)(o), (1)(p), or (1)(q); or

(g) engaging in other conduct such as forgery, embezzlement, nondisclosure, incomplete disclosure or misstatement of material facts, or manipulative or deceptive practices.

 

History: 30-10-107, MCA; IMP, 30-10-201, 30-10-301, MCA; NEW, 1989 MAR p. 221, Eff. 1/27/89; AMD, 1999 MAR p. 2245, Eff. 10/8/99; AMD, 2003 MAR p. 1078, Eff. 5/23/03; TRANS and AMD, from ARM 6.10.126, 2008 MAR p. 2046, Eff. 9/26/08; AMD, 2020 MAR p. 1874, Eff. 10/24/20.