2006 Code of Virginia § 13.1-503 - Unlawful advice

13.1-503. Unlawful advice.

A. It shall be unlawful for any person who receives directly or indirectlyany consideration from another person primarily for advising such otherperson as to the value of securities or their purchase or sale, whetherthrough the issuance of analyses or reports or otherwise,

1. To employ any device, scheme, or artifice to defraud such other person,

2. To engage in any transaction, practice, or course of business whichoperates or would operate as a fraud or deceit upon such other person,

3. Acting as principal for his own account, knowingly to sell any security toor purchase any security from a client, or acting as broker for a personother than such client, knowingly to effect any sale or purchase of anysecurity for the account of such client, without disclosing to such client inwriting before the completion of such transaction the capacity in which he isacting and obtaining the consent of the client to such transaction. Theprohibitions of this subdivision shall not apply to any transaction with acustomer of a broker-dealer if such broker-dealer is not acting as aninvestment advisor in relation to such transaction, or

4. To engage in dishonest or unethical practices as the Commission may defineby rule.

B. In the solicitation of advisory clients, it shall be unlawful for anyperson to make any untrue statement of a material fact, or omit to state amaterial fact necessary in order to make the statements made, in light of thecircumstances under which they were made, not misleading.

C. Except as may be permitted by rule or order of the Commission, it shall beunlawful for any investment advisor to enter into, extend, or renew anyinvestment advisory contract unless it provides in writing:

1. That the investment advisor shall not be compensated on the basis of ashare of capital gains upon or capital appreciation of the funds or anyportion of the funds of the client;

2. That no assignment of the contract may be made by the investment advisorwithout the consent of the other party to the contract; and

3. That the investment advisor, if a partnership, shall notify the otherparty to the contract of any change in the membership of the partnershipwithin a reasonable time after the change.

D. Subdivision 1 of subsection C of this section shall not prohibit aninvestment advisory contract which provides for compensation based upon thetotal value of a fund averaged over a definite period, or as of definitedates or taken as of a definite date.

E. "Assignment" as used in subdivision 2 of subsection C of this sectionincludes any direct or indirect transfer or hypothecation of an investmentadvisory contract by the assignor or of a controlling block of the assignor'soutstanding voting securities by a security holder of the assignor. If theinvestment advisory is a partnership, no assignment of an investment advisorycontract is considered to result from the death of withdrawal of a minorityof the members of the investment advisor having only a minority interest inthe business of the investment advisor, or from the admission to theinvestment advisor of one or more members who, after admission, will be onlya minority of the members and will have only a minority interest in thebusiness.

F. The Commission may by rule or order adopt exemptions from subdivision 3 ofsubsection A and subdivisions 1, 2 and 3 of subsection C of this sectionwhere such exemptions are consistent with the public interest and within thepurposes fairly intended by the policy and provisions of this chapter.

(1956, c. 428; 1987, c. 678.)

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