Title 11. Maryland Securities Act — Subtitle 4. Requirements of Broker-Dealers, Agents, Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers

The person is registered as an investment adviser or an investment adviser representative under this subtitle;

The person’s only clients in this State are investment companies as defined in the Investment Company Act of 1940, or insurance companies; or

The person has no place of business in this State, and:

Compliance with this section is not necessary or appropriate for the protection of investors; and

The exemption is consistent with the public interest and within the purposes fairly intended by the policy and provisions of this title.

Except as provided in paragraph (3) of this subsection, a broker–dealer or issuer may not employ or associate with an agent unless the agent is registered.

Except as provided in paragraph (3) of this subsection, when an agent terminates a connection with a broker–dealer or issuer or terminates those activities which make the individual an agent, the agent and the broker–dealer or issuer shall promptly notify the Commissioner.

This subsection does not apply to a federal exempt broker–dealer.

An investment adviser required to be registered may not employ or associate with an investment adviser representative unless the representative is registered under this subtitle.

An investment adviser representative who has a place of business located in this State may not transact business on behalf of a federal covered adviser, unless the investment adviser representative is registered or exempt from registration under this subtitle.

The registration of a representative is not effective during any period when the representative is not employed by or associated with:

When an investment adviser representative begins or terminates a connection with a registered investment adviser or terminates those activities that make the representative an investment adviser representative, the investment adviser shall promptly notify the Commissioner.

When an investment adviser representative begins or terminates a connection with a federal covered adviser or terminates those activities that make the representative an investment adviser representative, the investment adviser representative shall promptly notify the Commissioner.

It is unlawful for a broker–dealer or issuer engaged in offering, offering to purchase, purchasing, or selling securities in this State or an investment adviser offering or providing investment advice in this State, directly or indirectly, to employ or associate with an individual who is participating in the securities transaction or investment advice in this State if:

A broker–dealer, an investment adviser, or an issuer may not be considered to have violated this subsection if the broker–dealer, investment adviser, or issuer did not know, and in the exercise of reasonable care could not have known, of the suspension, revocation, or bar.

On request from a broker–dealer, an investment adviser, or an issuer and for good cause, the Commissioner, by order under subsection (d) of this section, may modify or waive, in whole or in part, the prohibitions of this subsection.

Compliance with this section is not necessary or appropriate for the protection of investors; and

The exemption is consistent with the public interest and within the purposes fairly intended by the policy and provisions of this title.

The registration of an agent expires when the agent terminates a connection with a registered broker-dealer or with an issuer.

The registration of an investment adviser representative expires when the representative terminates a connection with:

When a person who is currently registered as an agent under this subtitle begins a connection with another broker-dealer or issuer, the person shall file an application for initial registration as provided in § 11-405 of this subtitle and shall pay the fee required by § 11-407 of this subtitle.

When a person who is currently registered as an investment adviser representative under this subtitle begins a connection with another investment adviser or federal covered adviser, the person shall file an application for initial registration as provided in § 11-405 of this subtitle and pay the fee required by § 11-407 of this subtitle.

This subsection does not apply to a federal covered adviser who conducts advisory business in accordance with § 11-401(b)(2) or (3) of this subtitle.

Before acting as a federal covered adviser in this State, a person shall pay the fee required by § 11-407 of this subtitle and shall file the following documents as the Commissioner may require by rule or order:

For purposes of this subsection, “private fund adviser” means an investment adviser that provides advice solely to one or more qualifying private funds, as defined in Securities and Exchange Commission Rule 203(m)–1 (17 C.F.R. 275.203(m)–1).

Before acting as a private fund adviser, a person who is not a federal covered adviser shall pay the fee required under § 11–407 of this subtitle and shall file the following documents as the Commissioner may require by rule or order:

A notice with the Commissioner designating the registered agents as representatives of the investment adviser;

A consent to service of process under § 11–802(a) of this title; and

Such other information as the Commissioner by rule or order may require.

A notice with the Commissioner designating the registered agents as representatives of the federal covered adviser;

A consent to service of process under § 11–802(a) of this title; and

Such other information as the Commissioner by rule or order may require.

There has been no change in the information contained in the agents’ applications for the registration then currently in effect; or

If there has been any such change, specifying the change.

There has been no change in the information contained in the investment adviser representatives’ applications for the registration currently in effect; or

If there has been any such change, specifying the change.

An applicant for initial or renewal registration as a broker–dealer shall pay a fee of $250.

An applicant for initial or renewal registration as an investment adviser shall pay a fee of $300.

A federal covered adviser filing notice under § 11–405(b) of this subtitle shall pay an initial fee of $300 and a renewal fee of $300.

A private fund adviser filing notice under § 11–405(c) of this subtitle shall pay an initial fee of $300 and a renewal fee of $300.

An applicant for initial or renewal registration or transfer of registration as an investment adviser representative shall pay a fee of $50.

A broker-dealer or investment adviser succeeds to and continues the business of a registered broker-dealer or investment adviser; and

The successor files an application for registration within 30 days after the succession.

The federal covered adviser succeeds to and continues the business of a federal covered adviser that has filed a notice under § 11-405(b) of this subtitle; and

The successor files a notice filing within 30 days after the succession.

Each registered agent of a broker-dealer and each registered representative of an investment adviser whose successor is registered in accordance with subsection (a) or (b) of this section shall continue to be registered in accordance with rules that the Commissioner adopts.

A registered investment adviser representative of a federal covered adviser whose successor has filed in accordance with subsection (d) of this section shall continue to be registered in accordance with rules that the Commissioner adopts.

A minimum capital for a registered broker-dealer, subject to the limitations of § 15 of the Securities Exchange Act of 1934; and

Minimum financial requirements for an investment adviser, subject to the limitations of § 222 of the Investment Advisers Act of 1940.

The Commissioner may require by rule or order a registered broker-dealer or agent to post a bond or deposit cash or any other equivalent form of security in amounts that the Commissioner may require.

The Commissioner’s authority to adopt rules or issue orders under paragraph (1) of this subsection is subject to the limitations of § 15 of the Securities Exchange Act of 1934.

The Commissioner may require by rule or order a registered investment adviser or representative who has custody of client funds or securities or requires payments of more than 6 months in advance of fees in excess of $500 to post a bond or deposit cash or any other equivalent form of security in amounts that the Commissioner requires.

The Commissioner’s authority to adopt rules or issue orders under paragraph (3) of this subsection is subject to the limitations of § 222 of the Investment Advisers Act of 1940.

A suit may not be maintained to enforce any liability on the bond or equivalent form of security unless brought within two years after the contract of sale or other act on which the suit is based; and

The liability of the surety on each bond or equivalent form of security to all persons aggrieved may not in any event exceed in the aggregate the penal sum of the bond.

A registered broker-dealer shall make and keep correspondence, memoranda, papers, books, and other records that the Commissioner requires by rule.

The Commissioner’s authority to adopt rules under paragraph (1) of this subsection is subject to the limitations of § 15 of the Securities Exchange Act of 1934.

A registered investment adviser shall make, keep, and preserve accounts, correspondence, memoranda, papers, books, and other records that the Commissioner requires by rule.

The Commissioner’s authority to adopt rules under paragraph (3) of this subsection is subject to the limitations of § 222 of the Investment Advisers Act of 1940.

With respect to investment advisers, the Commissioner by rule or order may require that certain information be furnished or disseminated as appropriate in the public interest or for the protection of investors and advisory clients.

To the extent determined by the Commissioner in the Commissioner’s discretion, information furnished to clients or prospective clients of an investment adviser that would be in compliance with the disclosure requirements of the Investment Advisers Act of 1940 and the rules thereunder may be used in whole or partial satisfaction of this requirement.

A registered broker-dealer shall file financial reports that the Commissioner requires by rule or order.

The Commissioner’s authority to adopt rules under paragraph (1) of this subsection is subject to the limitations of § 15 of the Securities Exchange Act of 1934.

A registered investment adviser shall file the financial reports that the Commissioner requires by rule or order.

The Commissioner’s authority to adopt rules under paragraph (3) of this subsection is subject to the limitations of § 222 of the Investment Advisers Act of 1940.

The information contained in any document filed with the Commissioner is or becomes inaccurate or incomplete in any material respect; and

The registrant has not provided notification of the correction under § 11-402 of this subtitle.

The information contained in any document filed with the Commissioner by the federal covered adviser is or becomes inaccurate in any material respect; and

The Securities and Exchange Commission requires the correcting amendment.

For the purpose of avoiding unnecessary duplication of examinations, the Commissioner, to the extent the Commissioner considers 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.

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;

Has willfully violated or willfully failed to comply with any provisions of this title, a predecessor act, or any rule or order under this title or a predecessor act;

Has been convicted, within the last 10 years, of a felony, or of an offense that:

Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practices involving any aspect of the securities or investment advisory or any other financial services business;

Is the subject of an order of the Commissioner denying, suspending, or revoking registration as a broker–dealer, agent, investment adviser, or investment adviser representative;

Is the subject of an order entered within the past five years by the securities administrator or any other financial services regulator of any state or by the Securities and Exchange Commission denying, suspending, or revoking registration as a broker–dealer, investment adviser, investment adviser representative, or agent or the substantial equivalent of those terms as defined in this title, or any other financial services license or registration, or is the subject of an order by the Commodity Futures Trading Commission denying, suspending, or revoking registration under the Commodity Exchange Act, or is suspended, expelled, or barred from a national securities exchange or national securities association registered under the Securities Exchange Act of 1934 either by action of a national securities exchange or national securities association, the effect of which action has not been stayed by appeal or otherwise, or by order of the Securities and Exchange Commission, or is the subject of a United States post office fraud order, but:

Has engaged in dishonest or unethical practices in the securities or investment advisory or any other financial services business;

Is insolvent, either in the sense that the person’s liabilities exceed assets or in the sense that the person cannot meet obligations as they mature, but the Commissioner may not enter an order against a broker–dealer or investment adviser under this item (8) without a finding of insolvency as to the broker–dealer or investment adviser;

Is not qualified on the basis of factors such as training, experience, and knowledge of the securities or investment advisory or any other financial services business, except as otherwise provided in subsection (c) of this section;

Has failed reasonably to supervise the broker–dealer’s agents, if the person is a broker–dealer, or the investment adviser’s representatives, if the person is an investment adviser;

Has failed to pay the proper fee, but the Commissioner may enter only a denial order under this item (11), and the Commissioner shall vacate the order when the deficiency is corrected;

Is subject to a request from the Child Support Administration to suspend or revoke a registration based on failure to pay support obligations;

Refuses to allow the Commissioner to conduct or otherwise impedes the Commissioner in conducting an audit or inspection under § 11–411(f) of this subtitle or refuses access to a registrant’s office to conduct an audit or inspection under § 11–411(f) of this subtitle; or

Is the subject of a cease and desist order issued by the Securities and Exchange Commission or issued under the securities, commodities, investment, franchise, banking, finance, or insurance laws of a state.

In this subsection, “final administrative order” does not include an order that is stayed or subject to further review or appeal.

If an applicant for initial registration discloses the existence of a final judicial or administrative order to the Commissioner before the effective date of the initial registration, the Commissioner may not institute a suspension or revocation proceeding based solely on the judicial or administrative order unless the proceeding is initiated within one year after the effective date of the applicant’s initial registration.

The Commissioner may not enter an order against a broker–dealer on the basis of the lack of qualification of any person other than that broker–dealer if the broker–dealer is an individual, or an agent of the broker–dealer;

The Commissioner may not enter an order against an investment adviser on the basis of the lack of qualification of any person other than that investment adviser if the investment adviser is an individual, or an investment adviser representative of the investment adviser;

The Commissioner may not enter an order solely on the basis of lack of experience if the applicant or registrant is qualified by training or knowledge or both;

The Commissioner 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 need not have the same qualifications as an investment adviser;

The Commissioner shall consider that an investment adviser is not necessarily qualified solely on the basis of experience as a broker–dealer or agent. When the Commissioner finds that an applicant for initial or renewal registration as a broker–dealer is not qualified as an investment adviser, the Commissioner by order may condition the applicant’s registration as a broker–dealer upon the broker–dealer not transacting business in this State as an investment adviser; and

The Commissioner by rule may provide for an examination, which may be written, oral, or both, to be taken by any class of or all applicants. The Commissioner by rule or order may waive the examination requirement as to a person or class of persons if the Commissioner determines that the examination is not necessary or appropriate in the public interest or for the protection of investors.

That it has been entered;

The reasons for its entry; and

That within 15 days after the receipt of a written request the matter will be set down for hearing.

If a hearing is not requested and one is not ordered by the Commissioner, the order will remain in effect until it is modified or vacated by the Commissioner.

If a hearing is requested or ordered, the Commissioner, after notice and opportunity for hearing, may modify or vacate the order or extend it until final determination.

Has abandoned the application;

Is no longer in existence;

Has ceased to do business as a broker-dealer, agent, investment adviser, or investment adviser representative;

Is subject to an adjudication of mental incompetence or the control of a committee, conservator, or guardian; or

Cannot be located after reasonable search.

Has abandoned the notice filing;

Is no longer in existence;

Has ceased to do business as a federal covered adviser;

Is subject to adjudication of mental incompetence or to the control of a committee, conservator, or guardian; or

Cannot be located after a reasonable search.

A revocation or suspension proceeding is pending when the application is filed; or

A proceeding to revoke, suspend, or impose conditions on the withdrawal is instituted within 90 days after the application is filed.