As used in the Maryland Securities Act and in this subtitle, the following terms have the meanings indicated. Terms Defined. “Commissioner” means the Maryland Securities Commissioner or the designated agent of the Maryland Securities Commissioner. “CRD” means the Central Registration Depository System. “Division” means the Division of Securities in the Office of the Attorney General. “Maryland Business Opportunities Sales Act” and “Business Opportunities Act” mean Business Regulation Article, Title 14, Subtitle 1, Annotated Code of Maryland. “Maryland Franchise Registration and Disclosure Law” and “Maryland Franchise Law” mean Business Regulation Article, Title 14, Subtitle 2, Annotated Code of Maryland. “Maryland Securities Act” means Corporations and Associations Article, Title 11, Annotated Code of Maryland. “NASAA” means the North American Securities Administrators Association, Inc. “NASD” means the National Association of Securities Dealers, Inc. “SEC” means the Securities and Exchange Commission. “Self-regulatory organization” or “SRO” means a national securities or commodities exchange, or an association or clearing agency that is registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission. Public Inspection. Except for materials accorded confidential treatment under §B of this regulation, all registration statements, applications for registration, and reports filed with the Division are available for public inspection during regular business hours at the offices of the Division. Confidential Materials. The following materials contained in the registration files of the Division are not available for public inspection: Materials containing trade secrets or other confidential information if the: Provisions of State Government Article, Title 10, Subtitle 6, Annotated Code of Maryland, do not require disclosure of the trade secrets or confidential information, and Commissioner finds that disclosure of the trade secrets or confidential information is not necessary for the protection of investors; Financial statements of broker-dealers that are required by COMAR 02.02.02 and that are accorded confidential treatment under 17 CFR §240.17a-5(d) (SEC Rule 17a-5(d), Annual Filing of Audited Financial Statements), which is incorporated by reference. Requests for Confidential Treatment. A registrant who desires confidential treatment under §B(1) of this regulation shall submit a request for confidential treatment in a letter which shall: State the basis for the request; and Include a copy of the document for which confidential treatment is sought. Petition. An interested person may petition the Commissioner to adopt, amend, or repeal a regulation within the Commissioner's authority under the: Maryland Securities Act; Maryland Franchise Registration and Disclosure Law; or Maryland Business Opportunities Sales Act. Form of Petition. The petition shall be submitted in writing and may be in the form of a letter addressed to the Commissioner. Content of Petition. The petition shall state, clearly and concisely, the: Language of the proposed regulation; Reasons why the petitioner believes the Commissioner should adopt the proposed regulation; Nature of the petitioner's interest in the proposed regulation; and Authority of the Commissioner to take the action requested by the petitioner. Disposition. The Commissioner shall consider the petition and shall notify the petitioner within 60 days of the Commissioner's disposition of the petition. Scope. This regulation applies to fines and civil penalties imposed under the Maryland Securities Act, Corporations and Associations Article, §§11-417 and 11-701.1(b)(4), Annotated Code of Maryland. Amount of Fine or Civil Penalty. For the purpose of determining the amount of a fine or civil penalty to be imposed for a violation of any provision of the Maryland Securities Act, or any regulation or order under the Maryland Securities Act, the Commissioner shall consider: The circumstances, nature, frequency, seriousness, magnitude, persistence, and willfulness of the conduct constituting the violation; The scope of the violation, including the number of persons in and out of Maryland affected by the conduct constituting the violation; The level of restitution or compensation the violator has made; Past and concurrent conduct of the violator that has given rise to any sanction or judgment imposed by, or plea of guilty or nolo contendere or settlement with, the Commissioner or a state securities administrator, a court of competent jurisdiction, the SEC, any other federal or state agency, or a self-regulatory organization; and Any other factor the Commissioner finds appropriate in the public interest or for the protection of investors and within the purposes fairly intended by the policy and provisions of the Maryland Securities Act. Filing of Request. A request for an interpretive opinion or a no action position under the Maryland Securities Act, Corporations and Associations Article, §11-206(e), Annotated Code of Maryland, shall be filed with the Commissioner. Form of Request. A request for an interpretive opinion or a no action position shall include: An original and one copy of the letter requesting the interpretive opinion or no action position; and Two copies of any supporting documentation or materials. Content of Request. A request shall state the names of any issuer, individual, or entity involved. Requests concerning unnamed issuers, individuals, or entities, or hypothetical situations, are not acceptable. A request shall indicate in a prominent manner the specific subsections of the statute or regulation to which the request pertains. A request shall be limited to a particular fact situation and shall contain a legal analysis indicating why the requesting party believes that it is appropriate, given the language, meaning, and intent of the pertinent statutes and regulations, and the interests of investor protection, that the Commissioner should take a particular position. A request shall contain the name of the individual to be contacted by the Division if additional information is required. The designated individual shall be fully versed in the facts and legal analysis underlying the request for the interpretive opinion or no action position. Request for Confidential Treatment. If a person requesting an interpretive opinion or no action position seeks to keep all or part of the request confidential, the person shall submit, together with the request for an interpretive opinion or no action position, a separate letter that states why the person believes that confidential treatment is appropriate or necessary. Payment of Fee. A request for an interpretive opinion or a no action position shall be accompanied by the fee set forth in the Maryland Securities Act, Corporations and Associations Article, §11-206(e), Annotated Code of Maryland. The filing fee is nonrefundable. A person required by the Maryland Securities Act, Corporations and Associations Article, §11-802, Annotated Code of Maryland, to appoint the Commissioner as agent for service of process shall file a Form U-2 (Uniform Consent to Service of Process) with the Commissioner. Payee. Checks for fees required by the Maryland Securities Act, the Maryland Franchise Registration and Disclosure Law, or the Maryland Business Opportunities Sales Act, or for fines or civil penalties imposed by the Commissioner, shall be made payable to “Office of the Attorney General”. Overpayment of Fees. If the Division discovers an overpayment in an amount of $35 or greater in a fee paid directly to the Division, the Division shall notify the person submitting the fee that the person may be entitled to a refund. Refund Request. A person that wishes to obtain a refund of an overpayment shall: Advise the Division that the person wishes to receive a refund; and Provide the Division with the person's federal tax identification number. A request for a refund of an overpayment shall be made within 90 days after the overpayment or the mailing of any notice given by the Division. Processing Refund Request. The Division shall forward a request for a refund and the person's tax identification number to the Fiscal Division of the Office of the Attorney General for processing. Application of Overpayment to Fees for Subsequent Years. An overpayment of a fee may not be applied to fees due for subsequent years. A registration application, pleading, correspondence, or other document required to be filed with or served upon the Commissioner shall be addressed to the Securities Commissioner, Office of the Attorney General, 200 St. Paul Place, Baltimore, Maryland 21202-2020. It shall constitute a violation of the Maryland Securities Act, Corporations and Associations Article, §11-305, Annotated Code of Maryland, and a dishonest or unethical business practice under Corporations and Associations Article, §§11-302(a)(3) and 11-412(a)(7), Annotated Code of Maryland, to use, in a way that misleads or would mislead any person, a senior-specific certification or designation that indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees. The prohibited use of a certification or professional designation includes, but is not limited to, the following: Use of a certification or professional designation by a person who has not actually earned or is ineligible to use the certification or designation; Use of a nonexistent or self-conferred certification or professional designation; Use of a certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training, or experience that the user does not have; and Use of a certification or professional designation that was obtained from a designating or certifying organization that: Is primarily engaged in the business of instruction in sales, marketing, or sales and marketing; Does not have reasonable standards or procedures for assuring the competency of its designees or certificants; Does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct; or Does not have reasonable continuing education requirements for its designees or certificants in order to maintain the designation or certification. There is a rebuttable presumption that a designating or certifying organization is not disqualified solely for purposes of §B(4) of this regulation if: The organization has been accredited by: The American National Standards Institute; or The National Commission for Certifying Agencies; or The organization is on the United States Department of Education's list entitled “Accrediting Agencies Recognized for Title IV Purposes” and the issued designation or credential does not primarily apply to sales, marketing, or sales and marketing. The following factors shall be considered when determining whether a combination of words, or an acronym standing for a combination of words, constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing senior citizens or retirees: Use, in the name of the certification or professional designation, of one or more words such as “senior”, “retirement”, “elder”, or similar terms, combined with one or more words such as “certified”, “registered”, “chartered”, “adviser”, “specialist”, “consultant”, “planner”, or similar terms; and Manner in which the words described in §D(1) of this regulation are combined. Exceptions. For purposes of this regulation, a certification or professional designation does not include a job title within an organization that is licensed or registered by a state or federal financial services regulatory agency, when that job title: Indicates seniority or standing within the organization; or Specifies an individual's area of specialization within the organization. For purposes of this section, financial services regulatory agency includes, but is not limited to, an agency that regulates broker-dealers, investment advisers, or investment companies as defined under the Investment Company Act of 1940. Nothing in this regulation limits the Securities Commissioner's authority to enforce existing provisions of law. Corporations and Associations Article, §§11-203, 11-302, 11-305, and 11-412; Business Regulation Article, §§14-106 and 14-206; Annotated Code of Maryland Effective date: June 1, 1962 Regulation .05 adopted as an emergency provision effective February 16, 1990 (17:5 Md. R. 633); adopted permanently effective June 11, 1990 (17:11 Md. R. 1340) Regulation .06 adopted effective May 13, 1991 (18:9 Md. R. 1007) Regulations .01—.06 repealed and new Regulations .01—.08 adopted effective January 17, 1994 (21:1 Md. R. 26) Regulation .01B amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .07 amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .09 adopted as an emergency provision effective October 5, 2009 (36:22 Md. R. 1721); adopted permanently effective February 8, 2010 (37:3 Md. R. 175) Scope. This regulation governs applications for initial registration as a broker-dealer in Maryland. National Association of Securities Dealers (NASD) Members. An applicant that is already a member of, or has applied for membership in, the NASD shall: File with the Central Registration Depository System (CRD) the information required by Form BD (Uniform Application for Broker-Dealer Registration) and the fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and File with the Commissioner other information the Commissioner may reasonably require. Non-NASD Members. An applicant that is not a member of, or has not applied for membership in, the NASD shall file with the Commissioner an application upon Form BD (Uniform Application for Broker-Dealer Registration). The application shall contain: A financial statement prepared in accordance with 17 CFR §240.17a-5(d) (SEC Rule 17a-5(d), Annual Filing of Audited Financial Statements), which is incorporated by reference, as of a date within 90 days of the date on which the statement is filed; If the applicant is a corporation, a resolution authorizing the filing of the application; The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; A statement or certificate showing compliance with, or exemption from, the examination requirement of Regulation .06 of this chapter; and Other information the Commissioner may reasonably require. Completion of Filing. An application for initial registration as a broker-dealer is not considered filed for purposes of the Maryland Securities Act, Corporations and Associations Article, §11-405, Annotated Code of Maryland, until: The applicant has complied with the examination requirement of Regulation .06 of this chapter; The required fee and all required submissions have been received by the Commissioner; If the applicant is seeking membership in the NASD, the applicant is approved as a member of the NASD; and The applicant has submitted any other information the Commissioner has requested. Scope. This regulation governs applications for renewal registration as a broker-dealer in Maryland. NASD Members. An applicant that is a member of the NASD shall: File with the CRD the fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and File with the Commissioner other information the Commissioner may reasonably require. Non-NASD Members. An applicant that is not a member of the NASD shall file with the Commissioner an application upon Form 200 (Renewal of Registration of Non-NASD Broker-Dealer). The application shall contain: A financial statement prepared in accordance with 17 CFR §240.17a-5(d) (SEC Rule 17a-5(d), Annual Filing of Audited Financial Statements), which is incorporated by reference; The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and Other information the Commissioner may reasonably require. Completion of Filing. An application for renewal registration as a broker-dealer is not considered filed for purposes of the Maryland Securities Act, Corporations and Associations Article, §11-406, Annotated Code of Maryland, until the required fee and all required submissions have been received by the Commissioner. A broker-dealer registered with the Commissioner shall register at least one agent with the Commissioner. Scope. This regulation governs applications for initial registration as a broker-dealer agent in Maryland. Agents of NASD Members. An applicant for initial registration as an agent for a broker-dealer that is a member of the NASD shall: File with the CRD the information required by Form U-4 (Uniform Application for Securities Industry Registration or Transfer) and the fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and File with the Commissioner other information the Commissioner may reasonably require. Agents of Non-NASD Members. An applicant for initial registration as an agent for a broker-dealer that is not an NASD member shall file an application with the Commissioner upon Form U-4 (Uniform Application for Securities Industry Registration or Transfer). The application shall contain: A statement or certificate showing compliance with or exemption from the examination requirement of Regulation .06 of this chapter; The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and Other information the Commissioner may reasonably require. Completion of Filing. An application for initial registration as an agent is not considered filed for purposes of the Maryland Securities Act, Corporations and Associations Article, §11-405, Annotated Code of Maryland, until: The applicant has complied with the examination requirement of Regulation .06 of this chapter; If the applicant has applied for registration with the NASD, the applicant is approved by the NASD as a representative; and The applicant has submitted any other information the Commissioner has requested. Scope. This regulation governs applications for renewal registration as a broker-dealer agent in Maryland. Agents of NASD Members. An applicant for renewal registration as an agent for a broker-dealer that is a member of the NASD shall: File with the CRD the fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and File with the Commissioner other information the Commissioner may reasonably require. Agents of Non-NASD Members. An applicant for renewal registration as an agent for a broker-dealer that is not a member of the NASD shall file an application for renewal registration with the Commissioner upon Form 200a (Application for Renewal of Agents of Non-NASD Member Broker-Dealers). The application shall contain: The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and Other information the Commissioner may reasonably require. Completion of Filing. An application for renewal registration as an agent is not considered filed for purposes of the Maryland Securities Act, Corporations and Associations Article, §11-406, Annotated Code of Maryland, until the required fee and all required submissions have been received by the Commissioner. Examination Requirement. An applicant for registration as a broker-dealer or as a broker-dealer agent in Maryland shall: Pass, with a score of 70 percent or better, the appropriate examination designated in §B of this regulation within 2 years before the date of application; or Qualify for an exemption from the examination requirement under §C of this regulation. SRO Examinations. An applicant for initial registration as a broker-dealer or broker-dealer agent shall take the appropriate examination or examinations designated and administered by a self-regulatory organization. Exemption. An applicant for registration as a broker-dealer or broker-dealer agent is exempt from the examination requirement of this regulation if the applicant: Is a member firm or is a registered representative with the NASD; or Has been continuously engaged in the securities business for a period of at least 2 years immediately preceding the date of application. Time of Filing. An amendment to a broker-dealer or agent filing required by the Maryland Securities Act, Corporations and Associations Article, §11-411(d), Annotated Code of Maryland, shall be filed within 30 days of the event that gave rise to the need to amend the filing. Place of Filing. Broker-Dealers. NASD Members. A broker-dealer that is a member of the NASD shall file an amendment with the CRD. Non-NASD Members. A broker-dealer that is not a member of the NASD shall file an amendment with the Commissioner. Broker-Dealer Agents. NASD Registered Representatives. A broker-dealer agent who is registered with the NASD shall file an amendment with the CRD. Others. A broker-dealer agent who is not registered with the NASD shall file an amendment with the Commissioner. Terms Defined. For purposes of the Maryland Securities Act, Corporations and Associations Article, §11-409, Annotated Code of Maryland, and this regulation, the terms “net capital” and “aggregate indebtedness” have the meanings stated in 17 CFR §240.15c3-1 (SEC Rule 15c3-1, Net Capital Requirements for Brokers and Dealers), which is incorporated by reference. Broker-Dealers Subject to §15 of the Securities Exchange Act of 1934. A broker-dealer that is registered in Maryland and that is subject to §15 of the Securities Exchange Act of 1934 shall maintain the net capital required by 17 CFR §240.15c3-1 (SEC Rule 15c3-1 Net Capital Requirements for Brokers and Dealers), which is incorporated by reference. Broker-Dealers Not Subject to §15 of the Securities Exchange Act of 1934. A broker-dealer that is registered in Maryland and that is not subject to §15 of the Securities Exchange Act of 1934 shall: Maintain a net capital of not less than $15,000; and Not permit its aggregate indebtedness to exceed 2000 percent of its net capital. A registered broker-dealer that deals exclusively in securities exempt under the Maryland Securities Act, Corporations and Associations Article, §11-601(1) or (2), Annotated Code of Maryland, is exempt from the requirement of §C(1)(b) of this regulation. Exemption. The Commissioner by order may exempt a registered broker-dealer from the requirements of this regulation. Financial Reports. A broker-dealer registered in Maryland shall file financial reports with the Commissioner as required by this regulation. NASD Members. Unless otherwise ordered by the Commissioner, a broker-dealer that is a member of the NASD may satisfy its obligations under this regulation and the Maryland Securities Act, Corporations and Associations Article, §11-411(c), Annotated Code of Maryland, by filing with the NASD an annual financial statement prepared in accordance with 17 CFR §240.17a-5(d) (SEC Rule 17a-5(d), Annual Filing of Audited Financial Statements), which is incorporated by reference. Non-NASD Members. A broker-dealer that is not a member of the NASD shall file with the Commissioner an annual financial statement prepared in accordance with 17 CFR §240.17a-5(d) (SEC Rule 17a-5(d), Annual Filing of Audited Financial Statements), which is incorporated by reference. Filing of Reports. Time for Filing. A broker-dealer required to file a financial statement under §C of this regulation shall file the financial statement within 45 days after the end of the broker-dealer's fiscal year. Extensions of Time. A broker-dealer may request an extension of time to file a financial statement. The request shall state the reason for the extension of time and shall contain an undertaking to file the statement on or before a specified date. A request for an extension of time shall be considered granted unless the Commissioner, within 10 days after the receipt of the request, denies the request and notifies the broker-dealer of the denial. If an extension of time for filing a financial statement is granted, the financial statement shall report the financial condition of the broker-dealer as of a date within 90 days of the date that the financial statement is filed. A broker-dealer registered or required to be registered in Maryland shall make and keep books and records as set forth in 17 CFR §240.17a-3 (SEC Rule 17a-3, Records to be Made by Certain Exchange Members, Brokers and Dealers), which is incorporated by reference. A broker-dealer registered or required to be registered in Maryland shall preserve all records required to be made under this regulation as set forth in 17 CFR §240.17a-4 (SEC Rule 17a-4, Records to be Preserved by Certain Exchange Members, Brokers and Dealers), which is incorporated by reference. Corporations and Associations Article, §11-203, Annotated Code of Maryland Effective date: June 1, 19652 Regulations .01—.06 and new Regulations .01—.10 adopted effective January 17, 1994 (21:1 Md. R. 26) Regulation .01B, D amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .04B, D amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .08B, C amended effective June 15, 1998 (25:12 Md. R. 944) Scope of Regulation. This regulation prescribes the form and content of the prospectus required to be filed as part of a registration statement for registration of securities by qualification or notification, and to be used in connection with the offering of securities so registered. Registration by Qualification. A prospectus filed as part of a registration statement for registration of securities by qualification shall contain all the information required by Schedule A. Registration by Notification. A prospectus filed as part of a registration statement for registration of securities by notification shall contain the information required by Schedule A except that the information required by §§F(4), I(2), J, K, L, Q, S(1)(c), and S(2) may be omitted. Legibility of Prospectus. The prospectus may be printed, mimeographed, or typewritten, or prepared by any similar process which will result in clear, legible copies. If printed, it shall be set in clear Roman type at least as large as 10 point modern type, with financial data or other statistical or tabular matter at least as large as 8 point. All type shall be leaded at least 2 points. Presentation of Information in Prospectus. The prospectus shall contain the information called for by all items of Schedule A required to be answered, except that no reference need be made to inapplicable items, and negative answers to any item may be omitted. None of the other information or documents filed as a part of the registration statement need be included in the prospectus. Unless clearly indicated otherwise, information set forth in any part of the prospectus need not be duplicated elsewhere in the prospectus. When it is deemed necessary or desirable to call attention to the information in more than one part of the prospectus, this may be accomplished by appropriate cross-references. Instead of restating information in the form of notes to the financial statements, references may be made to other parts of the prospectus where the information is set forth. The information required in the prospectus need not follow the order of the items in Schedule A. All information contained in the prospectus shall be set forth under appropriate captions or headings reasonably indicative of the principal subject matter set forth under it. Every prospectus shall include in its forepart a reasonably detailed table of contents showing the subject matter of the various sections or subdivisions and the page number on which each section or subdivision begins. Date of Prospectus. Each prospectus used after the effective date of the registration statement shall be dated approximately as of the effective date, provided, however, that a revised or amended prospectus used after it need only bear the approximate date of its issuance. Each supplement to a prospectus shall be separately dated with the approximate date of its issuance. Exchange Offers. If any of the securities being registered are to be offered in exchange for securities of any other issuer, the prospectus shall also include the information which would be required by §§F—O of Schedule A if the securities of an issuer were being registered. Preliminary Prospectus. A prospectus filed as part of a registration statement is a preliminary prospectus until the registration statement has become effective. Every preliminary prospectus shall bear on the outside front cover page the following caption underscored or in red ink, “Preliminary Prospectus”, and the following statement, in type as large as that generally in the body of the prospectus: Required Legend. Every prospectus shall bear the following legend in capital letters on the outside front cover page: Use of Prospectus. It is a condition of registration of securities by qualification or notification that a prospectus satisfying the requirements of this regulation shall be sent or given to each person to whom an offer is made as required by §11-502(c) or 11-504(d) of the Maryland Securities Act. When a prospectus is used more than 9 months after the effective date of the registration statement, the information contained in it shall be as of a date not more than 16 months before the use, so far as the information is known to the user of the prospectus or can be furnished by the user without unreasonable effort or expense. In addition to the requirements of §J(2), if a prospectus becomes misleading or inaccurate in any material respect, its use shall be discontinued, and it shall be revised or supplemented in such a way that it may not be misleading or inaccurate in any material respect. Three copies of a revised or supplemented prospectus shall be promptly filed with the Commissioner. Nothing in this paragraph shall be taken to relieve any person from the requirements of §11-502(c) or 11-504(d) of the Maryland Securities Act. Definitions. As used in this chapter, the following terms shall have the meanings indicated: “Affiliate” of, or person “affiliated” with, a specified person, is a person who directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. “Control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. “Director” means any director of a corporation or any person performing similar functions with respect to any organization whether incorporated or unincorporated. “Equity security” means any: Stock or similar security; Security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or Such warrant or right. “Material”, when used to qualify a requirement for the furnishing of information as to any subject, limits the information required to those matters as to which an average prudent investor reasonably ought to be informed before purchasing the security registered. “Officer” means a president, vice-president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer, and any other person performing similar functions with respect to any organization, whether incorporated or unincorporated. “Predecessor” means a person, the major portion of the business and assets of which another person acquired in a single succession, or in a series of related successions, in each of which the acquiring person acquired the major portion of the business and assets of the acquired person. “Promoter” includes any person who: Acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer; In connection with the founding and organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of securities. However, a person who receives the securities or proceeds either solely as underwriting commissions or solely in consideration of property may not be deemed a promoter within the meaning of this subsection if the person does not otherwise take part in founding and organizing the enterprise. “Significant subsidiary” means a subsidiary meeting any one of the following conditions: The assets of the subsidiary, or the investments in and advances to the subsidiary by its parent and the parent's other subsidiaries, if any, exceed 15 percent of the assets of the parent and its subsidiaries on a consolidated basis; The sales and operating revenues of the subsidiary exceed 15 percent of the sales and operating revenues of its parent and the parent's subsidiaries on a consolidated basis; The subsidiary is a parent of one or more subsidiaries and, together with the subsidiaries would, if considered in the aggregate, constitute a significant subsidiary. “Subsidiary” of a specified person is an affiliate controlled by that person directly, or indirectly through one or more intermediaries. “Succession” means the direct acquisition of the assets comprising a going business, whether by merger, consolidation, purchase, or other direct transfer. The term does not include the acquisition of control of a business, unless followed by the direct acquisition of its assets. The terms “succeed” and “successor” have meanings correlative to the foregoing. Additional Information. In addition to the information expressly required to be included in a prospectus or a registration statement by this regulation, or both, there shall be added such further information, if any, as may be necessary in order to make the statements made in a prospectus or a registration statement, or both, in the light of the circumstances under which they are made, not misleading. Guidelines. Registrants should consult releases issued by the Division of Securities from time to time respecting guidelines as to compliance with the procedural, form and contents requirements for a registration statement and a prospectus set forth in this regulation. Schedule A Information Required in Prospectus The Commissioner will permit the use of the Uniform Application Form adopted by the North American Securities Administrators Association and the Uniform Application to Register Securities (Form U-1) adopted by the Midwest Securities Commissioners Association in connection with the registration of securities by coordination, provided, however, that no instruction, undertaking, or other matter appearing in the forms shall be deemed to modify, or in any way affect, the application of the requirements of the Maryland Securities Act and of the rules and regulations under it to the registration. Except as provided in §B of this regulation, so long as a registration statement covering securities registered by notification or qualification is effective, the person who filed the registration statement shall file quarterly reports which shall keep reasonably current the information contained in the registration statement and disclose the progress of the offering, (see form SRQ-1, which is annexed hereto), and in addition, the reports shall contain a list of persons who have purchased securities within that given monthly period. This shareholder list shall include the name, the address and the telephone number of the purchaser and the number of units, shares, or beneficial interests purchased and the date of the purchase. When an offering of securities registered by notification or qualification has been completed, the person who filed the registration statement may be relieved of the necessity of filing further reports pursuant to §A of this regulation by notifying the Commissioner in writing of the fact that the offering has been completed, and by submitting a final shareholder list and status of the offering report. The quarterly reports required by §A of this regulation shall be filed with the Division of Securities within 7 days from the end of each quarterly period. The Securities Commissioner may, by rule or order, further modify, condition, withdraw, or waive the conditions of this regulation when he deems it in the public interest. All financial statements required to be filed as part of registration statements for registration of securities by qualification or notification shall be certified by independent public accountants. The Commissioner will not recognize any certified public accountant or public accountant as independent who is not in fact independent. For example, an accountant will be considered not independent with respect to any person or any of its parents or subsidiaries: In whom he has, or had during the period of report, any direct, financial interest or any material indirect financial interest; or with whom he is, or was during the period, connected as a promoter, underwriter, voting trustee, director, officer, or employee. The Commissioner, in his discretion, shall have the right to require an escrow fund to be established and may, by regulation or order, require as a condition of registration by qualification that the proceeds from the sale of the registered securities be impounded until the issuer receives a special amount. The Commissioner may, by regulation or order, determine the conditions of any escrow or impounding required hereunder, but he may not reject a depository solely because of location in another state. Accordingly, in any instance where he determines impounding of the proceeds of the sale of securities to be in the public interest and necessary for the protection of investors, the Commissioner will require, as a condition of registration, that the registrant deposit a specific percentage of the proceeds from the sale of the registrant's securities in an acceptable depository, pursuant to a written agreement between the registrant issuer and the depository, to be retained in it until a specific sum has been accumulated and the terms and conditions of the agreement have been performed. Initial Registration. Securities which are qualified to be registered on SEC Form S-3 and which are to be offered in series or offered and sold on a continuous or delayed basis pursuant to SEC Rule 415, may be registered by coordination as follows: Initial Filing. On filing a Shelf Registration Statement with the SEC pursuant to Rule 415, the registrant shall file a Form U- 1 annexing the Shelf Registration Statement containing all of the information required for coordinated registrations pursuant to §11-503 of the Maryland Securities Act with the Maryland Division of Securities (the Division), along with the requisite filing fee based on the maximum amount to be sold. Pre-effective Amendments. If an amendment to the Shelf Registration Statement is required prior to SEC effectiveness, this amendment shall be filed with the Division. Effectiveness of Registration. The Shelf Registration Statement automatically becomes effective in Maryland at the moment the federal registration statement becomes effective if all the following conditions are satisfied: A stop order is not in effect and a proceeding is not pending under §§11-511—11-513 of the Maryland Securities Act; The registration statement has been on file with the Commissioner for at least 10 days prior to the determination of effectiveness by the SEC; and A statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions applicable to the shelf registration has been on file for 2 full business days or any shorter period which the Commissioner permits by rule or otherwise, and the offering is made within those limitations. Subsequent Takedowns. Thereafter, the securities registered under §A may be offered and sold in Maryland without, except as indicated below, any prior notification to or approval by the Division so long as these offerings are effected with no material changes from the terms provided in the Shelf Registration Statement: Further Filings. The registrant shall furnish copies of prospectus supplements or post-effective amendments, or both, relating to particular offerings of securities registered by the Shelf Registration Statement to the Division at the same time these filings are made with the SEC. Pricing-Telegrams. The furnishing of pricing-telegrams with respect to particular offerings of securities registered by the Shelf Registration Statement is not required. Conclusion of Offering. The registrant shall notify the Division in writing when the offering is concluded. Definitions. “Act” means the Maryland Securities Act. “Commissioner” means the Securities Commissioner of the State. “Division” means the Division of Securities of the Office of the Attorney General. “Regulation” means this regulation. “Sales and advertising literature” includes any pamphlet, circular, form letter, advertisement or printed advertising communication, films, film strips, television and radio presentations, tape and cassette recordings, and any other public lecture addressed or intended for distribution to and/or delivered to prospective investors including clients or prospective clients of an agent or broker/dealer; provided, however, that “sales and advertising literature” may not include: Any prospectus used in conjunction with an offer or sale, or both, of securities; Any individual letter sent to a prospective investor where the issuer has filed a registration statement with the Division relating to the offer or sale, or both, of securities to which the letter relates, provided, however, that the letter shall direct the prospective investor to the prospectus or be accompanied by a copy of the prospectus; Tombstone advertisements; Dividend notices, proxy statements and reports to shareholders, the content of which does not pertain to a current offering or sale, or both, of securities of the issuer; Literature disseminated in connection with the distribution of securities of an investment company registered under §8 of the Investment Company Act of 1940; Literature relating to any securities, offer or sale, or both of securities, to which is applicable one or more of the exemptions from registration contained within §§11-601—11-604 of the Act; Written or printed material relating to an offer or sale, or both, of securities pursuant to a: Qualified employee stock, or stock-option plan, or Merger, consolidation, exchange offer, reclassification of securities or sale of corporate assets in consideration of the issuance of securities of another issuer; Written or printed material which is otherwise required to be filed under the registration provisions of the Act. All sales and advertising literature relating to an offering of securities for which a registration statement has been filed with the Division pursuant to §11-502, 11-503, or 11-504 of the Act also shall be filed with the Division and have prominently displayed by legend or printed sticker on the front cover of the sales and advertising literature, in bold-face type, substantially the following statement: The Commissioner shall review the sales and advertising literature required to be filed under §B of this regulation and, if 7 days after the filing of the material, he has not issued a stop-order or other order with respect to it, the material may be used in connection with the offering of securities to which it relates. If a stop-order or other order is issued, then the sales and advertising literature, and the use of it, shall comply in all respects with the order. The Commissioner may, by regulation or order, further modify, condition, withdraw, or waive the conditions of this regulation. Definitions. As used in this regulation: “Effective date” means the date that a registration statement is declared effective by the Commissioner. “Expiration/renewal date” means the date that is 1 year from the effective date. Scope of Regulation. This regulation applies to registration statements filed pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1, Annotated Code of Maryland. Regulations concerning registration of securities of investment companies may be found in Regulation .10, below. Filing Requirements. Subject to the provisions of the Maryland Securities Act, Corporations and Associations Article, §§11-511, 11-512, and 11-513, Annotated Code of Maryland, an effective registration statement that is registered pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-502, 11-503, or 11-504, may be renewed for a successive 1-year period by submitting to the Division, within the 30 days before its expiration/renewal date, the following: A manually signed U-1 application; The appropriate registration fee in the amount and made payable in the manner specified in the Maryland Securities Act, Corporations and Associations Article, §11-506(a), Annotated Code of Maryland; and All registration or offering documents that have been amended during the registration period that have not been previously filed with the Division. Retroactive Effectiveness. An application for renewal may not be given effectiveness retroactive to its expiration/renewal date for any reason, including, but not limited to, the late or deficient filing of any of the documents or materials specified in §C, above. Termination. The registrant shall provide the Commissioner with written notification of the termination of the offering in this State. Filing Fee. Subject to the registration provisions of the Maryland Securities Act, Corporations and Associations Article, §§11-502, 11-503, and 11-504, Annotated Code of Maryland, a registrant that files pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1, Annotated Code of Maryland, shall pay a $100 filing fee with the initial application for registration. A registrant that renews its registration statement pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1(b), shall pay a $100 filing fee in addition to any fee that is required to be paid pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1(b)(1) or (2). A registrant that files a registration statement for an indefinite amount of securities pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1, shall promptly notify the Commissioner of the registrant's fiscal year and of any subsequent changes to its fiscal year. A registrant that pays a fee pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1(b)(2), shall file a report of sales on Form USR-1, as approved by the North American Securities Administrators Association. A registration statement filed pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1, shall cover only one class of securities. Multiple classes of securities offered by the same issuer shall be registered separately. Renewal. A registrant that renews its registration statement pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1(b), shall file with the Commissioner a current prospectus and statement of additional information or other offering document, as applicable. Termination. The registrant shall provide the Commissioner with written notification of the termination of the offering in this State. Upon termination, the registrant shall pay a final sales fee pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-510.1(b)(1) or (2), and comply with §C of this regulation, if applicable. Definitions. For purposes of this regulation, the following terms have the meanings indicated. Terms Defined. “Agent” has the same meaning as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(b), Annotated Code of Maryland. “Issuer agent” means an agent, other than a broker-dealer agent, who represents an issuer in effecting or attempting to effect the purchase or sale of securities. Initial Registration. An applicant for initial registration as an issuer agent shall file with the Commissioner: An application upon Form U-4 (Uniform Application for Securities Industry Registration or Transfer); A statement or certificate demonstrating that the applicant has satisfied the examination requirement of §C of this regulation; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407(a)(2), Annotated Code of Maryland. Examination Requirement. An applicant for initial registration as an issuer agent shall have passed, with a score of 70 percent or better, the Series 63 examination administered by the NASD unless: The applicant effects transactions exclusively in securities exempt under the Maryland Securities Act, Corporations and Associations Article, §11-601; or Based upon the applicant's education, experience, or duties, the Commissioner waives the examination requirement. Renewal Registration. An applicant for renewal registration as an issuer agent shall file with the Commissioner: An application on the form entitled Maryland Application for Renewal of Registration as an Issuer Agent; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407(a)(2). Registration by Qualification. An issuer may register securities by qualification under the Maryland Securities Act, Corporations and Associations Article, §11-504, Annotated Code of Maryland, by using Form U-7 (Small Corporate Offering Registration Form) if the conditions set forth in this regulation and in the instructions to Form U-7 are satisfied. Small Corporate Offering Registration Form. An application to register securities under this regulation shall be prepared in accordance with the instructions set forth in Form U-7 (Small Corporate Offering Registration Form) adopted by the North American Securities Administrators Association, Inc., on April 29, 1989, which is incorporated by reference. A completed Form U-7 that has been declared effective by the Commissioner shall serve as the prospectus for an offering registered under this regulation. Eligibility of Issuer. To be eligible to register securities under this regulation, the issuer shall satisfy the following conditions: The issuer is a corporation organized under the laws of one of the states or possessions of the United States; The issuer engages in, or proposes to engage in, a business other than petroleum exploration or mining or other extractive industries; The issuer is not an investment company subject to the Investment Company Act of 1940, 15 U.S.C. §§80a-1—80a-52; The issuer is not subject to the reporting requirements of §13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §§78m, 78o(d)). Eligibility of Offering. To be eligible for registration under this regulation, an offering shall satisfy the following conditions: The aggregate offering price does not exceed $1,000,000 in any 12-month period, less the aggregate offering price for all securities sold within 12 months before the start of and during the offering of the securities under 17 CFR §230.504 (SEC Rule 504, Exemptions for Limited Offerings and Sales of Securities Not Exceeding $500,000) in reliance on any exemption under §3(b) or in violation of §5(a) of the Securities Act of 1933 (15 U.S.C. §§77c(b), 77e(a)); The offering is not a “blind pool” offering or other offering for which the specific business or properties cannot be described at the time of the offering; The securities are to be offered and sold only on behalf of the issuer and not on behalf of any selling security holder; If the securities are common stock, the offering price equals or exceeds $5 per share; If the securities are options, warrants, or rights for common stock, the exercise price equals or exceeds $5 per share; If the securities are convertible into common stock, the conversion price equals or exceeds $5 per share; and The offering is exempt from registration with the SEC under 17 CFR §§230.501—230.508 (SEC Regulation D, Rules Governing the Limited Offer and Sale of Securities Without Registration under the Securities Act of 1933). Disqualifications. Bases of Disqualification. An issuer may not register an offering under this regulation if the issuer, any of its officers, directors, beneficial owners of 10 percent or more of any class of its equity securities, any promoters currently connected with it in any capacity, any selling agents of the securities to be offered, or any officer, director, or partner of the selling agent: Within 5 years before the filing of the application for registration under this regulation, has filed a registration statement which is currently the subject of a stop order under any state's securities law; Within 5 years before the filing of the application for registration under this regulation, has been convicted of any felony or misdemeanor in connection with the offer, purchase, or sale of any security or any felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, or conspiracy to defraud; Is currently subject to any state administrative enforcement order or judgment: That was entered within 5 years before the filing of the application for registration under this regulation, and In which fraud or deceit, including untrue statements of material facts or omissions of material facts, was found; Is subject to any state administrative enforcement order or judgment that prohibits, denies, or revokes the use of any exemption from registration in connection with the current offer, purchase, or sale of securities; or Is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within 5 years before the filing of the application for registration under this regulation, temporarily, preliminarily, or permanently restraining or enjoining the party from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with a state. Limitation of Disqualification. The disqualifications set forth in §E(1)(a)—(c) and (e) of this regulation do not apply if the: Person subject to the disqualification is licensed or registered to conduct securities-related business in the state in which the disqualifying administrative order or judgment was entered or the broker-dealer employing the person is registered in Maryland; and Form BD or Form U-4 filed with the Commissioner discloses the disqualifying event. Waiver of Disqualification. The Commissioner, by order, may waive a disqualification set forth in §E of this regulation if the Commissioner finds that the waiver is consistent with the public interest and within the purposes fairly intended by the policy and provisions of the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland. Undertaking Not to Split Stock. By execution and filing of a Form U-7, the issuer undertakes not to split its common stock, or declare a stock dividend, for 2 years after the effectiveness of the registration. Notwithstanding §F(1) of this regulation, an issuer may apply to the Commissioner for approval to split its common stock or declare a stock dividend in connection with a subsequent registered public offering. Filing Requirements. An application for registration under this regulation shall be filed with the Commissioner. An application for registration under this regulation shall contain: All forms and exhibits required by the instructions in Form U-7; If the issuer does not make the offering through a registered broker-dealer, an application for issuer agent registration prepared in accordance with Regulation .11 of this chapter; The filing fee set forth in the Maryland Securities Act, Corporations and Associations Article, §11-506(a). Reports Filed with the Commissioner. The issuer shall file quarterly reports that shall: Contain the information required by Regulation .04 of this chapter; and Certify that no changes or amendments were made to Form U-7 or any sales or advertising materials other than changes or amendments filed with and declared effective by the Commissioner. Reports to Investors. The issuer shall deliver to each investor any: Reports required by Form U-7; and Other reports that the Commissioner may require. Sales and Advertising Literature. The issuer shall file sales and advertising literature with the Commissioner as required by Regulation .08 of this chapter. Corporations and Associations Article, §11-203, Annotated Code of Maryland Effective date: Regulations .01—.05 effective June 1, 1962 Regulation .03 repealed effective April 15, 1991 (18:7 Md. R. 770) Regulation .06 effective December 1, 1968 Regulation .07 effective December 1, 1972; repealed effective July 1, 1983 (10:6 Md. R. 551) Regulation .07 adopted effective May 7, 1984 (11:9 Md. R. 795) Regulation .08 effective December 1, 1974 Regulation .09 adopted effective August 6, 1990 (17:15 Md. R. 1853) Regulation .09E adopted effective April 1, 1991 (18:6 Md. R. 684) Regulation .10 adopted effective August 6, 1990 (17:15 Md. R. 1853) Regulation .10D—F amended effective April 1, 1991 (18:6 Md. R. 684) Regulation .11 adopted effective May 9, 1994 (21:9 Md. R. 749) Regulation .12 adopted effective May 9, 1994 (21:9 Md. R. 749) Regulation .21 adopted effective October 20, 1978 (5:21 Md. R. 1585) Regulation .21 repealed effective August 6, 1990 (17:15 Md. R. 1853) Securities offered pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-601(9)(i), Annotated Code of Maryland, shall be deemed exempt securities if the nationwide aggregate offering price does not exceed $150,000. Securities offered pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-601(9)(ii), Annotated Code of Maryland, shall be deemed exempt securities if the following conditions are satisfied: Exempt Securities—General Conditions. The issuer shall notify the Commissioner in writing at least 10 days before the first sale of the securities in this State. The notification shall contain the following information: Name, address, and telephone number of the issuer; Name, address, telephone number, and CRD number, if applicable, of the broker-dealer or issuer's agent registered in this State who will offer the securities. An affirmation that a commission or remuneration for soliciting any prospective buyer may not be paid except to a broker-dealer or issuer's agent registered in this State. An affirmation that all prospective buyers will receive, before any sale, a disclosure document containing the information required by Form MLOE-2 of Regulation .12 of this chapter. The financial information required by Item 19, Part I of Form MLOE-2, need not be provided. The issuer shall pay the filing fee pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-506(b), Annotated Code of Maryland. The exemption for an offering made pursuant to this exemption shall be effective for 1 year from the date that the notification filing is accepted by the Commissioner. The exemption may be extended for successive 1-year periods by complying with the provisions of §B of this regulation. Securities offered pursuant to a nonqualified benefit plan as described in the Maryland Securities Act, Corporations and Associations Article, §11-601(11), Annotated Code of Maryland, shall be deemed exempt securities if the following conditions are satisfied: The issuer shall notify the Commissioner in writing at least 30 days before any offer or sale in this State. The notification shall include the following information: Name, address, and telephone number of the issuer; Name, address, and telephone number of the administrator of the plan; and A copy of the plan. The issuer shall pay the filing fee required by the Maryland Securities Act, Corporations and Associations Article, §11-506(b), Annotated Code of Maryland. The Commissioner may waive the 30-day prior notice requirement of §A(1) of this regulation, if the Commissioner finds that the waiver is appropriate in the public interest. The exemption for an offering made pursuant to this exemption shall be effective from the date that the notification filing is accepted by the Commissioner. If there is a material change or amendment to the plan during the offering period, the issuer shall notify the Commissioner by complying with the provisions of §A of this regulation. Transactions involving existing security holders pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-602(11)(ii), Annotated Code of Maryland, shall be deemed exempt transactions if the following conditions are satisfied: The issuer shall notify the Commissioner in writing at least 5 business days before the offer or sale in this State. The notification shall include the following information: Name, address, and telephone number of the issuer; Name, address, telephone number, and CRD number, if applicable, of any entity or individual receiving any commission or remuneration in connection with the offer or sale of the securities; and A description of the terms of the offering. The issuer shall pay the filing fee required by the Maryland Securities Act, Corporations and Associations Article, §11-506(b), Annotated Code of Maryland. The exemption for an offering made pursuant to this exemption shall be effective for 1 year from the date that the notification filing is accepted by the Commissioner. The exemption may be extended for successive 1-year periods by complying with the provisions of §A of this regulation. Definitions. “Accredited investor” has the same meaning as set forth in Regulation D, 17 CFR §230.501(a)(1)—(3), (7), and (8), which is incorporated by reference. “Qualified institutional buyer” has the same meaning as set forth in Rule 144A, 55 FR 17933 (1990), which is incorporated by reference. For purposes of the Maryland Securities Act, Corporations and Associations Article, §11-602(8), Annotated Code of Maryland, an institutional investor includes the following: An accredited investor; or A qualified institutional buyer. The following publications are designated recognized securities manuals for purposes of the Maryland Securities Act, Corporations and Associations Article, §11-602(2), Annotated Code of Maryland: Mergent's Industrial Manual; Mergent's Transportation Manual; Mergent's Public Utility Manual; Mergent's Bank and Finance Manual; and Standard and Poor's Standard Corporation Descriptions. This designation may be revoked if the Commissioner finds that the information provided in the manual has been so changed or insufficiently applied that the protection of investors contemplated by the exemption is no longer afforded. Definitions. “CBOE” means The Chicago Board Options Exchange. “NASDAQ/NMS” means the National Association of Securities Dealers Automated Quotations/National Market System. “Release” means Securities Act Release 33-6810 published at 53 FR 52550 (1988), which is incorporated by reference. “SEC” means the Securities and Exchange Commission. Exempt Securities. The following securities shall be exempted from the provisions of the Maryland Securities Act, Corporations and Associations Article, §§11-205 and 11-501, Annotated Code of Maryland: Any security listed or approved for listing upon notice of issuance on NASDAQ/NMS, provided that this designation may be revoked if the Commissioner finds that the listing standards have been so changed or insufficiently applied that the protection of investors contemplated by the standards for listing in the Release is no longer afforded; Any security listed or approved for listing upon notice of issuance on the CBOE, provided that this designation may be revoked if the Commissioner finds that the: Listing standards have been so changed or insufficiently applied that the protection of investors contemplated by the standards for listing in the Release is no longer afforded; or CBOE has failed to promptly notify the Commissioner in writing that it has: Made a rule filing with the SEC proposing to list a type of security not provided for in the listing standards contained in the Release and has failed to provide the Commissioner with a copy of the rule filing, or Proposed to list a security under its listing standards for “other securities” that raises significant new regulatory issues requiring a rule filing with the SEC and has failed to provide the Commissioner with a copy of the rule filing; Any other security of the same issuer that is of senior or substantially equal rank; Any security called for by subscription rights or warrants that are exempted under §B(1) or (2) of this regulation; and Any warrant or right to purchase or subscribe to any security that is exempted under §B(1) or (2) of this regulation. The Options Clearing Corporation (OCC) shall be designated as a “clearing agency” for purposes of the Maryland Securities Act, Corporations and Associations Article, §11-601(13), Annotated Code of Maryland. This designation may be revoked if the Commissioner finds that this action is advisable for the protection of investors or in the public interest. Federal Savings Banks. For purposes of the Maryland Securities Act, Corporations and Associations Article, §11-601(3), Annotated Code of Maryland, the term “bank” includes a savings bank organized under the laws of the United States. Exclusions. For purposes of the Maryland Securities Act, Corporations and Associations Article, §11-601(3), Annotated Code of Maryland, the terms “bank”, “savings institution”, and “trust company” do not include a bank, savings institution, or trust company that: Has not received its permanent charter or final approval to operate from the governmental agency to which application is made or that regulates the entity; Has received a conditional approval to operate for the purpose of raising capital or meeting other regulatory requirements; Has its charter revoked; or Is on any form of conditional status. Scope. The Maryland Limited Offering Exemption (MLOE) creates under the Maryland Securities Act, Corporations and Associations Article, §11-602(9), Annotated Code of Maryland, two exemptions from the registration requirements of the Maryland Securities Act, Corporations and Associations Article, §11-501, Annotated Code of Maryland. Regulation .10 sets forth conditions that apply to both a local issuer exemption under Regulation .11 and a general transactional exemption under Regulation .12. Regulation .11 sets forth additional conditions that apply to the local issuer exemption. Regulation .12 sets forth additional conditions that apply to the general transactional exemption. Regulation .13 provides that the MLOE exemption will remain available in the event of certain insignificant deviations from the conditions set forth in Regulations .10—.12. The MLOE and the Maryland Securities Act, Corporations and Associations Article, §11-602(9), Annotated Code of Maryland, do not provide an exemption from the antifraud provisions of the Maryland Securities Act, Corporations and Associations Article, Subtitles 3 and 7, Annotated Code of Maryland. The MLOE and the Maryland Securities Act, Corporations and Associations Article, §11-602(9), Annotated Code of Maryland, do not exempt from registration the offer or sale of securities: For which a registration statement or Regulation A notification has been filed with the SEC under the Securities Act of 1933; or Exempt from registration with the SEC under 17 CFR §230.505 (SEC Rule 505, Exemption for Limited Offers and Sales of Securities Not Exceeding $5,000,000) or 17 CFR §230.506 (SEC Rule 506, Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering). Definitions. For purposes of MLOE and the Maryland Securities Act, Corporations and Associations Article, §11-602(9), Annotated Code of Maryland, the following terms have the meanings indicated: Accredited Investor. “Accredited investor” has the meaning stated in 17 CFR §230.501(a) (1994) (SEC Rule 501, Definitions and Terms Used in Regulation D), which is incorporated by reference. “Accredited investor” includes a relative, spouse, or relative of the spouse of an individual described in 17 CFR §230.501(a)(4) (SEC Rule 501, Definitions and Terms Used in Regulation D), who has the same principal residence as the individual. “Affiliate” has the meaning stated in 17 CFR §230.501 (1994) (SEC Rule 501, Definitions and Terms Used in Regulation D), which is incorporated by reference. “Aggregate offering price” has the meaning stated in 17 CFR §230.501 (1994) (SEC Rule 501, Definitions and Terms Used in Regulation D). “Beneficial owner” has the meaning stated in 17 CFR §240.13d-3 (1994) (SEC Rule 13d-3, Determination of Beneficial Owner), which is incorporated by reference, except that all references to §13(d) or 13(g) of the Securities Exchange Act of 1934 shall refer, instead, to this regulation, and further, that Rule 13d-3(d)(ii) is not incorporated by reference. “Executive officer” has the meaning stated in 17 CFR §230.501 (SEC Rule 501, Definitions and Terms Used in Regulation D). “MLOE” means the Maryland Limited Offering Exemption created by Regulations .09—.13 of this chapter. Promoter. “Promoter” means a person that: Acting alone or together with one or more persons, directly or indirectly founds or organizes the business or enterprise of an issuer; or In connection with founding or organizing the business or enterprise of an issuer, directly or indirectly receives in consideration of services, property, or both services and property, 10 percent or more of a class of securities of the issuer, or 10 percent or more of the proceeds from the sale of a class of securities of the issuer. “Promoter” does not include a person that receives 10 percent or more of a class of securities of the issuer or 10 percent or more of the proceeds from the sale of a class of securities of the issuer, either solely as brokerage commissions or solely in consideration of property, if the person does not directly or indirectly found or organize the business or enterprise of the issuer. “Purchaser representative” has the meaning stated in 17 CFR §230.501 (SEC Rule 501, Definitions and Terms Used in Regulation D). General Requirements. Transactions by an issuer involving the offer or sale of securities of the issuer that are part of an offering that satisfies the terms of MLOE are exempt under the Maryland Securities Act, Corporations and Associations Article, §11-602(9), Annotated Code of Maryland. The burden of proving an exemption under MLOE is on the person claiming the exemption. Notwithstanding the failure of a transaction to satisfy one or more of the terms of MLOE, upon application, the Commissioner may order that the transaction is exempt under the Maryland Securities Act, Corporations and Associations Article, §11-602(9), Annotated Code of Maryland, if the Commissioner finds that the: Transaction demonstrates substantial compliance in good faith with the conditions of MLOE; and Order would be consistent with the public interest. Integration. Offers and sales of securities that are part of the same offering of securities under MLOE shall satisfy all of the applicable terms of MLOE. Offers and sales of securities that are made more than 6 months before the commencement or more than 6 months after the completion of an offering of securities under MLOE are not considered part of the offering of securities under MLOE if during those 6 month periods there are no offers or sales of securities by or for the issuer that are of the same or similar class as those offered or sold under MLOE, other than offers or sales of securities under an employee benefit plan of the type referred to in the Maryland Securities Act, Corporations and Associations Article, §11-601(11), Annotated Code of Maryland. If securities of the same or similar class as those offered or sold under MLOE are offered or sold within 6 months before the commencement or 6 months after the completion of an offering of securities under MLOE, those offers to sell and sales, depending on the particular facts and circumstances, may be considered to be integrated with the offering, under §B(1) of this regulation. In determining whether offers and sales should be integrated for purposes of this regulation, the Commissioner may consider whether the offers or sales: Are part of a single plan of financing; Involve issuance of the same class of securities; Have been made at or about the same time; Involve the same type of consideration; and Are made for the same general purpose. Manner of Offering. The issuer or a person acting on the issuer's behalf may not offer or sell securities under MLOE by any form of general solicitation or advertising in Maryland. The issuer or a person acting on the issuer's behalf may not offer or sell securities under MLOE by any form of general solicitation or advertising outside Maryland, if the: Issuer or person acting on the issuer's behalf reasonably believes that the general solicitation or advertising would be disseminated into Maryland; General solicitation or advertising is disseminated into Maryland. For purposes of this section, “general solicitation” and “advertising” include, but are not limited to: An advertisement, article, notice, or other communication published in a newspaper, magazine, or similar media, or broadcast over, transmitted through, or otherwise disseminated by television, radio, information databases, or similar media; and A seminar or meeting whose attendees have been invited by an advertisement, article, notice, or other communication published in a newspaper, magazine, or similar media or broadcast over, transmitted through, or otherwise disseminated by television, radio, information databases, or similar media. Remuneration for Solicitation or for Sales. Except as provided in §D(2) of this regulation, a commission or similar remuneration may not be paid or given, directly or indirectly, for the solicitation of a prospective purchaser or in connection with sales of securities under MLOE. A commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under MLOE may be paid or given to: A broker-dealer that the issuer reasonably believes is registered under the Maryland Securities Act, Corporations and Associations Article, §11-405, Annotated Code of Maryland; or An individual who the issuer reasonably believes has not received a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities on behalf of more than one other issuer within a 12-month period immediately before the first sale by the individual in the offering of securities under MLOE. Resales. Securities acquired in a transaction under MLOE may not be resold unless they are registered under the Maryland Securities Act, Corporations and Associations Article, §11-501, Annotated Code of Maryland, or qualify for an exemption from registration under the Maryland Securities Act, Corporations and Associations Article, §11-602, Annotated Code of Maryland. The issuer or a person acting on the issuer's behalf shall exercise reasonable care to assure that each purchaser of the securities in an offering under MLOE purchases for investment and not with a view to distribution of the securities. For purposes of §E(2) of this regulation, reasonable care may be demonstrated if the issuer or the person acting on the issuer's behalf: Made a reasonable inquiry to determine whether the purchaser is acquiring the securities for other persons; Delivered written disclosure to each purchaser before a sale that the securities have not been registered under the Maryland Securities Act, Corporations and Associations Article, §11-501, Annotated Code of Maryland, and, therefore, may not be resold unless the securities are registered under that section or qualify for an exemption from registration under the Maryland Securities Act, Corporations and Associations Article, §11-602, Annotated Code of Maryland; Obtained from the purchaser a signed agreement that the securities will not be resold unless they are registered or qualify for an exemption from registration under the Maryland Securities Act, Corporations and Associations Article, §11-602, Annotated Code of Maryland; Placed a restrictive legend on the certificate or other document evidencing the securities, which legend may be in the following form: Acted in another manner that demonstrated reasonable care. Calculation of the Number of Purchasers. For the purpose of calculating the number of purchasers under MLOE, the following conditions apply: The following purchasers are excluded: A relative, spouse, or relative of the spouse of a purchaser, who has the same principal residence as the purchaser, A trust or estate in which a purchaser and any of the persons related to the purchaser as specified in §F(1)(a)(i) or (iii) of this regulation collectively are beneficial owners of more than 50 percent of the interests, excluding contingent interests, A corporation, limited liability company, partnership, or other entity of which a purchaser and any of the persons related to the purchaser as specified in §F(1)(a)(i) or (ii) of this regulation collectively are beneficial owners of more than 50 percent of the equity interests (excluding directors' qualifying shares), and Accredited investors; A corporation, limited liability company, partnership, or other entity is considered one purchaser, unless the corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer; If a purchaser that is a corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer and is not an accredited investor under 17 CFR §230.501(a)(8) (SEC Rule 501, Definitions and Terms Used in Regulation D), then each beneficial owner of an equity interest in the corporation, limited liability company, partnership, or other entity is considered a separate purchaser, except to the extent provided in §F(2) of this regulation; A noncontributory employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 is considered one purchaser, if the plan's trustee makes all investment decisions for the plan; Regardless of the amount of discretion given to the investment adviser or broker-dealer to act on behalf of a client or customer, a client of an investment adviser or a customer of a broker-dealer is considered a “purchaser” under MLOE. The provisions of MLOE apply to each purchaser whether or not the purchaser is included in calculating the number of purchasers under §F(1) of this regulation. Disqualification. An exemption under MLOE is not available if the issuer, any of its directors, officers, general partners, trustees, beneficial owners of 10 percent or more of a class of its equity interests, or promoters currently connected with it in any capacity, or any person, other than a broker-dealer currently registered under the Maryland Securities Act, Corporations and Associations Article, §11-405, Annotated Code of Maryland, that has been or will be paid or given, directly or indirectly, a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under MLOE: Within 5 years before the first sale of securities in an offering under MLOE, has filed a registration statement or application for exemption from registration that is currently subject to a stop order under a state's securities laws; Within 5 years before the first sale of securities in an offering under MLOE, has been convicted of or has pleaded nolo contendere to a felony or misdemeanor in connection with the offer, purchase, or sale of a security or in connection with the making of a false filing with the SEC or with a state securities administrator, or a felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, conspiracy to defraud, or theft; Is subject to an order, judgment, or decree of a court of competent jurisdiction temporarily or preliminarily restraining or enjoining, or is subject to an order, judgment, or decree of a court of competent jurisdiction entered within 5 years before the first sale of securities in an offering under MLOE and permanently restraining or enjoining, that person from engaging in or continuing any conduct or practice in connection with the offer, purchase, or sale of a security or in connection with the making of a false filing with the SEC or a state securities administrator; Is subject to a United States Postal Service false representation or cease and desist order entered under 39 U.S.C. §3005 within 5 years before the first sale of securities in an offering under MLOE or is subject to a temporary restraining order or preliminary injunction entered under 39 U.S.C. §3007 or 18 U.S.C. §1345 with respect to conduct alleged to have violated 39 U.S.C. §3005; or Is subject to a state administrative order entered by a state securities administrator in which fraud or deceit was found, if the final order was entered within 5 years before the first sale of securities in an offering under MLOE. An exemption under MLOE is not available if the issuer or any of its predecessors or affiliates is subject to an order issued by the Commissioner or is subject to an order, judgment, or decree of a court of competent jurisdiction temporarily, preliminarily, or permanently restraining or enjoining the person for failure to comply with §D of Regulation .12 of this chapter. Waiver of Disqualification. The Commissioner may waive by order a disqualification under §G(1) or (2) of this regulation, if the Commissioner determines that the order would be consistent with the public interest. A waiver by the Commissioner of a disqualification under §G(1) or (2) of this regulation is without prejudice to the Commissioner in other proceedings or matters with respect to the issuer or any other person. Nature of Issuer. Exemption under MLOE and this regulation is available only to local issuers. The Commissioner may extend by order the exemption under this regulation to a limited liability company, partnership, or other entity that satisfies all of the elements of the definition of local issuer except that it is not a corporation, if the Commissioner determines that the order would be consistent with the public interest. Definition. “Local issuer” means a corporation that: Is organized under the laws of Maryland or is organized under the laws of another jurisdiction and is qualified to do business in Maryland under Corporations and Associations Article, §7-203, Annotated Code of Maryland; Has its principal place of business in Maryland; and In the reasonable belief of the issuer, has 50 or fewer beneficial owners of its securities, both immediately before and immediately after the sale of securities under MLOE. For the purpose of calculating the number of beneficial owners under §B(1)(c) of this regulation: A corporation, limited liability company, partnership, or other entity is considered one beneficial owner, unless the corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer; If an owner that is a corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer, then each beneficial owner of an equity interest in the corporation, limited liability company, partnership, or other entity is considered a separate owner of the issuer; A relative, spouse, or relative of the spouse of a beneficial owner, who has the same principal residence as the beneficial owner, is considered together with the beneficial owner to be one beneficial owner of the issuer; A holder of a purchase money mortgage is excluded; and A person enumerated in 17 CFR §230.501(a)(1) (SEC Rule 501, Definitions and Terms Used in Regulation D) (1994), which is incorporated by reference, is excluded. Number of Purchasers. In an offering under this regulation: There may be not more than, or the issuer shall have a reasonable belief that there are not more than, ten purchasers, wherever located, of securities from the issuer during any 12-month period; and The number of purchasers shall be calculated in accordance with Regulation .10F of this chapter. Aggregate Offering Price. In an offering under this regulation, the aggregate offering price during any 12-month period may not exceed $150,000. Disclosure. Availability of the exemption under this regulation does not depend upon the issuer's delivery to a purchaser of a specific disclosure document. Nature of Security. Exemption under MLOE and this regulation is available for the following securities issued by a corporation, limited liability company, partnership, or real estate investment trust: A note, stock, bond, debenture, evidence of indebtedness, voting trust certificate, partnership interest, limited liability company interest, share of beneficial interest of a real estate investment trust, or American Depositary Receipt; A warrant or right to purchase or subscribe for a security listed in §A(1)(a) of this regulation; or A security convertible into a security listed in §A(1)(a) or (b) of this regulation. The Commissioner may extend by order the exemption under this regulation to other types of securities or issuers, if the Commissioner determines that the order would be consistent with the public interest. Number of Purchasers. In an offering under this regulation: There may be not more than, or the issuer shall have a reasonable belief that there are not more than, 35 purchasers in Maryland of securities from the issuer; and The number of purchasers shall be calculated in accordance with Regulation .10F of this chapter. Disclosure. In an offering under this regulation, the issuer shall: Deliver a Form MLOE-2, or a disclosure document containing the information required by Form MLOE-2, to each prospective purchaser before a sale to the purchaser; Sell securities only to accredited investors; Sell securities only to purchasers that, immediately before the sale, possess the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, or that the issuer believes after reasonable inquiry possess that knowledge and experience; Sell securities only to purchasers that, immediately before the sale, are able to bear, or that the issuer believes after reasonable inquiry are able to bear, the economic risk of the investment and that, together with a purchaser representative, possess the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment, or that the issuer believes after reasonable inquiry possess that knowledge and experience; or Sell securities only to a combination of purchasers that are described in §C(1)(b), (c), or (d) of this regulation. Notwithstanding the applicability of §C(1)(b)—(e) of this regulation, an issuer shall deliver Part II of Form MLOE-2, or a disclosure document containing the information required by Part II of Form MLOE-2, to all purchasers, if: Within 18 months before the first sale of securities under this regulation, the issuer issued or committed to be issued securities of the same or similar class for consideration of a per share value 25 percent or more below the offering price of securities to be sold under this regulation, if the securities so issued or committed to be issued constitute 10 percent or more of the securities of the same or similar class outstanding at the commencement of the offering under this regulation, or if the securities were issued or committed to be issued to an officer, director, general partner, or any other person that performs similar functions, or promoter of the issuer; or Any part of the proceeds of an offering under this regulation are not to be escrowed in a bank or other depository institution, the deposits of which are insured by the Federal Deposit Insurance Corporation, or with another person approved as escrow agent by order of the Commissioner, until completion of the offering. Notice Filing. If the anticipated aggregate offering price of an offering exempt from registration under MLOE and this regulation exceeds $150,000, the issuer shall file with the Commissioner not later than 15 days after the first sale of securities under MLOE and this regulation: A Form MLOE-1, or a document containing the information required by Form MLOE-1; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-506, Annotated Code of Maryland. Exclusions. The requirements of §D(1) of this regulation do not apply to an offer of securities made by an issuer to one person that, after completion of the offering, is the sole beneficial owner of the issuer. The requirements of §D(1) of this regulation do not apply to an offer of securities made in connection with the initial organization of an issuer to five or fewer individuals who will be principals of the issuer and will be substantially involved in the operations of the issuer. If a corporation, limited liability company, partnership, or other entity was organized for the purpose of acquiring the securities of the issuer, and equity interests in the corporation, limited liability company, partnership, or other entity are beneficially owned by more than one person, then the corporation, limited liability company, partnership, or other entity is considered to be more than one person for purposes of §D(2)(a) of this regulation. For purposes of calculating the number of beneficial owners in §D(2)(c) of this regulation, a relative, spouse, or relative of the spouse of a beneficial owner, who has the same principal residence as the beneficial owner, is considered together with the beneficial owner to be one person. Conditions. A failure to comply with a term of MLOE does not result in the loss of an exemption from the registration requirements of the Maryland Securities Act, Corporations and Associations Article, §11-501, Annotated Code of Maryland, for an offer or sale to a particular individual or entity, if the issuer or other person relying on the exemption demonstrates that the: Failure to comply did not pertain to a term directly intended to protect that particular individual or entity or class of individuals or entities; Failure to comply did not pertain to Regulation .10C or G, Regulation .11B or C, or Regulation .12B of this chapter; Failure to comply was insignificant with respect to the offering as a whole; and Issuer made a good faith and reasonable attempt to comply with all applicable terms of MLOE. Rights of Commissioner. The Commissioner retains the right to take action under the Maryland Securities Act against an issuer or other person that fails to comply with a term of MLOE, including Regulation .12D of this chapter, and establishes an exemption under MLOE only through reliance upon §A of this regulation. The following securities are exempt from registration filings under the Maryland Securities Act, Corporations and Associations Article, §§11-205 and 11-501, Annotated Code of Maryland, provided that the exemption may be revoked with respect to a specific security pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-603: Mortgage-related securities, as defined under §3(A)(41) of the federal Securities Exchange Act of 1934, and the rules, regulations, and interpretive releases promulgated under it. Scope. This regulation exempts under the Maryland Securities Act, Corporations and Associations Article, §11-602(15), Annotated Code of Maryland, certain transactions from the registration requirements of the Maryland Securities Act, Corporations and Associations Article, §11-501, Annotated Code of Maryland. This regulation and the Maryland Securities Act, Corporations and Associations Article, §11-602(15), Annotated Code of Maryland, do not provide an exemption from the antifraud provisions of the Maryland Securities Act, Corporations and Associations Article, Subtitles 3 and 7, Annotated Code of Maryland. Conditions. An offering under this regulation shall satisfy the terms of 17 CFR §230.505 (1994) (SEC Rule 505, Exemption for Limited Offers and Sales of Securities Not Exceeding $5,000,000) or 17 CFR §230.506 (1994) (SEC Rule 506, Exemption for Limited Offers Without Regard to Dollar Amount of Offering), which are incorporated by reference. The burden of proving an exemption under this regulation is on the person claiming the exemption. Remuneration for Solicitation or for Sales. Except as provided in §B(3)(b) of this regulation, a commission or similar remuneration may not be paid or given, directly or indirectly, for the solicitation of a prospective purchaser or in connection with sales of securities under this regulation. A commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under this regulation may be paid or given to: A broker-dealer that the issuer reasonably believes is registered under the Maryland Securities Act, Corporations and Associations Article, §11-405, Annotated Code of Maryland; or An individual who the issuer reasonably believes has not received a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities on behalf of more than one other issuer within a 12-month period immediately before the first sale by the individual in the offering of securities under this regulation. Disqualification. An exemption under this regulation is not available if the issuer, any of the issuer's directors, officers, general partners, trustees, or any other person that performs similar functions, beneficial owners of 10 percent or more of a class of its equity interests, or promoters currently connected with it in any capacity, or any person, other than a broker-dealer currently registered under the Maryland Securities Act, Corporations and Associations Article, §11-405, Annotated Code of Maryland, that has been or will be paid or given, directly or indirectly, a commission or similar remuneration for the solicitation of a prospective purchaser or in connection with sales of securities under this regulation: Within 5 years before the first sale of securities in an offering under this regulation, has filed a registration statement or application for exemption from registration that is currently subject to a stop order under a state's securities laws; Within 5 years before the first sale of securities in an offering under this regulation, has been convicted of or has pleaded nolo contendere to a felony or misdemeanor in connection with the purchase or sale of a security or in connection with the making of a false filing with the SEC or with a state securities administrator, or a felony involving fraud or deceit, including, but not limited to, forgery, embezzlement, obtaining money under false pretenses, larceny, conspiracy to defraud, or theft; Is subject to an order, judgment, or decree of a court of competent jurisdiction temporarily or preliminarily restraining or enjoining, or is subject to an order, judgment, or decree of a court of competent jurisdiction entered within 5 years before the first sale of securities in an offering under this regulation and permanently restraining or enjoining, that person from engaging in or continuing any conduct or practice in connection with the offer, purchase, or sale of a security or in connection with the making of a false filing with the SEC or a state securities administrator; Is subject to a United States Postal Service false representation or cease and desist order entered under 39 U.S.C. §3005 within 5 years before the first sale of securities in an offering under this regulation or is subject to a temporary restraining order or preliminary injunction entered under 39 U.S.C. §3007 or 18 U.S.C. §1345 with respect to conduct alleged to have violated 39 U.S.C. §3005; or Is subject to a state administrative order entered by a state securities administrator in which fraud or deceit was found, if the final order was entered within 5 years before the first sale of securities in an offering under this regulation. An exemption under this regulation is not available if the issuer or any of its predecessors or affiliates is subject to an order issued by the Commissioner or an order, judgment, or decree of a court of competent jurisdiction temporarily, preliminarily, or permanently restraining or enjoining the person for failure to comply with §D of this regulation. Waiver of Disqualification. The Commissioner may waive by order a disqualification under §C(1) or (2) of this regulation, if the Commissioner determines that the order would be consistent with the public interest. A waiver by the Commissioner of a disqualification under §C(1) or (2) of this regulation is without prejudice to the Commissioner in other proceedings or matters with respect to the issuer or any other person. Notice Filing. Not later than 15 days after the first sale of securities under this regulation, the issuer shall file with the Commissioner: A manually signed notice on a completed SEC Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption), as filed with the SEC and as that form may be amended from time to time, which filing or filings shall: Constitute the issuer's representation and affirmation to the Commissioner that it has complied with 17 CFR §230.505 (SEC Rule 505, Exemption for Limited Offers and Sales of Securities Not Exceeding $5,000,000) or 17 CFR §230.506 (SEC Rule 506, Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering), and Include in the Appendix, the information requested in the fifth column with respect to Maryland; A statement by the issuer or issuer's counsel of the first date of a sale of securities in Maryland made under this regulation; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-506, Annotated Code of Maryland. Insignificant Deviations. A failure to comply with a term of §B or D of this regulation, including a failure to comply with a term of SEC Rule 505 or Rule 506, does not result in the loss of an exemption from the registration requirements of the Maryland Securities Act, Corporations and Associations Article, §11-501, Annotated Code of Maryland, for an offer or sale to a particular individual or entity, if the issuer or other person relying on the exemption demonstrates that: The failure to comply did not pertain to a term directly intended to protect that particular individual or entity or class of individuals or entities; The failure to comply did not pertain to 17 CFR §230.502(c) (SEC Rule 502, General Conditions to Be Met), 17 CFR §230.505(b)(2)(i), (ii), or (iii) (SEC Rule 505, Exemption For Limited Offers and Sales of Securities Not Exceeding $5,000,000), 17 CFR §230.506(b)(2)(i) (SEC Rule 506, Exemption For Limited Offers and Sales Without Regard to Dollar Amount of Offering); The failure to comply was insignificant with respect to the offering as a whole; and The issuer made a good faith and reasonable attempt to comply with all applicable terms of this regulation. The Commissioner retains the right to take action under the Maryland Securities Act against an issuer or other person that fails to comply with a term of this regulation, and establishes an exemption only through reliance upon §E(1) of this regulation. The following transactions are exempt from registration filings under the Maryland Securities Act, Corporations and Associations Article, §§11-205 and 11-501, Annotated Code of Maryland, provided that the exemption may be revoked with respect to a specific transaction pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-603: A transaction involving the offer or sale of one or more promissory notes directly secured by a first lien on a single parcel of real estate upon which is located a dwelling or other residential or commercial structure, and participation interest in the notes, that are exempt under §4(5) of the federal Securities Act of 1933, and the rules, regulations, and interpretive releases promulgated under it. Corporations and Associations Article, §§11-203, 11-405, 11-501, 11-506, 11-601(3), 11-601(12), and 11-602, Annotated Code of Maryland Effective date: April 1, 1983 (10:6 Md. R. 551) Regulations .01—.05 adopted effective April 15, 1991 (18:7 Md. R. 770) Regulation .06 repealed and new Regulations .06 and .07 adopted effective November 11, 1991 (18:22 Md. R. 2393) Regulations .10 and .11 adopted as an emergency provision effective October 1, 1992 (19:17 Md. R. 1602); adopted permanently effective November 23, 1992 (19:23 Md. R. 2039) Regulation .12 adopted effective June 3, 1985 (12:11 Md. R. 1046) Regulation .12 amended and recodified to Regulation .06 effective April 15, 1991 (18:7 Md. R. 770) Chapter revised effective September 1, 1995 (22:17 Md. R. 1314) As used in the Maryland Securities Act, Corporations and Associations Article, §11-101(h), Annotated Code of Maryland, the following terms have the meanings indicated. Terms Defined. “Compensation” means a form of payment or consideration, whether direct or indirect or in the form of cash or other benefits, that is paid or conveyed to or for the benefit of the investment adviser in connection with the rendering of the investment advisory services described in the Maryland Securities Act, Corporations and Associations Article, §11-101(i), Annotated Code of Maryland. “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” has the same meaning as the identical phrase found in §202(a)(11) of the Investment Advisers Act of 1940 and the rules, regulations, and interpretive releases promulgated under it. “Engineer” means a person who is registered and in good standing with the State Board for Professional Engineers, as provided in Business Occupations and Professions Article, Title 14, Annotated Code of Maryland, or its equivalent licensing and regulatory agency in a state. “Insurance producer” means an insurance producer licensed by and in good standing with the Maryland Insurance Administration, as set forth in the Insurance Article, Annotated Code of Maryland. “Investment Advisers Act of 1940” means the federal act of that name, as amended, set forth in 15 U.S.C. §§80b-1—80b-21. “Investment Company Act of 1940” means the federal act of that name, as amended, set forth in 15 U.S.C. §§80a-1—80a-52. “Lawyer” means a person who is admitted to practice before the bar of any state and is in good standing with it. “Securities Exchange Act of 1934” means the federal act of that name, as amended, set forth in 15 U.S.C. §§78a—78jj. “Solely incidental to the practice of his profession” has the same meaning as the identical phrase found in §202(a)(11) of the Investment Advisers Act of 1940 and the rules, regulations, and interpretive releases promulgated under it. “Teacher” means a person who possesses a valid license or certificate of qualification to teach in an educational institution in a state, or a person who is employed in a teaching or research capacity by a college, university, or other accredited educational institution. Notwithanding the Maryland Securities Act, Corporations and Associations Article, §11-101(i), Annotated Code of Maryland, the term “investment adviser representative”, as it applies to an individual who is employed by or associated with a federal covered adviser, only includes an individual who has a “place of business” in this State, as that term is defined in rules or regulations promulgated under §203A of the Investment Advisers Act of 1940, and who is either: An “investment adviser representative” as that term is defined in rules or regulations promulgated under §203A of the Investment Advisers Act of 1940; or Not a “supervised person” as that term is defined in rules or regulations promulgated under the Investment Advisers Act of 1940, and solicits, offers, or negotiates for the sale of or sells investment advisory services on behalf of a federal covered adviser. The antifraud provisions of the Maryland Securities Act, Corporations and Associations Article, §11-302(a), Annotated Code of Maryland, apply to a person who receives consideration indirectly from another person for: Advising the person as to the value of securities or their purchase or sale; or Acting as an investment adviser or investment adviser representative. For purposes of this regulation and the Maryland Securities Act, Corporations and Associations Article, §11-302(a), Annotated Code of Maryland, a person receiving indirect consideration may include a person, including officers, directors, and investment adviser representatives of an investment adviser, who receives compensation from an individual or entity that renders investment advice to a client even though the person does not receive compensation directly from the client. Definitions. As used in this regulation, the following terms have the meanings indicated: “Affiliate” has the meaning stated in §2(a)(3) of the Investment Company Act of 1940. “Found” means determined or ascertained by adjudication or consent in a final court action, administrative proceeding, or SRO proceeding. “Investment-related or financially related” means pertaining to investment advisory or financial planning services, counseling or consulting activities, securities, commodities, banking, insurance, real estate, or accountancy, including, but not limited to, acting as or being associated with a broker-dealer, investment company, investment adviser, government securities broker or dealer, municipal securities dealer, insurance company or agent or broker, bank, savings institution, trust company, credit union, or savings and loan association, or fiduciary, or an entity or person required to be registered under the Commodity Exchange Act. “Involved” means acting or aiding, abetting, causing, counseling, commanding, inducing, conspiring with, or failing reasonably to supervise another in doing an act. “Management person” means a person with power to: Exercise, directly or indirectly, a controlling influence over the management or policies of an investment adviser; or Determine the general investment advice given to clients. Prohibited Practices. An investment adviser is a fiduciary and has a duty to act primarily for the benefit of its clients. While the extent and nature of this duty varies according to the nature of the relationship between an investment adviser and its clients and the circumstances of each case, an investment adviser may not engage in unethical business practices, including the following: Recommending to a client to whom investment supervisory, management, or consulting services are provided the purchase, sale, or exchange of a security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client's investment objectives, financial situation and needs, and any other information known or acquired by the investment adviser after reasonable examination of the client's financial records. Placing an order to purchase or sell a security for the account of a client without having obtained, in advance, the authority to do so. Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third-party trading authorization from the client. Exercising discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within 10 business days after the date of the first transaction placed under oral discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both. Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, objectives, and character of the account. Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds or securities. Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or a broker-dealer engaged in the management of margin accounts, or unless the client is an affiliate of the investment adviser. Misrepresenting to an advisory client or prospective advisory client the qualifications of the investment adviser, or an investment adviser representative employed by or associated with the investment adviser or an employee of the investment adviser, or misrepresenting the nature of the advisory services being offered or fees to be charged for that service, or omitting to state a material fact necessary to make the statements made regarding qualifications, services, or fees, in light of the circumstances under which they are made, not misleading. Providing a report or recommendation to an advisory client prepared by a person other than the investment adviser without disclosing that fact, except that this prohibition does not apply to a situation in which the investment adviser uses published research reports or statistical analyses to render advice or a situation in which an adviser orders these reports in the normal course of providing services. Charging a client an unreasonable advisory fee in light of the fees charged by other investment advisers providing essentially the same services. Failing to disclose to clients in writing before advice is rendered a material conflict of interest relating to the investment adviser or any of its affiliates or employees that could reasonably be expected to impair the rendering of unbiased and objective advice, including conflicts that may arise from: Compensation arrangements connected with advisory services to clients that are in addition to compensation from the clients for these services; and Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to the advice will be received by: The investment adviser; Any affiliate of the investment adviser; Any investment adviser representative employed by or associated with the investment adviser; or Any employee of the investment adviser. Guaranteeing a client that a certain or specific result will be achieved, for example, gain or no loss, as a result of the advice that will be rendered. Publishing, circulating, or distributing an advertisement that does not comply with 17 CFR §275.206(4)-1 (SEC Rule 206(4)-1, Advertisements by Investment Advisers). Disclosing the identity, affairs, or investments of a client to a third party without the consent of the client, unless required by law to do so. Taking an action, directly or indirectly, with respect to those securities, instruments, or funds in which a client has a beneficial interest, when the investment adviser has custody or possession of the securities or funds when the investment adviser's action is subject to and does not comply with the safekeeping requirements of 17 CFR §275.206(4)-2 (SEC Rule 206(4)-2, Custody or Possession of Funds or Securities of Clients). Entering into, extending, or renewing an investment advisory contract unless the contract is in writing and discloses, in substance: The services to be provided; The term of the contract; The advisory fee or the formula for computing the fee; The amount of prepaid fee to be returned in the event of contract termination or nonperformance; Whether the contract grants discretionary power to the investment adviser; and That an assignment of the contract may not be made by the investment adviser without the consent of the other party to the contract. Failure to Disclose. It shall constitute a dishonest and unethical business practice within the meaning of the Maryland Securities Act, Corporations and Associations Article, §11-302(a)(3), Annotated Code of Maryland, for an investment adviser to fail to disclose to a client or prospective client all material facts with respect to: A financial condition of the adviser that is reasonably likely to impair the ability of the investment adviser to meet contractual commitments to the client, if the investment adviser has discretionary authority, whether express or implied, or custody over the client's funds, instruments, or securities, or requires prepayment of advisory fees of more than $500 from the client at a time more than 6 months in advance of performance; or A legal or disciplinary event that is material to an evaluation of the investment adviser's integrity or ability to meet contractual commitments to clients. Investment advisers may disclose the information required by this section in their “brochure”, the Form ADV-Part II written disclosure statement that is required to be made to clients under the Maryland Securities Act, Corporations and Associations Article, §§11-302(d) and 11-411(b), Annotated Code of Maryland, and Regulation .05 of this chapter, if the delivery of the brochure satisfies the timing of disclosure requirements described in §D of this regulation. Timing of Disclosure. The information required to be disclosed by §C of this regulation shall be disclosed to clients promptly, and to prospective clients not less than 48 hours before entering into a written or oral investment advisory contract, or not later than the time of entering into a contract if the client has the right to terminate the contract without penalty within 5 business days after entering into the contract. Material Events. There shall be a rebuttable presumption that the following legal or disciplinary events involving the investment adviser or a management person of the adviser (any of these being referred to after this as “person”) that were not resolved in the person's favor or subsequently reversed, suspended, or vacated, are material within the meaning of §C(1)(b) of this regulation for a period of 10 years from the time of the event: A criminal or civil action in a court of competent jurisdiction in which the person was: Convicted of, or pleaded guilty or nolo contendere to, a felony or misdemeanor, or is the named subject of a pending criminal proceeding or indictment (any of these referred to after this as “action”), and the action involved an investment-related or financially related business, fraud, false statements or omissions, wrongful taking of property, bribery, forgery, counterfeiting, or extortion; Found to have been involved in a violation of an investment-related or financially related statute or regulation; or The subject of an order, judgment, or decree permanently or temporarily enjoining or otherwise limiting the person from engaging in an investment-related or financially related activity. Administrative proceedings before the Commissioner, the SEC, other federal regulatory agency, or other state (“agency”) in which the person was found to have: Caused an investment-related or financially related business or entity to lose its license or authorization to do business; or Been involved in a violation of an investment-related or financially related statute or regulation and was the subject of an order by the agency denying, suspending, or revoking the license or authorization of the person to act in, or barring or suspending the person's association with, an investment-related or financially related business, entity, or individual, or otherwise limiting significantly the person's investment-related or financially related activities. Self-regulatory organization proceedings in which the person was found to have: Caused an investment-related or financially related business or entity to lose its license or authorization to do business; or Been involved in a violation of the SRO's rules and was the subject of an order by the SRO barring or suspending the person from membership or from association with other members, or expelling the person from membership, fining the person more than $2,500, or otherwise significantly limiting the person's investment-related or financially related activities. Calculating Time Period. For purposes of calculating the 10-year period during which events are presumed to be material under §E of this regulation, the date of a reportable event shall be the date on which the final order, judgment, or decree was entered, or the latest date on which a right of appeal from a preliminary order, judgment, or decree lapsed. Other Conduct and Obligations. The conduct set forth in §§B—F of this regulation is not inclusive. Engaging in other conduct such as nondisclosure, incomplete disclosure, or deceptive practices shall be considered an unethical business practice. Compliance with this regulation does not relieve an investment adviser from any obligations under any other disclosure requirement of the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, or a regulation or order promulgated under it, or any other state or federal law, rule, or regulation. Conditions of Custody. As provided in the Maryland Securities Act, Corporations and Associations Article, §11-302(f), Annotated Code of Maryland, it is unlawful for an investment adviser to take or have custody of securities or funds of a client unless: The investment adviser notifies the Commissioner in writing that the investment adviser has or may have custody, which notification may be given on Form ADV; The securities of each client are segregated, marked to identify the particular client having the beneficial interest in those securities, and held in safekeeping in a place reasonably free from risk of destruction or other loss; All client funds are deposited as follows: In one or more bank accounts containing only clients' funds, The account or accounts are maintained in the name of the investment adviser as agent or trustee for the clients, and The investment adviser maintains a separate record for each account showing the name and address of the bank where the account is maintained, the dates and amounts of deposits in and withdrawals from the account, and the exact amount of each client's beneficial interest in the account; Immediately after accepting custody or possession of funds or securities from a client, the investment adviser notifies the client in writing of the place and manner in which the funds and securities will be maintained and subsequently, if or when there is a change in the place or manner in which the funds or securities are maintained, the investment adviser gives written notice to the client; At least once every 3 months, the investment adviser sends to each client an itemized statement showing the client's funds and securities in the investment adviser's custody at the end of the period, and all debits, credits, and transactions in the client's account during that period; and At least once each calendar year, an independent certified public accountant or public accountant (“accountant”) verifies all client funds and securities by an actual examination, which shall be made at a time chosen by the accountant without prior notice to the investment adviser. A report stating that the accountant has made an examination of the client funds and securities in the custody of the investment adviser, and describing the nature and extent of the examination, shall be filed with the Commissioner within 30 days after each examination. Exception for Certain Broker-Dealers. This regulation does not apply to an investment adviser that is also registered as a broker-dealer under §15 of the Securities Exchange Act of 1934 if the broker-dealer: Is subject to and in compliance with 17 CFR §240.15c3-1 (SEC Rule 15c3-1, Net Capital Requirements for Brokers or Dealers); or Is a member of an exchange whose members are exempt from 17 CFR §240.15c3-1 (SEC Rule 15c3-1, Net Capital Requirements for Brokers or Dealers) under the provisions of paragraph (b)(2) of that rule, and the broker-dealer is in compliance with all rules and settled practices of the exchange that impose requirements with respect to financial responsibility and the segregation of funds or securities carried for the accounts of customers. Unless otherwise provided in this regulation, an investment adviser may fulfill the disclosure requirements of the Maryland Securities Act, Corporations and Associations Article, §§11-302(d) and 11-411(b), Annotated Code of Maryland, by complying with the provisions of §204 of the Investment Advisers Act of 1940 and the rules, regulations, and interpretive releases promulgated under it with respect to Form ADV. Taken together, these requirements may be known as the “brochure rule”. As provided in the Maryland Securities Act, Corporations and Associations Article, §§11-302(d) and 11-411(b), Annotated Code of Maryland, the Commissioner may impose on an investment adviser, or a class or group of investment advisers, requirements relating to the disclosure of information to clients that are in addition to those set forth in §A of this regulation. These additional requirements may be imposed as appropriate in the public interest or for the protection of investors and clients. Nothing in this regulation shall relieve an investment adviser from any obligations under any other provision of the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, or a regulation or order promulgated under it, or any other state or federal law, rule, or regulation that requires the disclosure of information to clients or prospective clients not specifically required by this regulation. Definition. For purposes of this regulation, “agency cross transaction for an advisory client” means a transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser, or a person controlling, controlled by, or under common control with the investment adviser, including an investment adviser representative, acts as a broker-dealer for both the client and another person on the other side of the transaction. When acting in this capacity, the person is required to be registered as a broker-dealer in this State unless excluded from the definition. Conditions of Compliance. An investment adviser effecting an agency cross transaction for an advisory client shall be in compliance with the Maryland Securities Act, Corporations and Associations Article, §11-302(a)(4), Annotated Code of Maryland, if the following conditions are met: The advisory client executes a written consent prospectively authorizing the investment adviser to effect agency cross transactions for the client; Before obtaining written consent from the client, the investment adviser makes full written disclosure to the client that, with respect to agency cross transactions, the investment adviser will act as broker-dealer for, receive commissions from, and have a potentially conflicting division of loyalties and responsibilities regarding both parties to the transactions; At or before the completion of each agency cross transaction, the investment adviser or other person relying on this regulation sends to the client a written confirmation including: A statement of the nature of the transaction; The date the transaction took place; An offer to furnish, upon request, the time when the transaction took place; and The source and amount of any other remuneration the investment adviser received or will receive in connection with the transaction; In the case of a purchase, if the investment adviser was not participating in a distribution, or, in the case of a sale, if the investment adviser was not participating in a tender offer, the written confirmation may state whether the investment adviser has been receiving or will receive other remuneration and that the investment adviser will furnish the source and amount of the remuneration to the client upon the client's written request; At least annually, and with or as a part of a written statement or summary of the client's account provided by the investment adviser, the investment adviser or another person relying on this regulation sends the client a written disclosure statement identifying: The total number of agency cross transactions during the period for the client since the date of the last statement or summary; and The total amount of all commissions or other remuneration the investment adviser received or will receive in connection with agency cross transactions for the client during the period; Each written disclosure and confirmation required by this regulation shall include a conspicuous statement that the client may revoke the written consent required under §B(1) of this regulation at any time by providing written notice of the revocation to the investment adviser; and An agency cross transaction may not be effected in which the same investment adviser recommended the transaction to both a seller and a purchaser. Duties to Clients. Nothing in this regulation shall be construed to relieve an investment adviser or investment adviser representative from acting in the best interests of the client, including fulfilling the duty with respect to the best price and execution for the particular transaction for the client, nor shall it relieve an investment adviser or investment adviser representative of any obligations under any other disclosure requirement of the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, or a regulation or order promulgated under it, or any other state or federal law, rule or regulation. Definitions. As used in this regulation: “Publicly distributed written materials” means written materials that are distributed to 35 or more persons who pay for those materials; “Publicly made oral statements” means oral statements made simultaneously to 35 or more persons who pay for access to those statements. Exemption from §11-302(a)(4). An investment adviser registered as a broker-dealer under §15 of the Securities Exchange Act of 1934 shall be exempt from the Maryland Securities Act, Corporations and Associations Article, §11-302(a)(4), Annotated Code of Maryland, in connection with a transaction in relation to which the broker-dealer acts as an investment adviser: Solely by means of publicly distributed written materials or publicly made oral statements; Solely by means of written materials or oral statements not purporting to meet the objectives or needs of specific individuals or accounts; Solely through the issuance of statistical information containing no expressions of opinion as to the investment merits of a particular security; or Through a combination of the items or services enumerated in §B(1)—(3) of this regulation. The exemption in §B of this regulation shall apply only if the materials and oral statements disclose that, if the purchaser of the advisory communication uses the investment adviser's services in connection with the sale or purchase of a security that is a subject of the communication, the investment adviser may act as principal for its own account or as agent for another person. Compliance by the investment adviser with the disclosure in §C of this regulation does not relieve it of any obligations under any other disclosure requirement of the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, or a regulation or order promulgated under it, or any other state or federal law, rule, or regulation. Definitions. As used in this regulation: “Affiliate” has the meaning stated in §2(a)(3) of the Investment Company Act of 1940. “Client's independent agent” means a person who agrees to act as an investment advisory client's agent in connection with the contract, but does not include: The investment adviser relying on this regulation; An affiliate of the investment adviser or an affiliate of an affiliate of the investment adviser, including an investment adviser representative; An interested person of the investment adviser; A person who receives, directly or indirectly, compensation in connection with the contract from the investment adviser, an affiliate of the investment adviser, an affiliate of the affiliate of the investment adviser, or an interested person of the investment adviser; or A person having the benefit of a material relationship between or among himself (or an affiliate of that person) and the investment adviser (or an affiliate of the investment adviser) that exists, or has existed at any time during the past 2 years. Company. Except for the companies listed in §A(3)(b) of this regulation, “company” means a corporation, partnership, association, joint stock company, trust, or any organized group of persons, whether incorporated or not, or a receiver, trustee in a case under Title 11 of the United States Code, or similar official or a liquidating agent for any of the above, in his capacity as such. Unless each of the equity owners of the companies listed below, other than the investment adviser entering into the contract, is a natural person as described in §B(1) of this regulation or is a company as defined in §A(3)(a) of this regulation, “company” does not include: A company required to be registered under the Investment Company Act of 1940 but that is not so registered; A private investment company that, for purposes of this paragraph, means a company that would be defined as an investment company under §3(a) of the Investment Company Act of 1940 but for the exception from that definition provided by §3(c)(1) of that act; An investment company registered under the Investment Company Act of 1940; or A business development company, as defined in §202(a)(22) of the Investment Advisers Act of 1940. “Interested person” means: A member of the immediate family of a natural person who is an affiliate of the investment adviser; A person who knowingly has a direct or indirect beneficial interest in, or who is designated as trustee, executor, or guardian of a legal interest in, a security issued by the investment adviser or by a controlling person of the investment adviser if that beneficial or legal interest exceeds: One-tenth of 1 percent of any class of outstanding securities of the investment adviser or a controlling person of the investment adviser; or Five percent of the total assets of the person seeking to act as the client's independent agent; or A person or partner or employee of a person who, at any time during the past 2 years, has acted as legal counsel for the investment adviser. Exemption from the Maryland Securities Act, Corporations and Associations Article, §11-302(e)(1)(i). Notwithstanding the prohibitions of the Maryland Securities Act, Corporation and Associations Article, §11-302(e)(1)(i), Annotated Code of Maryland, an investment adviser may enter into, extend, or renew an investment advisory contract that provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or a portion of the funds of the client if the following conditions are met: The client entering into the contract is a: Natural person or a company that, immediately after entering into the contract, has at least $500,000 under the management of the investment adviser; or Person who the investment adviser and its investment adviser representatives reasonably believe, immediately before entering into the contract, is a natural person or a company whose net worth, at the time the contract is entered into, exceeds $1,000,000. The net worth of a natural person may include assets held jointly with that person's spouse. The compensation paid to the investment adviser with respect to the performance of securities over a given period shall be based on a formula with the following characteristics: In the case of securities for which market quotations are readily available within the meaning of 17 CFR §270.2a-4(a)(1) (SEC Rule 2a-4(a)(1), Periodic Calculation of Net Asset Value of Redeemable Security), the formula shall include the realized capital losses and unrealized capital depreciation of the securities over the period; In the case of securities for which market quotations are not readily available within the meaning of 17 CFR §270.2a-4(a)(1) (SEC Rule 2a-4(a)(1), Periodic Calculation of Net Asset Value of Redeemable Security), the formula shall include: The realized capital losses of securities over the period; and If the unrealized capital appreciation of the securities over the period is included, the unrealized capital depreciation of the securities over the period; and The formula shall provide that compensation paid to the investment adviser under this regulation is based on the gains less the losses (computed in accordance with §B(2)(a) and (b) of this regulation) in the client's account for a period of not less than 1 year. Before entering into the advisory contract and in addition to the requirements of Form ADV, the investment adviser shall disclose in writing to the client or the client's independent agent all material information concerning the proposed advisory arrangement, including the following: That the fee arrangement may create an incentive for the investment adviser to make investments that involve more risk and are more speculative than would be the case in the absence of a performance-based fee; When relevant, that the investment adviser may receive increased compensation with regard to unrealized appreciation as well as realized gains in the client's account; The time periods that will be used to measure investment performance throughout the contract and their potential significance in the computation of the fee; The nature of an index that will be used as a comparative measure of investment performance, the potential significance of the index, and the reasons the investment adviser believes that the index is appropriate; and When the investment adviser's compensation is based in part on the unrealized appreciation of securities for which market quotations are not readily available within the meaning of 17 CFR §270.2a-4(a)(1) (SEC Rule 2a-4(a)(1), Periodic Calculation of Net Asset Value of Redeemable Security), the method by which the securities will be valued and the extent to which the valuation will be independently determined. The investment adviser, and any investment adviser representative who enters into the contract, shall reasonably believe, immediately before entering into the contract, that the contract represents an arm's-length arrangement between the parties and that the client (or in the case of a client that is a company as defined in §A(3) of this regulation, the person representing the company), alone or together with the client's independent agent, understands the proposed method of compensation and its risks. The representative of a company may be a partner, director, officer, or an employee of the company or the trustee when the company is a trust, or other person designated by the company or trustee, but shall satisfy the definition of client's independent agent set forth in §A(2) of this regulation. A person entering into or performing an investment advisory contract under this regulation is not relieved of any obligations under the Maryland Securities Act, Corporations and Associations Article, §11-302(a), Annotated Code of Maryland, or any other applicable provision of the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, or a regulation or order promulgated under it, or any other state or federal law, rule, or regulation. Nothing in this regulation shall relieve a client's independent agent from any obligation to the client under applicable law. For purposes of the Maryland Securities Act, Corporations and Associations Article, §11-302(e)(1)(ii), Annotated Code of Maryland, a transaction that does not result in a change of actual control or management of an investment adviser is not an assignment. Designation. Pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-405(a), Annotated Code of Maryland, the Commissioner designates the web-based Investment Adviser Registration Depository (IARD) operated by the Financial Industry Regulatory Authority to receive and store filings and collect related fees from investment advisers and investment adviser representatives on behalf of the Commissioner. Use of the IARD. Unless otherwise provided, all investment adviser and investment adviser representative applications, amendments, reports, notices, related filings, and fees required to be filed with the Commissioner pursuant to the regulations promulgated under the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, shall be filed electronically with and transmitted to the IARD. Electronic Filing Conditions. Electronic Signature. When a signature or signatures are required by the particular instructions of any filing to be made through the IARD, a duly authorized officer of the investment adviser or the investment adviser, as required, shall affix the individual's electronic signature to the filing by typing the individual's name in the appropriate fields and submitting the filing to the IARD. Submission of a filing in this manner shall constitute irrefutable evidence of legal signature by any individual whose name is typed on the filing. Completion of Filing. Applications for initial and renewal registration as an investment adviser may not be considered filed until the required fee and all required submissions have been received by the Commissioner. Electronic Filing—When Not Required. Notwithstanding §B of this regulation, the electronic filing of any particular document and the collection of related processing fees may not be required until the IARD provides for receipt of such filings and fees and 30 days notice is provided by the Commissioner. Any documents required to be filed with the Commissioner that are not permitted to be filed with or cannot be accepted by the IARD shall be filed in paper directly with the Commissioner. Hardship Exemptions. Temporary Hardship Exemption. An investment adviser registered or required to be registered in this State who experiences unanticipated technical difficulties that prevent submission of an electronic filing to the IARD may request a temporary hardship exemption from the requirements to file electronically. To request a temporary hardship exemption, an investment adviser shall: File Form ADV-H-State, Application for a Temporary or Continuing Hardship Exemption, in paper format with the Commissioner where the investment adviser's principal place of business is located, not later than 1 business day after the filing that is the subject of the Form ADV-H-State is due; and Submit the filing that is the subject of the Form ADV-H-State in electronic format to the IARD not later than 7 business days after the filing is due. Effective Date Upon Filing. The temporary hardship exemption will be considered effective upon receipt by the Commissioner of the complete Form ADV-H-State. Multiple temporary hardship exemption requests within the same calendar year may be disallowed by the Commissioner. Continuing Hardship Exemption. Criteria for Exemption. A continuing hardship exemption may be granted only if the investment adviser is able to demonstrate that the electronic filing requirements of this regulation are prohibitively burdensome. To apply for a continuing hardship exemption, an investment adviser shall: File Form ADV-H-State, Application for a Temporary or Continuing Hardship Exemption, in paper format with the Commissioner at least 20 business days before a filing is due; and If a filing is due to more than one Commissioner, file Form ADV-H-State with the Commissioner where the investment adviser's principal place of business is located. Decision and Effective Date. The Commissioner who receives the application shall grant or deny the application within 10 business days after the filing of Form ADV-H-State. An exemption is effective upon approval by the Commissioner. The time period of the exemption may not be longer than 1 year after the date on which the Form ADV-H-State is filed. If the Commissioner approves the application, the investment adviser shall, not later than 5 business days after the exemption approval date, submit filings to the IARD in paper format along with the appropriate processing fees for the period of time for which the exemption is granted. Application Form for Investment Adviser Registration. Initial Application. An application for initial registration as an investment adviser shall be made by completing Form ADV (Uniform Application for Investment Adviser Registration) in accordance with the form instructions and by filing the form with the IARD. The application for initial registration shall also include the following: Evidence of compliance by the applicant with or exemption from the examination requirements of Regulation .14 of this chapter; For those applicants subject to Regulation .15 of this chapter, a balance sheet prepared in accordance with the instructions to the Form ADV, and, if such balance sheet is as of a date more than 45 days from the date of filing of the application, an unaudited balance sheet prepared in accordance with the instructions to the Form ADV; A sample copy of each investment advisory contract used by the applicant; The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland; and Any other information the Commissioner may reasonably require. Renewal Application. An application for renewal registration as an investment adviser shall be made by filing with the IARD the fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. Updates and Amendments. An investment adviser shall file with the IARD, in accordance with the instructions in the Form ADV, any amendments to the investment adviser's Form ADV; An amendment shall be considered to be filed promptly if the amendment is filed within 30 days of the event that requires the filing of the amendment; and Within 90 days of the end of the investment adviser's fiscal year, an investment adviser shall file with the IARD an updated Form ADV. Investment Adviser Representative Registration. Each investment adviser registered or required to be registered in this State shall register at least one investment adviser representative with the Commissioner. Completion of Filing. An application for initial or renewal registration as an investment adviser will not be considered filed until the required fee and all required submissions have been received by the Commissioner. Notice Filing Requirements for Federal Covered Advisers. Initial Notice Filing. An initial notice filing for a federal covered adviser shall be made by filing with the IARD a completed Form ADV (Uniform Application for Investment Adviser Registration) and the fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. An initial notice filing shall be considered filed when the fee required by Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland, and the Form ADV are filed with and accepted by the IARD on behalf of this State. Renewal Notice Filing. A renewal notice for a federal covered adviser shall be made by filing with the IARD the fee required by Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. The renewal notice filing shall be considered filed when the fee required by Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland, is filed with and accepted by the IARD on behalf of this State. Updates and Amendments. A federal covered adviser shall file with the IARD, in accordance with the instructions in the Form ADV, any amendments to the federal covered adviser's Form ADV. Method of Filing. Until the IARD is capable of accepting applications to register investment adviser representatives, an application for initial or renewal registration as an investment adviser representative shall be submitted in accordance with §C of this regulation. When the IARD is capable of accepting applications to register investment adviser representatives, an application for initial and renewal registration as an investment adviser representative shall be submitted in accordance with §B of this regulation. Electronic Filings. Initial Application. An application for initial registration as an investment adviser representative shall be made by completing the Uniform Application for Securities Industry Registration or Transfer (Form U-4), in accordance with the form instructions and by filing the Form U-4 with the IARD. The application for initial registration also shall include: Evidence of compliance by the applicant with or exemption from the examination requirements of Regulation .14 of this chapter; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. Annual Renewal. An application for renewal registration for an investment adviser representative registered in this State shall be made by filing with the IARD the fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. Updates and Amendments. The investment adviser representative is under a continuing obligation to update information required by Form U-4 as changes occur. An investment adviser representative and the investment adviser shall file promptly with the IARD any amendments to the representative's Form U-4. An amendment shall be considered to be filed promptly if the amendment is filed within 30 days of the event that requires the filing of the amendment. Paper Filings. Except for an individual specified in §A(2) of this regulation, an application for initial registration as an investment adviser representative shall be filed with the Commissioner upon Form U-4 (Uniform Application for Securities Industry Registration or Transfer). The Form U-4 shall be manually executed by both the individual applicant and the investment adviser. The application also shall contain the following: Evidence of compliance by the applicant with or exemption from the examination requirements of Regulation .14 of this chapter; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. An individual registered as an agent in this State for a registered broker-dealer that is also a registered investment adviser in this State or is the affiliate of the registered investment adviser shall file an application for initial registration as an investment adviser representative with the Commissioner. The application shall contain the following: The name and CRD number of the applicant; Evidence of compliance by the applicant with or exemption from the examination requirements of Regulation .14 of this chapter; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. An application for renewal registration for an investment adviser representative registered in this State shall be filed by the investment adviser with the Commissioner. A renewal application will be accepted not earlier than 60 days before the December 31 expiration date and shall contain: A list of the names and, when applicable, CRD numbers of the investment adviser representatives; Amendments of documents previously filed with the Commissioner that were not amended as required by the Maryland Securities Act, Corporations and Associations Article, §11-411(d), Annotated Code of Maryland; A certification that, to the best knowledge, information, and belief of the investment adviser, there has been no change in the information contained in the investment adviser representatives' applications for registration currently in effect; and The fee required by the Maryland Securities Act, Corporations and Associations Article, §11-407, Annotated Code of Maryland. Applications for initial and renewal registration as an investment adviser representative will not be considered filed until the required fee and all required submissions have been received by the Commissioner. An investment adviser registered or required to be registered in this State shall establish, maintain, and enforce written supervisory guidelines that are reasonably designed to: Supervise the activities of an investment adviser representative and associated person to achieve compliance with the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, and the regulations promulgated under it; and Achieve compliance by the investment adviser with the Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland, and the regulations promulgated under it. An investment adviser registered or required to be registered in this State shall designate on the Form ADV one principal responsible for compliance with §A of this regulation. Definitions. As used in this regulation, the following terms have the meanings indicated: “Approved IAR continuing education credit” means the materials, written, oral, or otherwise, that have been approved by NASAA or its designee and that make up the educational program provided to an investment adviser representative (IAR) under this regulation. “Authorized provider” means a person that NASAA or its designee has authorized to provide continuing education content required by this regulation. “Credit” means a unit that has been designated by NASAA or its designee as at least 50 minutes of educational instruction. “Home state” means the state in which the investment adviser representative has its principal office and place of business. “IAR ethics and professional responsibility content” means approved IAR continuing education content that addresses an investment adviser representative's ethical and regulatory obligations. “IAR products and practice content” means approved IAR continuing education content that addresses an investment adviser representative's continuing skills and knowledge regarding financial products, investment features, and practices in the investment advisory industry. “NASAA” means the North American Securities Administrators Association or a committee designated by its Board of Directors. “Reporting period” means one 12-month period as determined by NASAA. An investment adviser representative's initial reporting period with this State commences the first day of the first full reporting period after the individual is registered or required to be registered with this State. General Examination Requirements. An investment adviser or investment adviser representative registered or required to be registered in this State shall: Successfully pass the examination or examinations designated by the Commissioner; Qualify for an exemption from the examination requirement under §D or E of this regulation; or Receive a waiver of the examination requirement under §G of this regulation. The person who is designated a principal under Regulation .13B of this chapter shall fulfill the investment adviser's examination requirement. Designated principals and applicants for initial registration as investment adviser representative shall pass the following examinations administered by the FINRA: Series 65 examination as adopted by the Commissioner on January 1, 2000; or Series 7 examination and the Series 66 examination as adopted by the Commissioner on January 1, 2000. The provisions of §C of this regulation do not apply to a designated principal or an applicant for initial registration as an investment adviser representative, if the individual has earned a credential designated by the Commissioner including, but not limited to, the following, and at the time of application is in good standing with the organization that issued the credential: Certified Financial Planner (CFP) awarded by the Certified Financial Planner Board of Standards, Inc.; Chartered Financial Consultant (ChFC) awarded by the American College, Bryn Mawr, Pennsylvania; Personal Financial Specialist (PFS) awarded by the American Institute of Certified Public Accountants; Chartered Financial Analyst (CFA) awarded by the Institute of Chartered Financial Analysts; or Chartered Investment Counselor (CIC) awarded by the Investment Counsel Association of America, Inc. Grandfathering Provisions. The provisions of §C of this regulation do not apply to a designated principal or an applicant for initial registration as an investment adviser representative, if the: Individual was approved by the Commissioner as the designated principal for a registered investment adviser as of January 1, 2000; or Individual was registered in any jurisdiction in the United States as an investment adviser representative or investment adviser as of January 1, 2000. Notwithstanding §E(1) of this regulation, the Commissioner may require additional examinations for an individual found to have violated any state or federal law. Two-Year Requirement. An individual who has not been registered in any jurisdiction for a period of 2 years shall be required to comply with the provisions of §C of this regulation. Notwithstanding §F(1) of this regulation, the Commissioner, by order or otherwise, may modify the 2-year requirement of this subsection. Based on a demonstration by an individual of relevant factors including, but not limited to, education and experience, the Commissioner shall consider an individual's request for a waiver of the examination requirements in accordance with the Maryland Securities Act, Corporations and Associations Article, §11-412(c)(6), Annotated Code of Maryland. Continuing Education Requirements. An investment adviser representative registered in this State shall complete the following continuing education requirements each reporting period: 6 credits of IAR ethics and professional responsibility content approved by NASAA and offered by an authorized provider, with at least 3 credits covering the topic of ethics; and 6 credits of IAR products and practice content approved by NASAA and offered by an authorized provider. An investment adviser representative who is registered as an agent of a FINRA member broker-dealer and is in compliance with FINRA's continuing education requirements is considered to be in compliance with the provisions of §H(1)(b) of this regulation for each applicable reporting period if, as determined by NASAA: FINRA's continuing education content focuses on compliance, regulatory, ethical, and sales practices standards; FINRA's continuing education content is derived from state and federal investment advisory statutes, rules and regulations, securities industry rules and regulations, and accepted standards and practices in the financial services industry; and FINRA's continuing education content requires that its participants demonstrate proficiency in the subject matter of the educational materials. Credentialing Organization Continuing Education Compliance. Credits of continuing education completed by an investment adviser representative who was awarded and currently holds a credential that qualifies for an examination waiver under §D of this regulation shall satisfy the requirements of §H(1) of this regulation provided: The investment adviser representative completes the credits of continuing education as a condition of maintaining the credential for the relevant reporting period; The credits of continuing education completed during the relevant reporting period by the investment adviser representative are mandatory to maintain the credential; and The continuing education content provided by the credentialing organization during the relevant reporting period is approved IAR continuing education content. Continuing Education Reporting. An investment adviser representative registered in this State shall be responsible for ensuring that the authorized provider reports the investment adviser representative's completion of the applicable IAR continuing education requirements. No Carry-Forward. An investment adviser representative who completes credits of continuing education in excess of the amount required for a reporting period may not carry forward excess credits to a subsequent reporting period. Failure to Complete or Report Continuing Education. An investment adviser representative who fails to comply with §H(1) or (4) of this regulation by the end of a reporting period shall be considered “CE inactive”. The registration of an investment adviser representative who is “CE inactive”, but otherwise qualifies for renewal, shall be renewed in this State at the end of the calendar year in which the investment adviser representative becomes “CE inactive”. An investment adviser representative shall remain “CE inactive” until the investment adviser representative completes and reports all required IAR continuing education credits for all reporting periods as required by this regulation. An investment adviser representative who is “CE inactive” at the close of the next calendar year is not eligible for investment adviser representative registration or renewal of an investment adviser representative registration. The Commissioner may, in the Commissioner's discretion, waive any requirements of this regulation. Home State. An investment adviser representative registered or required to be registered in this State who is registered as an investment adviser representative in the individual's home state is considered to be in compliance with §H of this regulation provided: The investment adviser representative's home state has continuing education requirements that are at least as stringent as §H of this regulation; and The investment adviser representative is in compliance with the home state's investment adviser representative continuing education requirements. Unregistered Periods. An individual applying for investment adviser representative registration who was previously registered as an investment adviser representative in this State must complete IAR continuing education for all reporting periods that occurred during the period the individual was not registered in this State as an investment adviser representative unless the individual takes and passes the examination required under §C of this regulation or receives an examination waiver under §G of this regulation. For purposes of this regulation, the following terms have the meanings indicated: “Net assets” means the excess of assets over liabilities, as determined by generally accepted accounting principles. “Net capital” has the meaning stated in 17 CFR §240.15c3-1 (SEC Rule 15c3-1, Net Capital Requirements for Brokers and Dealers). “Tangible net assets” means the net assets of an investment adviser registered or required to be registered reduced by the following: Prepaid expenses, except as to items properly classified as current assets under generally accepted accounting principles; Deferred charges; Goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, and all other assets of intangible nature; and Homes, furnishings, and automobiles and personal items not readily marketable, in the case of an individual, or advances or loans to stockholders and officers, in the case of a corporation, or advances or loans to partners, in the case of a partnership. An investment adviser registered or required to be registered in this State that has custody of client funds, assets, or securities, or requires payment of advisory fees more than 6 months in advance and in excess of $500 per client, shall: Maintain at all times a minimum net capital of $20,000, or minimum tangible net assets of $35,000; or Be bonded in the amount of $10,000 by a bonding company qualified to do business in this State, or deposit cash or any other equivalent form of security as the Commissioner may permit in the amount of $10,000. An investment adviser registered or required to be registered in this State shall notify the Commissioner by the close of business on the next business day if the investment adviser's total net capital or tangible net assets falls below the minimum required net capital or minimum required tangible net assets as required by §B(1) of this regulation. After transmitting the notice, the investment adviser shall, by the close of business on the following business day, file with the Commissioner a report of its financial condition, including the following: A trial balance of all ledger accounts; A computation of net capital or tangible net assets as defined in §A of this regulation; A statement of all client funds, securities, or assets that are not segregated; A computation of the aggregate amount of client ledger debit balances; and A statement of the number of client accounts. For an investment adviser registered or required to be registered in this State that maintains a minimum tangible net assets requirement as required by §B(1) of this regulation, rather than the minimum net capital requirement, submission to the Commissioner of a current appraisal may be required in order to establish the worth of an asset being calculated under the tangible net asset formulation. An investment adviser registered or required to be registered in this State shall maintain and preserve the following books, ledgers, and records: A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger. General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income, and expense accounts. A memorandum of each order given by the investment adviser for the purchase or sale of a security or asset, of an instruction received by the investment adviser from the client concerning the purchase, sale, receipt, or delivery of a particular security or asset, and of a modification or cancellation of an order or instruction. These memoranda shall show the terms and conditions of the order, instruction, modification, or cancellation, shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order, and shall show the account for which entered, the date of entry, whether the order was entered pursuant to the exercise of discretionary power and, when appropriate, the bank, broker-dealer, or other entity or person by or through which the transaction was effected. All check books, bank statements, cancelled checks, and cash reconciliations of the investment adviser. All bills or statements, or copies thereof, paid or unpaid, relating to the business of the investment adviser. All trial balances, financial statements, and internal audit working papers relating to the business of the investment adviser. Originals of all written communications received, and copies of all written communications sent, by the investment adviser relating to a recommendation made or proposed to be made and advice given or proposed to be given, a receipt, disbursement, or delivery of funds, securities, or assets, or the placing or execution of an order to purchase or sell a security or asset, except that: The investment adviser is not required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser; and If the investment adviser sends a notice, circular, or other advertisement offering a report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser is not required to keep a record of the names and addresses of the persons to whom it was sent, except that if the notice, circular, or advertisement is distributed to persons named on a list, the investment adviser shall retain with a copy of the notice, circular, or advertisement a memorandum describing the list and its source. A list or other record of all accounts in which the investment adviser is vested with discretionary power with respect to the funds, securities, assets, or transactions of a client. Copies of originals of all powers of attorney and other evidences of the granting of discretionary authority by a client to the investment adviser. All written agreements, or copies, entered into by the investment adviser with a client or otherwise relating to the business of the investment adviser. A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons, other than persons connected with the investment adviser, and, if the notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication recommends the purchase or sale of a specific security or asset, and does not state the reasons for this recommendation, a memorandum of the investment adviser indicating the reasons. Records of Securities or Asset Transactions. A record of every transaction involving either an asset about which advice is given or a security, in which the investment adviser or any of those persons described in §A(12)(b) and (c) of this regulation has, or by reason of the transaction acquires, any direct or indirect beneficial ownership, except transactions effected over which neither the investment adviser nor any of those persons described in §A(12)(b) and (c) of this regulation has any direct or indirect influence or control, and transactions in securities that are direct obligations of the United States. Records of transactions shall include the transactions of: A partner, officer, or director of the investment adviser; An employee who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made; An employee who, in connection with the employee's duties, obtains information concerning which securities are being recommended before the effective dissemination of the recommendations or of the information concerning the recommendations; and Any of the following persons who obtain information concerning securities recommendations being made by the investment adviser before the effective dissemination of the recommendations or of the information concerning the recommendations: a person in a control relationship to the investment adviser, an affiliated person of the controlling person, and an affiliated person of the affiliated person. “Control” has the same meaning as set forth in §2(a)(9) of the Investment Company Act of 1940, as amended. The record shall state the title and amount of the security or asset involved, the date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition), the price at which it was effected, and the name of the broker-dealer, bank, or other entity or person with or through which the transaction was effected. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected. The record also may contain a statement declaring that the reporting or recording of the transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security or asset. An investment adviser will not be considered to have violated the provisions of this subsection by the investment adviser's failure to record securities or asset transactions of any of those persons described in §A(12)(b) and (c) of this regulation if the investment adviser establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded. Records of Transactions in Securities or Assets Involving Direct or Indirect Beneficial Ownership. Notwithstanding the provisions of §A(12) of this regulation, when the investment adviser is primarily engaged in a business other than advising registered investment companies or other advisory clients, a record shall be maintained of every transaction involving either an asset about which advice is given or a security, in which the investment adviser or any of those persons described in §A(13)(b) and (c) of this regulation has, or by reason of the transaction acquires, any direct or indirect beneficial ownership, except transactions effected in any account over which neither the investment adviser nor any of those persons described in §A(13)(b) and (c) of this regulation has any direct or indirect influence or control, and transactions in securities that are direct obligations of the United States. Records of transactions shall include the transactions of: A partner, officer, director, or employee of the investment adviser who makes a recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made, or who, in connection with his duties, obtains information concerning which securities are being recommended before the effective dissemination of the recommendations or of the information concerning the recommendations; and Any of the following persons who obtain information concerning securities recommendations being made by the investment adviser before the effective dissemination of the recommendations or of the information concerning the recommendations: a person in a control relationship to the investment adviser, an affiliated person of the controlling person, and an affiliated person of the affiliated person. “Control” has the same meaning as set forth in §2(a)(9) of the Investment Company Act of 1940, as amended. The record shall state the title and amount of the security or asset involved, the date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition), the price at which it was effected, and the name of the broker-dealer, bank, or other entity or person with or through which the transaction was effected. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected. The record may also contain a statement declaring that the reporting or recording of the transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security or asset. An investment adviser is “primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients” if, for each of its three most recent fiscal years or for the period of time since organization, whichever is less, the investment adviser derived from the other business or businesses, on an unconsolidated basis, more than 50 percent of both its total sales and revenues and its income (or loss) before income taxes and extraordinary items. An investment adviser will not be considered to have violated the provisions of this subsection by its failure to record securities or asset transactions of any of those persons described in §A(13)(b) and (c) of this regulation if the investment adviser establishes that it instituted adequate procedures and used reasonable diligence to obtain promptly reports of all transactions required to be recorded. A copy of each written statement, and each amendment or revision of each written statement, given or sent to a client or prospective client of the investment adviser in accordance with the provisions of Regulation .05 of this chapter, and a record of the dates that each written statement, and each amendment or revision of each written statement, was given, or offered to be given, to a client or prospective client who subsequently became a client. All accounts, books, internal working papers, and other records or documents that are necessary to form the basis for or demonstrate the calculation of the performance or rate of return of all managed accounts or securities or assets recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons, other than persons connected with the investment adviser. With respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits, and other transactions in a client's account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts, shall be considered to satisfy the requirements of this subsection. If an investment adviser subject to §A of this regulation has custody or possession of securities, assets, or funds of a client, the records required to be made and kept under §A of this regulation shall include: A journal or other record showing all purchases, sales, receipts, and deliveries of securities (including certificate numbers) and other assets (including identifying or descriptive materials as appropriate) for these accounts, as well as all other debits and credits to the accounts; A separate ledger account for each client showing all purchases, sales, receipts, and deliveries of securities or assets, the date and price of each purchase and sale, and all debits and credits; Copies of confirmations of all transactions effected by or for the account of each client; and A record for each security or asset in which each client has a position or ownership interest, which record shall show the name of the client having the position or interest, the amount of the position or interest, and the location of each security or asset. An investment adviser subject to §A of this regulation that renders an investment supervisory or management service to a client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, make and keep the following: True, accurate, and current records showing separately for each client the securities or assets purchased and sold, and the date, amount, and price of each purchase and sale; and For each security or asset in which a client has a current position, true, accurate, and current information from which the investment adviser can promptly furnish the name of each client, and the current amount or interest of the client. Books or records required by this regulation may be maintained by the investment adviser in a manner such that the identity of a client to whom the investment adviser renders investment advisory services is indicated by numerical or alphabetical code or some similar designation. Time Period. Books and records required to be made under the provisions of §§A—C(1), inclusive, of this regulation, except for books and records required to be made under the provisions of §A(11) and (15) of this regulation, shall be maintained and preserved in an easily accessible place for a period of not less than 5 years from the end of the fiscal year during which the last entry was made on the record, and for the first 2 years shall be maintained in an appropriate office of the investment adviser. Partnership articles and amendments to the partnership articles, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor, shall be maintained in the principal office of the investment adviser and preserved until at least 3 years after termination of the enterprise. Books and records required to be made under the provisions of §A(11) and (15) of this regulation shall be maintained and preserved in an easily accessible place for a period of not less than 5 years, the first 2 years in an appropriate office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, the notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication. Before ceasing to conduct or discontinuing business as an investment adviser, an investment adviser subject to §A of this regulation shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this regulation for the remainder of the period specified herein, and shall notify the Commissioner in writing of the exact address at which the books and records will be maintained during this period. Preservation and Maintenance. The records required to be maintained and preserved under this regulation may be immediately produced or reproduced by photograph on film or, as provided in §G(2) of this regulation, on magnetic disk, tape, or other computer storage medium, and be maintained and preserved for the required time in that form. If records are produced or reproduced by photographic film or computer storage medium, the investment advisor shall: Arrange the records and index the films or computer storage medium so as to permit the immediate location of a particular record; Be ready at all times to provide, and promptly provide, any facsimile enlargement of film or computer printout or copy of the computer storage medium that the Commissioner may request; Store separately from the original one other copy of the film or computer storage medium for the time required; With respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records to reasonably safeguard records from loss, alteration, or destruction; and With respect to records stored on photographic film, at all times have available for examination of its records under the Maryland Securities Act, Corporations and Associations Article, §11-411, Annotated Code of Maryland, facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements. Under §G(1) of this regulation, an adviser may maintain and preserve on computer tape or disk or other computer storage medium records that, in the ordinary course of the adviser's business, are created by the adviser on electronic media or are received by the adviser solely on electronic media or by electronic data transmission. A book or other record made, kept, maintained, and preserved in compliance with 17 CFR §240.17a-3 (SEC Rule 17a-3, Records to be Made by Certain Exchange Members, Brokers and Dealers), that is substantially the same as the book or other record required to be made, kept, maintained, and preserved under this regulation shall be considered to be made, kept, maintained, and preserved in compliance with this regulation. A record made and kept under any provision of §A of this regulation, that contains all the information required under any other provision of §A of this regulation, need not be maintained in duplicate in order to meet the requirements of the other provision of §A of this regulation. A registered investment adviser that has custody of client funds or securities, or requires payment of advisory fees 6 months or more in advance and in excess of $500 per client, shall file with the Commissioner an audited balance sheet as of the end of the investment adviser's fiscal year. Each balance sheet filed under this regulation shall be: Audited by an independent certified public accountant; Prepared in conformity with generally accepted accounting principles; and Accompanied by a note stating the principles used to prepare it, the basis of included securities or assets, and any other explanations required for clarity. The financial statements required by this regulation shall be filed with the Commissioner within 90 days following the end of the investment adviser's fiscal year. Scope. This regulation governs amendment filings for investment advisers and investment adviser representatives that have not yet transitioned onto the IARD. Investment advisers and investment adviser representatives that have transitioned onto the IARD shall comply with Regulations .11A(3) and .12A(3) of this chapter. An amendment to an investment adviser's filings required by the Maryland Securities Act, Corporations and Associations Article, §11-411(d), Annotated Code of Maryland, shall be filed with the Commissioner. An amendment to an investment adviser representative's filings required by the Maryland Securities Act, Corporations and Associations Article, §11-411(d), Annotated Code of Maryland, shall be filed with the Commissioner upon Form U-4. An amendment required by the Maryland Securities Act, Corporations and Associations Article, §11-411(d), Annotated Code of Maryland, shall be: Filed within 30 days of the event giving rise to the amendment; and Marked to indicate clearly the changes on the filing that is being amended. Investment Adviser. An application for withdrawal of registration or of an application to register as an investment adviser shall be made by completing Form ADV-W (Notice of Withdrawal from Registration as Investment Adviser) in accordance with the form instructions and by filing the form with the IARD. Investment Adviser Representative. An application for withdrawal of registration or of an application to register as an investment adviser representative shall be made by completing Form U-5 (Uniform Notice of Withdrawal of Securities Industry Registration) in accordance with the form instructions and by filing the form with the IARD. Filings required by §A or B of this regulation shall be filed within 30 days of the event giving rise to the filing. Under the Maryland Securities Act, Corporations and Associations Article, §11-101(i)(2), Annotated Code of Maryland, an investment adviser representative does not include: An individual broker-dealer agent who: In conjunction with the agent's employment or affiliation with a broker-dealer, holds out to the public, as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1)(ii)3, Annotated Code of Maryland, by use of the title “financial consultant”, “financial adviser”, or similar title or designation; Does not in any other manner hold out as an investment adviser or representative; Does not in any other manner act or perform as an investment adviser or representative as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1), Annotated Code of Maryland; Is registered and in good standing in this State as the agent of a broker-dealer that is registered and in good standing in this State; and Has passed, with a score of 70 percent or better, the Series 7 examination administered by the FINRA, or a combination of examinations that the Commissioner determines is the substantial equivalent of the Series 7 examination; An individual insurance producer who: Falls within the definition of “investment adviser” under the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1), Annotated Code of Maryland, solely by incident of holding out to the public, as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1)(ii)3, Annotated Code of Maryland, by use of the registered trademark “ChFC”, “Chartered Financial Consultant”, “NAIFA”, “National Association of Insurance and Financial Advisers”, or any state or local affiliate of NAIFA whether by name or acronym, in the context of representing, acting as an agent or employee of, or otherwise indicating an affiliation with, an insurance company, producer, or agency; Does not in any other manner hold out as an investment adviser or representative; Does not in any other manner act or perform as an investment adviser or representative as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1), Annotated Code of Maryland; Holds a valid license as an insurance producer with the Maryland Insurance Administration, as provided in the Insurance Article, Annotated Code of Maryland; and Does not, in any other manner, act or perform as a broker-dealer agent as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(b), Annotated Code of Maryland; An individual officer, director, or other administrative employee of an insurance company, producer, agency, or trade association who: Falls within the definition of “investment adviser” under the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1), Annotated Code of Maryland, solely by incident of holding out to the public, as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1)(ii)(3), Annotated Code of Maryland, by use of the registered trademark “ChFC”, “Chartered Financial Consultant”, “NAIFA”, “National Association of Insurance and Financial Advisers”, or any state or local affiliate of NAIFA whether by name or acronym; Does not in any other manner hold out as an investment adviser or representative; Does not in any other manner act or perform as an investment adviser or representative as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1), Annotated Code of Maryland; Is regulated by the Maryland Insurance Administration, as provided in the Insurance Article, Annotated Code of Maryland, with respect to business or professional conduct; Uses the registered trademark “ChFC”, “Chartered Financial Consultant”, “NAIFA”, “National Association of Insurance and Financial Advisers”, or any state or local affiliate of NAIFA whether by name or acronym, only in the context of acting as an officer, director, or other administrative employee of an insurance company, producer, agency, or trade association; and Does not, in any other manner, act or perform as a broker-dealer agent as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(b), Annotated Code of Maryland; An individual who falls within the definition of “investment adviser” under the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1), Annotated Code of Maryland, solely by incident of holding out to the public, as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1)(ii)3, Annotated Code of Maryland, but who: Uses the registered trademark “ChFC”, “Chartered Financial Consultant”, “CFP”, or “Certified Financial Planner” solely in the context of: Acting as a teacher or researcher at an accredited college or university, Employment in the employee benefits, pension, personnel, or similar unit of a business entity that is not an investment adviser, or Employment by an agency of municipal, state, or local government; Does not in any other manner hold out as an investment adviser or representative; and Does not in any other manner act or perform as an investment adviser or representative as set forth in the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(1), Annotated Code of Maryland. For the purposes of the Maryland Securities Act, Corporations and Associations Article, §11-101(h)(2)(iii)3, Annotated Code of Maryland, a certified public accountant or certified public accounting firm (CPA) is not considered to “hold out” as an investment adviser if the CPA limits his or her holding out as an investment adviser to the following and does not in any other manner hold out as an investment adviser: Enumerating financial or investment planning, counseling, consulting, or similar types of advising or consulting as a service of the practice of the CPA in brochures or similar materials used for internal client purposes only; Enumerating financial or investment planning, counseling, consulting, or similar types of advising or consulting as a service of the practice of the CPA under the heading or caption “Certified Public Accountants” in a classified telephone book advertisement or listing, or in a directory of professional services, provided that the services are enumerated among the other services that are offered by the CPA. Abandonment of Application. For purposes of this regulation and the Maryland Securities Act, Corporations and Associations Article, §11-414, Annotated Code of Maryland, an application is considered abandoned if the applicant has failed to pursue the application for initial registration in a diligent manner. Notice of Proposed Cancellation. Before the Commissioner cancels an application for initial registration because the applicant has abandoned the application, the Commissioner shall send the applicant notice of the proposed cancellation at least 15 days before issuing an order of cancellation. The notice shall be sent by certified mail, return receipt requested, to the last known address of the applicant as specified in the application or correspondence with the Division. Request for Time to Complete Application. An applicant that receives a notice of proposed cancellation under §B of this regulation may request, before the date of the proposed cancellation, that the application remain pending so that the applicant may complete the application. An applicant that has requested that an application remain pending shall complete the application within 30 days of the date of the request. Final Action. If an applicant does not make a timely request for additional time to complete an application after the Commissioner has issued a notice of proposed cancellation under §B of this regulation, the Commissioner may cancel the application as abandoned. If an applicant that has requested additional time under §C of this regulation fails to complete the application within 30 days, the Commissioner may cancel the application as abandoned. Corporations and Associations Article, §§11-101, 11-203, and 11-302, Annotated Code of Maryland Effective date: Regulations .01—.09 adopted as an emergency provision effective July 25, 1989 (16:16 Md. R. 1733); emergency status expired December 22, 1989 Regulations .01—.09 adopted as an emergency provision effective December 23, 1989 (17:1 Md. R. 63); adopted permanently effective April 16, 1990 (17:7 Md. R. 845) Regulation .05 amended and Regulations .10—.18 adopted as an emergency provision effective August 1, 1990 (17:15 Md. R. 1845) Regulation .05 amended and new Regulations .10—.18 adopted as an emergency provision effective December 1, 1990 (17:26 Md. R. 2972) Regulations .05A, B amended effective March 18, 1991 (18:5 Md. R. 592) Regulations .10—.18 adopted effective March 18, 1991 (18:5 Md. R. 592) Regulations .10B, .11C, and .13D amended as an emergency provision effective September 23, 1991 (18:20 Md. R. 2197); emergency status extended at 18:26 Md. R. 2826; adopted permanently effective February 3, 1992 (19:2 Md. R. 152) Regulations .19 and .20 adopted as an emergency provision effective October 1, 1992 (19:17 Md. R. 1602); emergency status extended at 19:24 Md. R. 2123; adopted permanently effective December 7, 1992 (19:24 Md. R. 2125) Chapter revised effective May 9, 1994 (21:9 Md. R. 749) Chapter revised effective February 4, 2002 (29:2 Md. R. 94) Regulation .01B amended effective December 27, 2021 (48:26 Md. R. 1109) Regulation .11A amended effective December 27, 2021 (48:26 Md. R. 1109) Regulation .14 amended effective December 27, 2021 (48:26 Md. R. 1109) This chapter contains procedures for administrative hearings before the Maryland Securities Commissioner which are conducted under the: Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland (“the Maryland Securities Act”); Maryland Business Opportunities Sales Act, Business Regulation Article, Title 14, Subtitle 1, Annotated Code of Maryland (“the Business Opportunities Act”); or Maryland Franchise Registration and Disclosure Law, Business Regulation Article, Title 14, Subtitle 2, Annotated Code of Maryland (“the Maryland Franchise Law”). Exceptions. This chapter does not apply to investigations instituted by the Commissioner under the Maryland Securities Act, the Business Opportunities Act, or the Maryland Franchise Law. COMAR 02.02.07 contains regulations governing investigations. Regulations .08—.22 of this chapter do not apply to contested cases that are delegated under State Government Article, §10-205, Annotated Code of Maryland, to the Office of Administrative Hearings to conduct a hearing. In this chapter, the following terms have the meanings indicated. Terms Defined. “Administrative law judge” means a person authorized to conduct hearings in contested cases under State Government Article, Title 9, Subtitle 16, Annotated Code of Maryland. “Commissioner” means the Maryland Securities Commissioner or the designated agent of the Maryland Securities Commissioner. “Contested case” has the meaning stated in State Government Article, §10-202(d), Annotated Code of Maryland, and in this chapter refers to a proceeding before the Commissioner under the Maryland Securities Act, Business Opportunities Act, or the Maryland Franchise Law. “Division” means the Division of Securities in the Office of the Attorney General. “Maryland Business Opportunities Sales Act” and “Business Opportunities Act” mean Business Regulation Article, Title 14, Subtitle 1, Annotated Code of Maryland. “Maryland Franchise Registration and Disclosure Law” and “Maryland Franchise Law” mean Business Regulation Article, Title 14, Subtitle 2, Annotated Code of Maryland. “Maryland Securities Act” means Corporations and Associations Article, Title 11, Annotated Code of Maryland. “Party” means a respondent in the proceeding and the Division. “Person” has the meaning stated in Business Regulation Article, §1-101(g), Annotated Code of Maryland. “Respondent” means a person against whom a show cause order or summary order has been issued under the Maryland Securities Act, the Business Opportunities Act, or the Maryland Franchise Law. Show Cause Order. “Show cause order” means an order issued by the Commissioner that alleges facts that constitute a violation of, or a failure to comply with, the law by the respondent and that directs the respondent to explain why the Commissioner should not issue a final order against the respondent based upon the alleged facts. “Show cause order” includes orders to show cause concerning: A cease and desist order under the Business Opportunities Act, Business Regulation Article, §14-110, Annotated Code of Maryland; A cease and desist order under the Maryland Franchise Law, Business Regulation Article, §14-210, Annotated Code of Maryland; A denial, suspension, or revocation of investment adviser or investment adviser representative registration under the Maryland Securities Act, Corporations and Associations Article, §11-412, Annotated Code of Maryland; A denial, suspension, or revocation of broker-dealer or broker-dealer agent registration under the Maryland Securities Act, Corporations and Associations Article, §11-412, Annotated Code of Maryland; A denial, suspension, or revocation of effectiveness of a securities registration statement under the Maryland Securities Act, Corporations and Associations Article, §11-511, Annotated Code of Maryland; A denial or revocation of a securities registration exemption under the Maryland Securities Act, Corporations and Associations Article, §11-603, Annotated Code of Maryland; An order to cease and desist violations of the Maryland Securities Act, Corporations and Associations Article, §11-301—11-304, 11-401, 11-402, or 11-501, Annotated Code of Maryland. Summary Order. “Summary order” means an order issued by the Commissioner that alleges facts that constitute a violation of, or failure to comply with, the law by the respondent and that directs the respondent immediately to take certain actions or to refrain from certain actions. “Summary order” includes: A summary cease and desist order issued under the Business Opportunities Act, Business Regulation Article, §14-110, Annotated Code of Maryland; A summary cease and desist order issued under the Maryland Franchise Law, Business Regulation Article, §14-210, Annotated Code of Maryland; A stop order issued under the Maryland Franchise Law, Business Regulation Article, §14-221, Annotated Code of Maryland; A summary postponement or suspension of investment adviser or investment adviser representative registration under the Maryland Securities Act, Corporations and Associations Article, §11-413, Annotated Code of Maryland; A summary postponement or suspension of broker-dealer or broker-dealer agent registration under the Maryland Securities Act, Corporations and Associations Article, §11-413, Annotated Code of Maryland; A summary postponement or suspension of the effectiveness of a securities registration statement under the Maryland Securities Act, Corporations and Associations Article, §11-512, Annotated Code of Maryland; A summary denial or revocation of a securities registration exemption under the Maryland Securities Act, Corporations and Associations Article, §11-603, Annotated Code of Maryland; or A summary cease and desist order for violation of the Maryland Securities Act, Corporations and Associations Article, §11-701.1, Annotated Code of Maryland. Place of Filing. Papers required or permitted to be filed under this chapter, or any provision of applicable law, shall be filed with the Office of the Attorney General, Division of Securities, 200 St. Paul Place, 20th Floor, Baltimore, MD 21202-2020, or such other places as the Commissioner may designate. Date of Filing. A paper is filed when it is received by the Commissioner. Computation of Time. Unless otherwise specifically provided by law or these regulations, computation of any time period prescribed by these regulations or by an order of the Commissioner begins with the first day following the act or event that initiates the time period. The last day of the time period so computed is included unless it is a Saturday, Sunday, State holiday, or any other day on which the Division is closed, in which event the period runs until the end of the next business day. Additional Time After Service by Mail. If a notice or other filing is served by mail and the party served is entitled or required to take some action within a prescribed time period after service: The date of mailing is the date of service; and 3 days are added to the prescribed time period. Caption. A pleading or other paper filed by a party with the Commissioner shall contain a caption that sets forth: The name of the first listed respondent; The file number assigned to the case by the Division; and A brief descriptive title of the pleading. Signature. A pleading or other paper filed with the Commissioner shall: Be signed by the party or the party's representative or attorney; and Contain the business address and telephone number of the person by whom it is signed. Certificate of Service. The original of any pleading or other paper shall be filed with the Commissioner, and a copy shall be served upon each party or party's attorney of record. A certificate of service attesting to the date and manner of service shall be filed with the pleading. Service of Summary Order or Show Cause Order. The Division shall promptly serve a copy of a summary order or a show cause order upon each respondent named in the order. Service may be made by personal service or by registered or certified mail. If appropriate, service may be made upon the Commissioner as the respondent's attorney for service of process in accordance with the Maryland Securities Act, Corporations and Associations Article, §11-802, or in accordance with an appointment made pursuant to the Maryland Franchise Law, Business Regulation Article, §14-216(c)(26), Annotated Code of Maryland. Notice of Right to Hearing. In addition to any contents required by statute, a summary order or show cause order shall advise the respondent of the: Respondent's right to a hearing; Time period within which the respondent must request a hearing; Respondent's obligation to file an answer; and Effect of a failure to file an answer and to request a hearing. Time for Filing. A respondent shall file with the Commissioner a written answer to a show cause or summary order within 15 days of service of the order and within 7 days of service of any amended order. The parties may agree to extend the time for filing the answer up to 30 days. Any additional extension of time may only be granted by order of the Commissioner. Response to Factual Allegations. The answer shall admit or deny each factual allegation in the show cause or summary order and shall set forth affirmative defenses, if any. A respondent without knowledge or information sufficient to form a belief as to the truth of an allegation shall so state. Request for Hearing. The answer shall indicate whether the respondent requests a hearing concerning the show cause or summary order. Failure to File Answer. If a respondent fails to file a timely answer, the Commissioner may issue a proposed or final decision adverse to that respondent. Delegation. The Commissioner may delegate authority to conduct a hearing to the Office of Administrative Hearings or to another person designated in accordance with State Government Article, §10-205(a), Annotated Code of Maryland. Scope of Delegation. The Commissioner shall indicate in a written notice of delegation whether the Office of Administrative Hearings or other designated hearing officer is to issue proposed or final findings of fact, proposed or final conclusions of law, and a proposed or final decision. The Commissioner shall serve the notice of delegation on all parties and on the Office of Administrative Hearings or other designated hearing officer. Revocation of Delegation. The Commissioner may revoke all or part of a delegation of a contested case to the Office of Administrative Hearings or other designated hearing officer if the case: Involves novel or unanticipated factual or legal issues; Has significant social or fiscal consequences; Involves policy issues of general applicability; or Is likely to have precedential value. Procedures for Revocation. The Commissioner may revoke a delegation of a contested case at any time before a ruling on a substantive issue by the hearing officer or administrative law judge, or the taking of oral testimony from the first witness, whichever is earlier. The Commissioner shall issue a written notice of revocation that states briefly the reason for the revocation and specifies whether all or part of the delegation has been revoked. If only part of the delegation has been revoked, the Commissioner shall specify in the notice of revocation the portions of the contested case for which the delegation has been revoked. The Commissioner shall serve the notice of revocation on all parties and the Office of Administrative Hearings or other designated hearing officer. A decision issued by the Commissioner shall reflect the revocation of delegation, and a copy of the revocation notice shall be included as part of the record. Withdrawal of Delegation with Consent of Parties. The Commissioner may withdraw all or part of a delegation of a contested case as to a respondent at any time with the consent of that respondent and the Division. Advance Written Notice. If a respondent requests a hearing, or if the Commissioner otherwise determines that a hearing concerning a summary order or a show cause order is appropriate, the Commissioner shall give the parties reasonable advance written notice of the hearing. Content of Notice. The notice of the hearing shall include: The date, time, place, and nature of the hearing; The legal basis for the hearing; A brief statement of the issues; A summary of the rights and restrictions concerning representation set forth in Regulation .09 of this chapter; A statement that each respondent may present evidence and may cross-examine witnesses; A statement that each respondent may request the issuance of subpoenas in accordance with Regulation .13 of this chapter; A copy of the hearing procedures set forth in this chapter; A statement that failure by a respondent to appear at the hearing may result in adverse action against that respondent; A statement that the parties may agree to the evidence and that a respondent may waive the right to appear at the hearing. Hearings under the Maryland Franchise Law. If a respondent named in a cease and desist order issued under the Maryland Franchise Law, Business Regulation Article, §14-210, Annotated Code of Maryland, or in a stop order issued under the Maryland Franchise Law, Business Regulation Article, §14-221, Annotated Code of Maryland, submits a written request for a hearing, the Commissioner shall schedule the hearing to begin within 15 business days after the Commissioner receives the request, unless the respondent consents to a later date. Certain Hearings under the Maryland Securities Act. If a respondent named in a summary order issued pursuant to the Maryland Securities Act, Corporations and Associations Article, §11-413, 11-512, or 11-603, Annotated Code of Maryland, submits a written request for a hearing, the Commissioner shall, within 15 days after receipt of the request, set a date for a hearing. An individual may appear on the individual's own behalf. A party may be represented by an attorney authorized to practice law in Maryland or, when authorized by law, appear through a representative who is not an attorney. An attorney who is not a member of the Maryland Bar, but is a member in good standing of the Bar of another state, may represent a party if the attorney is specially admitted in accordance with Rule 14 of the Rules Governing Admission to the Bar of Maryland. An attorney who appears in a representative capacity shall enter an appearance by filing a pleading or written notice of appearance setting forth the: Name, business address, and telephone number of the attorney; and Name and address of the party represented. Each party and any representative of a party shall promptly notify the Commissioner in writing of any change of address or telephone number. A party's representative of record shall be copied on all notices, pleadings, or other correspondence relating to the contested case. The Commissioner may, upon motion of a party, order the addition, deletion, or substitution of parties. If separate proceedings involve a common question of law or fact, the Commissioner may consolidate the proceedings in whole or in part. Document Requests. A party may serve a written document request on any other party requiring that party to produce, within 15 days, for inspection and copying, any documents or tangible items: Relevant to the subject matter of the case; and Not privileged. Filing and Service. The party making the document request shall: File the written request with the Commissioner not later than 20 days before the date set for the hearing; and Serve a copy of the request on all other parties. Copies of Documents. Copies of requested documents shall be made at the expense of the party making the request. The charge for copying documents may be waived by the Division in accordance with State Government Article, §10-621, Annotated Code of Maryland, or other applicable law. Issuance of Subpoenas. Upon the request of any party, the Commissioner may issue subpoenas requiring the attendance and testimony of witnesses and the production of documents and tangible items in the possession or under the control of the witness. Applications for Subpoenas. An application for issuance of a subpoena shall be made in writing to the Commissioner and shall state: The name and address of the person to be subpoenaed; If production of documents or tangible items is sought, a particular description of the documents or tangible items sought; and The name, address, and telephone number of the party requesting the subpoena. Service of Subpoenas. A subpoena may be served by personal service or by registered or certified mail. The party requesting the subpoena shall be responsible for, and bear the cost of, service. Return of Service. A party shall promptly file a return of service with the Commissioner including an affidavit by the person making service and, if the subpoena was served by mail, the return receipt. Objections to Subpoenas. A person who has been served with a subpoena may object to the subpoena by filing a motion to quash with the Commissioner within 10 days of service of the subpoena or by the date of the hearing, whichever is earlier. Enforcement of Subpoenas. If a person under subpoena fails to appear as required by the subpoena, or fails to produce the documents or tangible items set forth in the subpoena, a party may apply to the Commissioner for enforcement of the subpoena. An application to the Commissioner for enforcement of a subpoena shall be made immediately upon the failure to comply with the subpoena or within such other time period as the Commissioner may set. Upon a timely request by a party for enforcement of a subpoena, the Commissioner may apply to the circuit court in the county in which the person under subpoena resides to enforce the subpoena. Scheduling of Conference. The Commissioner, upon request of a party or when the Commissioner otherwise believes it appropriate, may require the parties to appear at a specified date, time, and place for a prehearing conference before the date set for hearing. Agenda. A prehearing conference may be held to address the following matters: Simplification of issues; Admissions or stipulations of fact; Requests for official notice; Discovery disputes; Preliminary motions; Admissibility of evidence; Order of presentation; Limitation of the number of witnesses; Exchange of prepared testimony and exhibits between the parties; Scheduling; and Other matters that will promote the orderly and prompt conduct of the hearing. Conduct of Prehearing Conference. The Commissioner may conduct the prehearing conference by telephone. Upon notice to the participants, all or part of the prehearing conference may be recorded. Record of Prehearing Conference. The Commissioner shall make any action taken at a prehearing conference part of the record. Conduct of Hearing in Party's Absence. If a party, after receiving notice of a prehearing conference or hearing, fails to appear at the conference or hearing, the Commissioner may proceed to hold the conference or hearing in that party's absence. Default. The Commissioner may also hold the absent party in default and may issue a proposed or final decision and order against the defaulted party. Request for Reconsideration. A party defaulted as a result of a failure to appear at a prehearing conference or hearing may file a written motion requesting reconsideration by the Commissioner and stating the grounds for the request. A motion for reconsideration shall be filed within 15 days after service of a default order, or such lesser time as the Commissioner may direct. Form and Content. Unless otherwise permitted by these regulations or by the Commissioner, motions shall: Be made in writing, unless otherwise permitted by the Commissioner during the course of a hearing; and State concisely the question to be determined and be accompanied by any necessary supporting documentation. Filing and Service. A party shall file a motion not later than 15 days before the date of the hearing and shall serve a copy of the motion on each party. Response to Motion. A response to a written motion shall be filed on the earlier of: 10 days after receipt of the motion; or The date of the hearing. Oral Argument. The Commissioner may allow oral argument if it appears necessary to a fuller understanding of the issues presented. Effect of Filing of Motion. The filing or pendency of a motion does not alter or extend any time limit. Time for Filing. A party may move at any time for summary decision as to any substantive issue in the case. Standard. The Commissioner may issue a summary decision if the Commissioner finds that there is no genuine issue as to any material fact, and that the moving party is entitled to prevail as a matter of law. Presiding Officer. The Commissioner shall preside at all hearings unless the Commissioner has delegated authority to conduct a hearing to the Office of Administrative Hearings or other hearing officer designated in accordance with State Government Article, §10-205(a), Annotated Code of Maryland. Order of Proceedings. The Commissioner shall call the hearing to order. The Commissioner shall explain briefly the purpose and nature of the hearing. The Commissioner may allow the parties to present preliminary matters. The parties may make opening statements. The Commissioner shall state the order of presentation of evidence. Witnesses shall be sworn or put under affirmation to tell the truth. The parties may present closing summations and argument. Function of Presiding Officer. During the hearing, the Commissioner: Shall administer the oath or affirmation to each witness; Shall rule on the admissibility of evidence; Shall maintain order and take such action as necessary to avoid delay in the conduct of the hearing; and May question any witness as to any matter that the Commissioner considers relevant and material to the proceeding. Presentation by Parties. On a genuine issue relevant to the determination of a contested case, each party may: Call witnesses; Offer evidence; Cross-examine any witness called by another party; and Make opening and closing statements. Telephone Hearings. Consent of Parties. If each party consents and has an opportunity to participate in the entire proceeding, the Commissioner may conduct all or part of the hearing by telephone, video, or other electronic means. Documentary Evidence. A party shall mail copies of all documentary evidence to be offered during a telephone hearing to all parties and the Commissioner at least 5 days before the hearing. Default. The following conditions may be considered a failure to appear and grounds for default, if the conditions exist for more than 10 minutes after the scheduled time for a telephone hearing: Failure of a party to answer the telephone; Failure of a party to free the telephone for a hearing; or Failure of a party to be ready to proceed with the hearing as scheduled. Waiver of Right to Appear at Hearing. A party may waive the right to appear personally at the hearing. A waiver shall be in writing and filed with the Commissioner. A waiver may be withdrawn by a party by written notice filed with the Commissioner not later than 7 days before the scheduled hearing. A party who has filed a timely written waiver may not be held in default for failing to appear at the hearing. Public Hearings. All hearings are public unless all respondents request that the hearing be conducted privately and the Commissioner, for good cause shown, grants the request. The Commissioner may elect not to hold a hearing if all parties agree to submit the case on the documentary record and waive their right to appear. Standards of Admissibility. Evidence shall be admitted in accordance with State Government Article, §10-213, Annotated Code of Maryland. Relevance. The Commissioner may admit evidence that reasonable and prudent individuals commonly accept in the conduct of their affairs, and give probative effect to that evidence. Exclusion of Evidence. The Commissioner may exclude evidence that is incompetent, irrelevant, immaterial, or unduly repetitious. Hearsay. Evidence may not be excluded solely on the ground that it is hearsay. Stipulations. Parties may, by stipulation, agree on any facts relevant to the proceedings. The facts stipulated shall be considered proven for purposes of the proceedings. Official Notice. The Commissioner may take official notice of a fact that is judicially noticeable or that is within the specialized knowledge of the Division. Before taking official notice of a fact, the Commissioner shall: Notify each party before or during the hearing; and Give each party an opportunity to contest the fact. Oath. Witnesses shall testify under oath or affirmation. Rules of Evidence. A party may conduct direct examination or cross-examination without strict adherence to formal rules of evidence in order to obtain a full and fair disclosure of facts relevant to matters in issue. Hostile Witnesses. If the Commissioner determines that a witness is hostile or unresponsive, the Commissioner may authorize the party calling the witness to proceed as if the witness were under cross-examination. Request for Sequestration. Upon request by any party, the Commissioner may exclude witnesses other than parties from the hearing room when those witnesses are not testifying. Representative of Party. A party that is not a natural person may designate an individual as its representative to remain in the hearing room, even though the individual may also be a witness. Experts. An expert witness who is to render an opinion based upon the testimony given at the hearing may remain in the hearing room during the testimony. Prohibition of Disclosure. The Commissioner may order the witnesses, parties, their counsel, and any person under their direction not to disclose to any sequestered witness the substance of the testimony, exhibits, or other evidence introduced during the witness' absence. General Prohibition. Except as provided in §B of this regulation, while a contested case is pending, the Commissioner may not communicate ex parte regarding the merits of any issue in the case with: A respondent; A representative or attorney for a respondent; Division staff or counsel involved in the investigation or presentation of the case; or An administrative law judge or other hearing officer who presided at an earlier stage of the case. Other Division Staff. The Commissioner may communicate regarding the merits of any issue in the case with the Division's staff or counsel who have not otherwise participated in the investigation or presentation of the case. Disclosure. Ex parte communications received before a hearing in a contested case that would otherwise violate §A of this regulation shall be disclosed in accordance with State Government Article, §10-219, Annotated Code of Maryland. Cases Heard by the Commissioner. The Commissioner shall prepare written findings of fact and conclusions of law, and shall promptly issue a final decision after the conclusion of any hearing held before the Commissioner. The final decision shall include rulings on any proposed findings of fact and conclusions of law submitted by the parties. Cases Heard by an Administrative Law Judge. When the Commissioner has delegated authority to hear a case to the Office of Administrative Hearings but has reserved final decision-making authority, the administrative law judge shall send a proposed decision, including proposed findings of fact and conclusions of law, to the parties and the Commissioner. Within 15 days of receipt of the proposed decision, each party shall file with the Commissioner any exceptions to the proposed decision, any supporting memorandum, and any request to present argument to the Commissioner. Within 10 days of receipt of exceptions filed by an adverse party, a party may file a memorandum in opposition to those exceptions. The Commissioner shall review the hearing record, the proposed decision of the administrative law judge, and any exceptions and memoranda filed by the parties, and shall permit the parties to present arguments, if they request an opportunity to do so. Before issuing a final decision, the Commissioner may require the submission of additional information or documentation. The Commissioner shall issue a final decision that may adopt, modify, or reject the proposed findings of fact, proposed conclusions of law, or the proposed decision of the administrative law judge. The final decision shall include rulings on any exceptions filed by the parties. Notice of Appeal Rights. A final decision of the Commissioner shall advise each respondent that any appeal to the circuit court shall be filed within 30 days from the date the order is mailed by the Division. Final Decision by Default. The Commissioner may enter a final decision as to any respondent who fails to: File a timely responsive answer; or Appear for a hearing at the scheduled time and date. Service of Final Decision. A final decision of the Commissioner shall be in writing. A copy of the final decision shall be hand delivered or mailed, by certified or registered mail, to each party or its representative or attorney. Correction of Final Decision. In the event of fraud, mistake, or irregularity, the Commissioner may correct a final decision at any time. Recording of Oral Proceedings. The Division shall cause all oral proceedings, including testimony, to be recorded by a stenographer or by tape recorder or other device. The recording of the proceedings, which need not be transcribed, shall be maintained in the custody of the Division. In the event of an appeal from a decision of the Commissioner, the appellant shall pay the cost of transcription of the record. Other verbatim reports or recordings may not be made by any other person without the consent of the Commissioner. The record of a contested case shall include: All pleadings, motions, orders, and related papers filed with the Commissioner or the Office of Administrative Hearings; All documentary and tangible evidence; A statement of matters officially noticed; Recordings and any transcripts of oral proceedings; The findings of fact and conclusions of law proposed by each party; Any exceptions filed by the parties and the Commissioner's rulings on those exceptions; The findings of fact, conclusions of law, and decision of the Commissioner; If a case has been delegated to the Office of Administrative Hearings for a proposed decision: The notice of delegation; Any notice of revocation; The proposed decision, including proposed findings of fact and proposed conclusions of law, of the administrative law judge; Any exceptions filed by the parties; The Commissioner's rulings on any exceptions and proposed findings of fact or conclusions of law; and Any additional information or documentation submitted to the Commissioner by the parties; The final order, if any, of the Commissioner; and Other documents or material placed in the record as required by law or at the discretion of the Commissioner. Index of Record. The Division shall prepare an index of the record of proceedings. Public Inspection. Upon compilation, the record shall be available for public inspection at the Division during normal business hours unless the contents are otherwise protected by law. Copy of Record. The Division, upon request of a party, shall arrange for a copy of the record to be made, if the requesting party pays in advance to the Office of the Attorney General the Division's estimate of the reasonable cost of making the copy. The copy shall be certified by the Commissioner. Motion for Stay. After the Commissioner has issued a final decision that results in the entry of a final order against a party, the party may move for a stay of the Commissioner's order if the party has filed an appeal of the final decision. Form of Motion. A request for a stay shall be in writing and shall include a copy of the order for appeal filed in the circuit court. Criteria for Stay. The Commissioner may grant a stay of a final order for such period of time as the Commissioner considers appropriate, after considering: The potential hardship caused by the order to the party requesting the stay; The likelihood that the party will prevail on appeal; Other reasons for a stay proffered by that party; The interest of investor protection; and The public interest. At any time after initiation of a contested case, with the approval of the Commissioner, the parties may resolve a contested case without a final decision by stipulation, settlement, or consent order. Corporations and Associations Article, §11-203;Business Regulation Article, §§14-106 and 14-206;State Government Article, §10-206; Annotated Code of Maryland Effective date: May 23, 1994 (21:10 Md. R. 840) Regulation .01B amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .02B amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .03D adopted effective June 15, 1998 (25:12 Md. R. 944) Regulation .04A amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .06A amended and D adopted effective June 15, 1998 (25:12 Md. R. 944) Regulation .07 amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .09B, C amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .16C amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .23B amended effective June 15, 1998 (25:12 Md. R. 944) Regulation .24B amended effective June 15, 1998 (25:12 Md. R. 944) This chapter applies to investigations instituted by the Securities Commissioner under the: Maryland Securities Act, Corporations and Associations Article, Title 11, Annotated Code of Maryland (the Maryland Securities Act); Maryland Business Opportunities Sales Act, Business Regulation Article, Title 14, Subtitle 1, Annotated Code of Maryland (the Business Opportunities Act); or Maryland Franchise Registration and Disclosure Law, Business Regulation Article, Title 14, Subtitle 2, Annotated Code of Maryland (the Maryland Franchise Law). This chapter does not apply to examinations of registrants conducted by the Securities Division under the Maryland Securities Act, Corporations and Associations Article, §11-411(e), Annotated Code of Maryland. In this chapter, the following terms have the meanings indicated. Terms Defined. “Document” means the original of a paper or other tangible item or material on which information is written or recorded and includes, by example, correspondence, memoranda, reports, circulars, announcements, financial statements or projections, books, ledgers, records, tabulations, maps, charts, photographs, mechanical transcriptions, electronic and computer media, and any other tangible recording. “Person” means an individual, partnership, corporation, limited liability company, limited liability partnership, business trust, estate, trust, fiduciary, representative of any kind, association, unincorporated organization, government, political subdivision, and any other legal or commercial entity, and includes all individuals and entities set forth in Business Regulation Article, §1-101(g), and Corporations and Associations Article, §§1-101(p) and 11-101(n), Annotated Code of Maryland. Type of Subpoena. As part of an investigation, the Commissioner may issue a subpoena to any person to: Testify under oath; Answer written interrogatories under oath; Produce documents and tangible things; and Permit inspection and copying of documents. Content of Subpoena. A subpoena shall: Describe generally the nature of the investigation; If the subpoena requires testimony under oath, specify the date, time, and place for the taking of testimony; If the subpoena requires answers to written interrogatories, contain a copy of the written interrogatories; If the subpoena requires the production of tangible things or documents: Describe the things and documents to be produced with reasonable specificity, and Specify a date, time, and place at which the things and documents are to be produced; Notify the person to whom the subpoena is directed of the obligation to supplement responses under Regulation .05 of this chapter; Advise the person to whom the subpoena is directed that the person may be represented by counsel; and Identify a member of the Securities Division who may be contacted in reference to the subpoena. Subpoenas to Corporations and Other Entities. A subpoena directed to a corporation, partnership, or other entity that requires testimony under oath shall describe with reasonable particularity the subject matter of the testimony. An entity that receives a subpoena to answer written interrogatories or to testify under oath shall designate one or more of its officers, agents, employees, or other authorized persons familiar with the subject matter specified in the subpoena to respond to the subpoena on its behalf. The persons designated by an entity to respond to a subpoena on its behalf shall answer the interrogatories or testify as to all matters known or reasonably available to the entity. A subpoena directed to an entity that requires testimony under oath or answers to written interrogatories shall advise the entity of its obligations under this regulation. Service of Subpoena. A subpoena may be served by personal service or by mail. The person who serves a subpoena shall complete a certificate of service attesting to the method and date of service. Effect of Other Proceedings. The pendency or beginning of administrative or judicial proceedings against a person by the Commissioner does not relieve the person of its obligation to respond to a subpoena issued under this regulation. Petition to Modify or Quash Subpoena. A person served with a subpoena under this regulation may request that the subpoena be modified or quashed. A petition to modify or quash a subpoena issued under this regulation shall be filed with the Commissioner within 10 days of service of the subpoena or by the date specified for compliance with the subpoena, whichever is earlier. The petition shall set forth good cause why the subpoena should be modified or quashed. Enforcement of Subpoena. If a person served with a subpoena under this regulation fails to appear as required by the subpoena, or fails to provide testimony, answers to written interrogatories, or documents and tangible things as required by the subpoena, the Commissioner may apply to the appropriate circuit court for enforcement of the subpoena. Presiding Officer. Testimony under oath shall be taken before the Commissioner or an officer designated by the Commissioner. Attendance at Testimony. A witness who testifies under oath in compliance with a subpoena may be accompanied and represented by counsel. Members of the Division involved in the investigation may be present during the taking of testimony. Other persons may not attend unless permitted in the discretion of the Commissioner. Examination of Witness. The following individuals may ask questions of Attorneys representing the Division; The Commissioner; and Counsel representing the witness. Record of Testimony. Testimony shall be recorded by a stenographer or by tape recorder or other device. Any other recording is not permitted. The recording of the testimony shall be maintained in the custody of the Division. Assertion of Privilege. If a person responding to a subpoena for production of things or documents withholds a record or document on the basis of a privilege, the person shall state, with respect to each document: The name and title of the author of the document; The names and titles of all persons to whom the document was addressed; The names and titles of all persons to whom copies of the document were sent; The date on which the document was written or otherwise produced and the date on which it was mailed, sent, or delivered to its addressee; The number of pages in the document; A brief description of the nature or subject matter of the document; The basis on which the document is being withheld; and The paragraph number of the subpoena to which the document is responsive. Obligation to Supplement Responses. If a person has responded to a subpoena under this regulation and later discovers or obtains additional documents or things responsive to the subpoena, the person shall supplement the response as soon as reasonably possible. Use of Subpoenaed Materials. The Division may use information, documents, and things obtained by subpoena in furtherance of an investigation conducted by the Division and of joint investigations conducted by the Division in cooperation with other state and federal agencies. Confidential Treatment. Information, documents, and things obtained by subpoena may be held confidential and are not subject to disclosure to the extent provided by the Public Information Act, State Government Article, §§10-611—10-628, Annotated Code of Maryland. Corporations and Associations Article, §§11-203 and 11-701;Business Regulation Article, §§14-106, 14-111, 14-206, and 14-212; Annotated Code of Maryland Effective date: December 5, 1994 (21:24 Md. R. 1986) Regulation .02B amended effective June 15, 1998 (25:12 Md. R. 944) For purposes of this chapter and of the Maryland Franchise Registration and Disclosure Law, Business Regulation Article, Title 14, Subtitle 2, Annotated Code of Maryland, the following terms have the meanings indicated. Terms Defined. Except as used in the Uniform Franchise Offering Circular, “affiliate” means a person that, directly or indirectly, controls, is controlled by, or is under common control with, another person. “Commissioner” means the Securities Commissioner in the Office of the Attorney General or the designated agent of the Commissioner. “Division” means the Division of Securities in the Office of the Attorney General. Earnings Claim. “Earnings claim” means information given to a prospective franchisee by, on behalf of, or at the direction of the franchisor or its agent, from which a specific level or range of actual or potential sales, cost, income, or profit from franchised or nonfranchised units may be ascertained. “Earnings claim” includes, but is not necessarily limited to, a chart, table, or mathematical calculation presented to demonstrate possible results based on a combination of variables such as multiples of prices and quantity to reflect gross sales. “Earnings claim” includes a representation of a franchise offering that is described in terms of the amount or value of revenue, sales, income, contracts, or business intended to be provided to a franchisee within a specified period of time. “Franchise” has the meaning stated in the Maryland Franchise Law, Business Regulation Article, §14-201(e), Annotated Code of Maryland. “Franchise fee” has the meaning stated in the Maryland Franchise Law, Business Regulation Article, §14-201(g), Annotated Code of Maryland. “Maryland Franchise Offering Circular (MFOC)” means a document prepared in accordance with Regulation .04 of this chapter. “Maryland Franchise Registration and Disclosure Law” and the “Maryland Franchise Law” mean Business Regulation Article, Title 14, Subtitle 2, Annotated Code of Maryland. “Material change”, for purposes of the Maryland Franchise Law, Business Regulation Article, §14-220, Annotated Code of Maryland, and Regulation .06 of this chapter, includes, but is not limited to: The termination, in any manner, of more than 10 percent of the franchises of the franchisor that are located in the State during any 3-month period; The termination, in any manner, of more than 5 percent of all franchises of the franchisor regardless of location during any 3-month period; A reorganization of the franchisor; A change in control, corporate name, or state of incorporation of the franchisor; The commencement of any new product, service, or model line requiring, directly or indirectly, additional investment by any franchisee; and The discontinuation or modification of the marketing plan or system of any product or service of the franchisor which accounts for at least 20 percent of the annual gross sales of the franchisor. “Person” has the meaning stated in Business Regulation Article, §1-101(g), Annotated Code of Maryland. For purposes of the Maryland Franchise Law, Business Regulation Article, §14-203, Annotated Code of Maryland, the Maryland edition of a “publication” is considered a separate “publication” if the Maryland edition does not carry the same advertising as other editions of the publication. “Uniform Franchise Offering Circular (UFOC)” means the Uniform Franchise Offering Circular Guidelines adopted by the North American Securities Administrators Association, Inc., on April 25, 1993, which is incorporated by reference in Regulation .04A of this chapter. Scope. The Commissioner shall consider the factors set forth in this regulation in any determination as to whether a business relationship is a franchise as defined in the Maryland Franchise Law, Business Regulation Article, §14-201(e), Annotated Code of Maryland. Marketing Plan. For purposes of the Maryland Franchise Law, Business Regulation Article, §14-201(e)(1), Annotated Code of Maryland, “marketing plan” means a plan or system concerning a material aspect of conducting business. Indicia of a marketing plan include: Price specification, special pricing systems, or discount plans; Sales or display equipment or merchandising devices; Sales techniques; Promotional or advertising materials or cooperative advertising; Training regarding the promotion, operation, or management of the business; and Operational, managerial, technical, or financial guidelines or assistance. Prescription by Franchisor. For purposes of the Maryland Franchise Law, Business Regulation Article, §14-201(e)(1)(i), Annotated Code of Maryland, whether a marketing plan or system is “prescribed in substantial part by the franchisor” depends upon consideration of a number of factors including, but not limited to: Whether the representations made by the franchisor in connection with the offer or sale of a franchise suggest, or any agreement executed in connection with the offer to sell or sale of a franchise requires, that the franchisee operate a business that purchases a substantial portion of its goods solely from sources designated or approved by the franchisor; Whether the representations made by the franchisor in connection with the offer or sale of a franchise suggest, or any agreement executed in connection with the offer to sell or sale of a franchise requires, that the franchisee follow an operating plan, standard procedure, or training manual, or its substantial equivalent, promulgated by the franchisor in the operation of the licensed business, violations of which may, under the terms of the agreement, permit the franchisor to terminate the agreement; Whether the representations made by the franchisor in connection with the offer or sale of a franchise suggest, or any agreement executed in connection with the offer to sell or sale of a franchise requires, that the franchisee is limited as to the: Type, quantity, or quality of any product or service the franchisee may sell; or Persons or accounts to which the franchisee may sell the franchisor's product or service; Whether the provisions of the agreement permitting the franchisor to terminate the agreement, to buy back the franchisee or license rights assigned by the agreement, or to refuse to renew the grant of the franchisee or license rights are such as to operate or be exercisable substantially at the will of the franchisor; and Whether the representations made by the franchisor or seller in connection with the offer or sale of a franchise suggest, or any agreement executed in connection with the offer or sale of a franchise requires, that the franchisor aid or assist the franchisee in: Training, Obtaining locations or facilities for operation of the franchisee's business, or Marketing the franchisor's product or service. Association with Franchisor's Business. For purposes of the Maryland Franchise Law, Business Regulation Article, §14-201(e)(1)(ii), Annotated Code of Maryland, whether a marketing plan or system is “associated substantially with the trademark, service mark, trade name, logotype, advertising, or other commercial symbol that designates the franchisor or its affiliate” depends upon consideration of a number of factors, including but not limited to: Whether the identification of the franchisor's business or use of its trademark, service mark, trade name, logotype, advertising, or other commercial symbol is used either by the franchisor or the franchisee to enhance the chances of the franchisee's success in the business of dealing in, selling, or promoting the franchisor's product or service; and Whether the agreement provides for the franchisee to contribute a portion of its operating revenue to the franchisor for advertising expenses, or representations made by the franchisor or the franchisor's agents or employees otherwise suggest, require, or compel payment by the franchisee for advertising conducted, managed, or prescribed by the franchisor. The Commissioner may consider, in determining whether a business relationship is a franchise as defined in Maryland Franchise Law, Business Regulation Article, §14-201, Annotated Code of Maryland, whether the relationship is described as or entitled a “franchise”. Scope. The Commissioner shall consider the factors set forth in this regulation in any determination as to whether a franchisee is required to pay a franchise fee, as defined in the Maryland Franchise Law, Business Regulation Article, §14-201(g), Annotated Code of Maryland. Form and Timing of Payment. A franchise fee includes, but is not limited to, a payment that is made before, upon, or after execution of an agreement to purchase, process, resell, or otherwise distribute a manufacturer's or franchisor's goods, services, equipment, inventory, or real estate, and that is made in the form of a lump sum, installments, periodic royalties, profits, or cash flow, or is or may be reflected in the price of goods, services, equipment, inventory, or real estate sold by the franchisor to the franchisee. Purchases at Wholesale Price. For purposes of the Maryland Franchise Law, Business Regulation Article, §14-201(g)(3)(i), Annotated Code of Maryland, whether a transaction involves “the purchase of or agreement to purchase goods at a wholesale price” depends upon consideration of a number of factors, including but not limited to whether in connection with an agreement to process, resell, or otherwise distribute a manufacturer's or franchisor's product or service: Consideration paid by the buyer in purchase transactions is solely for the payment of goods, services, equipment, inventory, or real estate, and does not reflect the buyer's payment for the right to continue the purchase transactions or the business; The buyer's purchase of goods, services, equipment, inventory, or real estate is required by or in connection with the agreement; and The cost to the seller of goods, services, equipment, inventory, or real estate is reasonably related to the price paid by the buyer. Form of Application. An application to register a franchise shall be prepared in accordance with the Uniform Franchise Offering Circular Guidelines adopted by the North American Securities Administrators Association, Inc., on April 25, 1993 (UFOC), which is incorporated by reference, with the modifications set forth in §B of this regulation. A copy of the UFOC may be obtained from the Division for a nominal fee and may also be found in Business Franchise Guide (CCH) §5200—5200.17. Modifications to UFOC. An application shall include two copies of the proposed offering circular which complies with the instructions for the UFOC with the additions and modifications set forth in §B(2)—(4) of this regulation. Item 11—Franchisor Obligations. In addition to the information required by the UFOC, the offering circular shall disclose in Item 11 how fees related to advertising are to be raised and spent, and how a franchisee may obtain an accounting of advertising expenditures. Item 17—Renewal, Termination, Transfer, and Dispute Resolution. If the agreement provides for termination of the franchise upon bankruptcy of the franchisee, the offering circular shall disclose in Item 17, in addition to the information required by the UFOC, that this provision may not be enforceable under federal bankruptcy law. Item 21—Financial Statements. In addition to the information required by the UFOC, the offering circular shall contain financial statements required under Regulation .13 of this chapter. Registration File Number. Upon receipt of an application for initial registration, the Division shall assign a file number to the application. Correspondents shall refer to the assigned file number in all subsequent related filings and correspondence with the Division. An application for registration may include a stamped self-addressed envelope and a duplicate cover letter which the Division may stamp and return to the applicant as confirmation of receipt of the filing and notification of the registration file number. Undertaking. During an examination of an application for initial registration under the Maryland Franchise Law, the Commissioner may require that the applicant provide an undertaking that it has not offered or sold franchises in the State without being registered. Completion of Filing. During an examination of an application for initial registration under the Maryland Franchise Law, the Commissioner may require the applicant to modify the application or to submit additional information to remedy deficiencies in the application. The Commissioner may require the applicant to make such other disclosures as the Commissioner determines are necessary in the public interest and for the protection of prospective franchisees. A request by the Commissioner for modifications, additional information, or other disclosures may be communicated in any form to the applicant, or to the person filing the application on behalf of the applicant, within 30 business days after receipt of the initial application. An application for initial registration is considered filed for purposes of the Maryland Franchise Law, Business Regulation Article, §14-218(b), Annotated Code of Maryland, only when the application fee required by the Maryland Franchise Law, Business Regulation Article, §14-215, Annotated Code of Maryland, and all modifications, information, and disclosures reasonably required by the Commissioner have been received by the Division. Abandonment of Application. If an applicant fails to provide information requested by the Commissioner or otherwise neglects to pursue an application for initial registration in a diligent manner, the Commissioner shall consider the application abandoned 6 months after the date of the last written communication from the applicant or any person on behalf of the applicant. An applicant who wishes to revive an abandoned application shall submit a new application, together with a new application fee. When to File. An application for amendment of a registration statement shall be promptly filed if there is a material change in the information that a registrant previously filed with the Commissioner. An amendment is not required if a particular franchise agreement is changed as a result of negotiations between the franchisee and the franchisor and the franchisor agrees to the change or a similar change only on an individual or isolated basis. Form of Amendment. An application for amendment of a registration statement, whether filed before or after the effective date of registration, shall be in the form set forth in Regulation .04 of this chapter and shall contain: One complete clean copy of the amended MFOC; and One redlined copy of the MFOC that highlights all additions, deletions, and other changes by underlining, boldface or italic type, or such other symbols as to indicate clearly any alterations to the applicant's prior submission. Each amendment shall be accompanied by a facing page which indicates that the filing is an amendment and which states the number of the amendment and the items of the offering circular which are affected by the amendment. Payment of Fee. An application to amend an effective registration statement shall be accompanied by payment for the fee set forth in the Maryland Franchise Law, Business Regulation Article, §14-220, Annotated Code of Maryland. Status of Current Registration. During the pendency of an application to amend a registration statement, the current registration statement filed with the Commissioner remains in effect. Completion of Filing. During examination of an application to amend an effective registration statement, the Commissioner may require the applicant to modify the application or to submit additional information to remedy deficiencies in the application. The Commissioner may require the applicant to make such other disclosures as the Commissioner considers necessary or appropriate in the public interest or for the protection of prospective franchisees. Effective Date of Amendment. If the Commissioner does not require additional information from the applicant and does not issue a stop order or other order blocking effectiveness of the amendment, an amendment to an effective registration statement becomes effective 15 business days after receipt by the Commissioner of the application to amend, or at such earlier time as the Commissioner may determine. If the Commissioner requires that the applicant provide additional information, the amendment to the registration statement becomes effective 15 business days after receipt by the Commissioner of the information requested, unless the Commissioner issues a stop order or other order blocking the effectiveness of the amendment. Abandonment of Amendment. If an applicant fails to provide information requested by the Commissioner or otherwise neglects to pursue an application to amend an effective registration statement in a diligent manner, the Commissioner shall consider the application to amend the registration statement abandoned 6 months after the date of the last written communication from the applicant or any person on behalf of the applicant. An applicant who wishes to revive an abandoned application to amend an effective registration statement shall submit a new application to amend the registration statement, together with a new filing fee. Annual Effective Date. Notwithstanding the amendment of an effective registration statement, the effective date of the initial or renewal registration statement remains the date from which annual effectiveness is measured. Time for Submitting Renewal Application. An application to renew a registration shall be submitted to the Division not less than 15 business days before the end of 1 year from the effective date of the registration. If a registrant submits an application to renew a registration less than 15 days before the expiration of the prior year's registration, but before the expiration of the prior year's registration, the Commissioner may consider the application as an application for renewal registration. If a registrant submits an application to renew a registration after the expiration of the prior year's registration, the Commissioner shall treat the application as an application for initial registration. Form of Renewal Application. An application to renew a registration shall be in the form set forth in Regulation .04 of this chapter and shall be accompanied by: Two copies of the registrant's most recent MFOC which meets the requirements of Regulation .04 of this chapter; Financial statements that satisfy the requirements of Regulation .13 of this chapter; and Payment for the renewal fee required by the Maryland Franchise Law, Business Regulation Article, §14-219, Annotated Code of Maryland. Completion of Filing. During an examination of an application to renew a registration, the Commissioner may require the applicant to modify the application or to submit additional information to remedy deficiencies in the application. The Commissioner may require the applicant to make such other disclosures as the Commissioner considers necessary or appropriate in the public interest or for the protection of prospective franchisees. A request by the Commissioner for modifications, additional information, or other disclosures may be communicated in any form to the applicant, or to the person submitting the application on behalf of the applicant, within 15 business days after receipt of the application. An application for renewal registration is considered filed for purposes of the Maryland Franchise Law, Business Regulation Article, §14-219(b)(1), Annotated Code of Maryland, only when the application fee required by the Maryland Franchise Law, Business Regulation Article, §14-219(b)(1)(iii), Annotated Code of Maryland, and all modifications, information, and disclosures reasonably required by the Commissioner have been received by the Division. Date of Effectiveness. If no stop order or other order blocking effectiveness of the renewal is in effect, a renewal registration that was timely filed becomes effective at 12 noon of the day on which the prior registration expires, or at such earlier time as the Commissioner may determine. If a renewal registration application is submitted less than 15 days before the expiration of the prior registration, and the Commissioner elects to treat it as a renewal registration application under §A(2) of this regulation, the Commissioner shall notify the applicant of the date upon which the renewal registration becomes effective. Extension of Current Registration. If a previous registration is about to expire and a renewal registration application is not yet considered filed, the Commissioner may extend the effective period of a registration subject to such conditions as the Commissioner may prescribe for the protection of prospective franchisees. Abandonment of Renewal Application. If an applicant fails to provide information requested by the Commissioner or otherwise neglects to pursue an application for renewal registration in a diligent manner, the Commissioner shall consider the application abandoned 6 months after the date of the last written communication from the applicant or any person on behalf of the applicant. An applicant who wishes to revive an abandoned application for renewal registration shall submit an initial application for registration, together with the application fee required by the Maryland Franchise Law, Business Regulation Article, §14-215, Annotated Code of Maryland, for an initial registration. Imposition of Escrow Condition. At any time after the submission of a registration statement and upon a finding that it is necessary and appropriate for the protection of prospective franchisees or subfranchisors, the Commissioner may require a franchisor to escrow franchise fees and other funds paid by a franchisee or subfranchisor until the franchisor's obligations under the offering have been satisfied. Depositary. Funds subject to an escrow condition shall be placed in a separate trust account with a national bank located in Maryland or a Maryland bank or trust company. Compliance with Escrow Condition. After the Commissioner imposes an escrow condition, the franchisor shall file with the Commissioner the following: An original fully executed copy of the escrow agreement; A written consent from the depositary agreeing to operate the escrow account under this regulation; The name and address of the depositary and the account number of the escrow account; The name, address, and telephone number of an individual or individuals at the depositary who may be contacted by the Commissioner regarding the escrow account; and An amended franchise registration application reflecting, in both the franchise agreement and Item 5 of the offering circular, that the Commissioner has imposed the escrow conditions and the material terms of that escrow condition, including the name of the depositary. Operation of Escrow Condition. After the Commissioner imposes an escrow condition: Franchisee and subfranchisor checks for franchise fees or other payments to the franchisor shall be made payable to the depositary; Franchise fees and all other funds to be paid to the franchisor by its franchisees or subfranchisors for any purpose shall be placed, within 48 hours of the receipt of those funds, with the depositary; and Funds placed in the depositary shall remain escrowed until the Commissioner authorizes the release of the funds under §E of this regulation. Release of Escrowed Funds. A franchisor may apply to the Commissioner for the release of escrowed funds. A franchisor's application to the Commissioner to authorize the release of escrowed funds to the franchisor shall be in writing, verified by an authorized officer of the franchisor and shall contain: A statement by the franchisor that all proceeds from the sale of franchises have been placed with the depositary in accordance with the terms and conditions of the escrow condition; A statement of the depositary, signed by an appropriate officer, setting forth the aggregate amount of escrowed funds deposited with the depositary and the franchisor's account number with the depositary; A list of the franchisees and subfranchisors and the amount held in the escrow account for the account of each franchisee and subfranchisor; With respect to each franchisee for which the release of funds is sought, the amount of funds sought to be released and a written certification from the franchisee stating the amount of funds to be released and acknowledging that the franchisor has completely performed its obligations under the franchise agreement to provide real estate, improvements, equipment, inventory, training, or other items; and Other information the Commissioner may reasonably require. If the Commissioner finds that the franchisor has fulfilled its obligations under the franchise agreement to a specified franchisee or subfranchisor, the Commissioner shall authorize the depositary to release to the franchisor those amounts of the escrowed funds applicable to the franchisee or subfranchisor. Surety Bond in Place of Escrow. Instead of the imposition of an escrow condition, a franchisor may post a surety bond in an amount required by the Commissioner. The bond shall be: In an amount not less than the initial franchise fee multiplied by the number of franchises the franchisor estimates it will sell in the State in the next year; Issued by a corporate surety authorized to transact business in Maryland; and Conditioned upon the completion by the franchisor of its obligations under the franchise agreement to provide real estate, improvements, equipment, inventory, training, or other items. Deferral of Fees in Place of Escrow. Instead of the imposition of an escrow condition, the Commissioner may, in appropriate circumstances, accept a franchisor's agreement to defer franchise fees and other initial payments owed by franchisees and subfranchisors until the franchisor has completed its initial obligations under the franchise agreement. The franchisor's agreement to defer franchise fees shall be reflected in the offering circular and the franchise agreement. Removal of Escrow Condition. At any time after the imposition of an escrow condition, the Commissioner may remove the escrow condition if: The franchisor posts a surety bond in accordance with §F of this regulation; The franchisor agrees to defer franchise fees and other initial payments in accordance with §G of this regulation; or Based upon new information, the Commissioner finds that the escrow condition is no longer necessary and appropriate for the protection of prospective franchisees. Standards For Advertising. An advertisement for a franchise offering may not refer to: The purchase or sale of a franchise as a safe investment, as free from risk of loss or default, or as a guarantee or assurance of earnings or profits; An earnings claim, unless otherwise permitted by the Commissioner; or An opinion of counsel without stating the name and address of the counsel. Advertising shall state the name and address of the person sponsoring the advertisement or making the offer. Review of Advertising. A copy of each advertisement to be used by or on behalf of a franchisor in the offer or sale of any franchise subject to registration shall be submitted to the Division of Securities for review at least 5 days before the date of its anticipated initial use. Videotape and Audiotape Advertising. Advertising submitted under this regulation that is in the form of videotapes or audiotapes shall be accompanied by a written transcript and description of the contents. Basis of Exemption. Under the Maryland Franchise Law, Business Regulation Article, §14-214(b)(3), Annotated Code of Maryland, the Commissioner has determined that the offers or sales described in §§B—G of this regulation are exempt from the registration provisions of the Maryland Franchise Law because the transactions are not within the purpose of the Maryland Franchise Law and registration of the transactions is not necessary or appropriate for the protection of investors. Out-of-State Sales. The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise to a resident of a foreign state, territory, or country who is not a resident of Maryland to the knowledge of the seller. The exemption set forth in §B(1) of this regulation may be claimed only if: The franchised business is not to be operated wholly or partially in Maryland; The sale of the franchise does not violate any law of the foreign state, territory, or country of which the offeree or buyer is a resident; and The sale of the franchise does not violate the antifraud provisions of the Maryland Franchise Law. Nominal Franchise Fee. The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise when the franchise fee does not exceed $100 on an annual basis. Seasoned Franchisor. The registration provisions of the Maryland Franchise Law do not apply to any offer or sale of a franchise when the franchisor has: A net equity, according to its most recently audited financial statements, of not less than: $10,000,000 on a consolidated basis, or $1,000,000 and is at least 80 percent owned by a corporation or entity that has a net equity, on a consolidated basis, according to its most recently audited financial statements, of not less than $10,000,000, which 80 percent owner guarantees the performance of the franchisor's obligations; and Had at least 25 franchisees conducting the same franchised business at all times during the 5-year period immediately preceding the offer or sale. The exemption set forth in §D(1) of this regulation may be claimed only if the franchisor: Files a Form F-1 Notice of Exemption: Not later than 10 business days before the offer or sale of any franchise, which Notice of Exemption shall expire after a period of 1 year, and If the franchisor intends to offer or sell for an additional period annually after that, at least 10 business days before the expiration of the previously filed Notice of Exemption; Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland; Files an undertaking by which it agrees to supply any additional information the Commissioner may reasonably request; Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland; Submits financial statements demonstrating compliance with the conditions set forth in §D(1)(a) of this regulation; Submits a representation that the franchisor complies with the condition set forth in §D(1)(b) of this regulation; and Files one copy of its current offering circular. Sophisticated Franchisee. The registration provisions of the Maryland Franchise Law do not apply to any offer or sale of a franchise for which the franchisor requires an initial investment by the franchisee of more than $750,000. The exemption set forth in §E(1) of this regulation may be claimed only if the franchisor: Files a Form F-1 Notice of Exemption: Not later than 10 business days before the offer or sale of any franchise, which Notice of Exemption shall expire after a period of 1 year, and If the franchisor intends to offer or sell for an additional period annually after that, at least 10 business days before the expiration of the previously filed Notice of Exemption; Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland; Files an undertaking by which it agrees to supply any additional information the Commissioner may reasonably request; Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland; and Files one copy of its current offering circular. Institutional Franchisee. The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise to a bank, savings bank, savings and loan association, trust company, insurance company, investment company, or other financial institution, or to a broker-dealer when the: Purchaser is acting for itself or in a fiduciary capacity; and Franchise is not being purchased for the purpose of resale. The exemption set forth in §F(1) of this regulation may be claimed only if the franchisor: Files a Form F-1 Notice of Exemption at least 10 business days before each offer or sale of each franchise; Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland; Files an undertaking by which it agrees to supply any additional information as the Commissioner may reasonably request; and Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland. Exemption by Order. The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise or class of franchises not otherwise described in §§B—F of this regulation if the Commissioner, by order, determines that: The transaction or class of franchises is not one within the purpose of the Maryland Franchise Law; and Registration of the transaction or class of franchises is not necessary or appropriate in the public interest or for the protection of franchisees. A request for an order exempting the offer and sale of a franchise or class of franchises under this section shall: Be filed with the Commissioner; Contain a description of the transaction or class of franchises for which an exemption is sought and the reasons why an order of exemption is appropriate under the criteria described in §G(1) of this regulation; and Include a representation that the person making the request shall provide any additional information the Commissioner requires. A request for an order under this section may be made either by a franchisor or a franchisee. The Commissioner's order exempting the offer and sale of a franchise or class of franchises shall include findings of fact and reasons why granting the exemption is appropriate under the criteria described in §G(1) of this regulation. Unless the Commissioner orders otherwise, if the Commissioner finds that a franchise or class of franchises satisfies the criteria described in §G(1) of this regulation, an exemption may be claimed only if the franchisor: Files a Form F-1 Notice of Exemption, as set forth in Regulation .11 of this chapter, not later than 10 business days before the offer or sale of any franchise, which Notice of Exemption shall expire after a period of 1 year, and if the franchisor intends to offer or sell for an additional period annually after that, at least 10 business days before the expiration of the previously filed Notice of Exemption; Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland; Files an undertaking by which it agrees to supply any additional information the Commissioner may reasonably require; Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland; and Files one copy of its current offering circular. Disclosure Requirements. Unless the Commissioner orders otherwise, if a franchisor relies upon any of the exemptions set forth in §D, E, F, or G of this regulation, the franchisor shall provide an offering circular, together with all proposed agreements relating to the sale of the franchise, to a prospective franchisee at the earlier of: The prospective franchisee's first personal meeting with the franchisor; or 10 business days before the signing of the agreement or the payment of any consideration. Instead of providing an offering circular prepared in accordance with the Maryland Franchise Law, Business Regulation Article, §14-216, Annotated Code of Maryland, and Regulation .04 of this chapter, a franchisor may provide an offering circular that complies with the requirements of the: Federal Trade Commission's trade regulation entitled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures”, 16 CFR 436; Franchise disclosure law of another state; or UFOC. Franchisors filing a claim of exemption under §D, E, F, or G of this regulation shall include a self-addressed stamped envelope by which the Division may return to the franchisor confirmation of receipt of the filing and the exemption file number assigned. Correspondents shall refer to the assigned file number in all subsequent related filings and correspondence with the Division. The following form shall be filed by franchisors claiming exemptions under Regulation .10D, E, F, or G of this chapter: FORM F-1 NOTICE OF EXEMPTION UNDER THE MARYLAND FRANCHISE REGISTRATION AND DISCLOSURE LAW Pursuant to COMAR 02.02.08.10 This Notice of Exemption shall be accompanied by a filing fee of $250.00 payable by check to: Office of the Attorney General. This Notice shall be considered filed with the Division for purposes of COMAR 02.02.08.10 as of the date on which the Notice is received by the Division or, if received by the Division after the date on which it is due, as of the date prior to the due date on which it was mailed by means of United States registered or certified mail to the Maryland Division of Securities, Office of the Attorney General, 200 St. Paul Place, 20th Floor, Baltimore, Maryland 21202-2020. This form is being filed to claim the following exemption from the registration requirements of the Maryland Franchise Registration and Disclosure Law. (CHECK ONE) _______02.02.08.10D—SEASONED FRANCHISOR (If relying on this exemption, include with this filing the financial statements required by this regulation.) _______02.02.08.10E—SOPHISTICATED FRANCHISEE _______02.02.08.10F—INSTITUTIONAL FRANCHISEE _______02.02.08.10G—EXEMPTION BY ORDER (If relying on this exemption, include with this filing a copy of the Commissioner's order.) The Commissioner, with or without prior notice or hearing, may issue a cease and desist order and may deny, suspend, or revoke any registration, amendment, or claim of exemption set forth in Regulation .10 of this chapter, if the Commissioner finds that: The franchisor, or any of its officers, directors, agents, employees, or any other person related to the franchisor has violated or failed to comply with any provision of the Maryland Franchise Law, or any regulation or order of the Commissioner; The franchisor, or any of its officers, directors, agents, or employees, or any other person related to the franchisor, is engaging or is about to engage in false, fraudulent, or deceptive practices in connection with the offer and sale of a franchise; A person identified in an application for registration, a claim of exemption, or any MFOC or other franchise offering circular has been convicted of an offense described in the Maryland Franchise Law, Business Regulation Article, §14-216(c)(8), Annotated Code of Maryland, or is subject to an order or civil judgment as described in the Maryland Franchise Law, Business Regulation Article, §14-216(c)(9), Annotated Code of Maryland, and the involvement of the person in the business of the applicant or franchisor creates a substantial risk to franchisees or prospective franchisees. Scope. The following financial statements shall be prepared in accordance with this regulation: A financial statement required by the Maryland Franchise Law; A financial statement required by any regulation adopted under the Maryland Franchise Law, including the MFOC; and A financial statement used by or on behalf of a franchisor in connection with an offer, sale, or purchase of a franchise in Maryland. Standards. A financial statement specified in §A of this regulation shall be prepared in accordance with generally accepted accounting principles. Financial statements of a franchise offering, for which registration is required under the Maryland Franchise Law, shall be audited and certified by an independent certified public accountant, except that this requirement: Does not apply to interim financial statements unless otherwise required by the Commissioner in a particular case; and May be waived by the Commissioner for good cause shown when a waiver would not be inconsistent with the purposes of the Maryland Franchise Law or contrary to the public interest or the protection of prospective franchisees. Content of Financial Statements. The financial statements that accompany an application for initial or renewal registration shall include comparative: Balance sheets as of the end of the franchisor's last 2 fiscal years before the application date; and Statements of operations, or owners' equity, and of cash flows for the last 3 fiscal years before the application date. If the date of the most recent audited financial statements precedes the date of the application by more than 90 days, the franchisor shall also include: An interim balance sheet as of a date within 90 days of the date of the application; and Statements of operations for the period from the date of the most recent audited statement to the date of the interim balance sheet. If a franchisor owns, directly or indirectly, a controlling interest in any other corporation or entity, the financial statements filed by the franchisor shall reflect, on a consolidated basis, the financial condition of the franchisor and each of the entities controlled by it. Disclosure. A presentation of unaudited financial statements shall be accompanied by the following written disclosure, immediately adjacent to the financial statements: Failure to Submit Financial Statements. If a franchisor fails to submit audited financial statements which comply with the requirements of this regulation as part of an application for registration or renewal of registration, the Commissioner may deny the application. Time for Filing. A franchisor registered under the Maryland Franchise Law shall file a quarterly report with the Commissioner. The first report filed under this section shall be filed not later than 90 days after the effective date of the franchisor's registration statement. Content. The reports required by §A of this regulation shall include: The number of franchises sold in Maryland under the registration statement; The selling price of each franchise sold in Maryland; Graphic representations of exclusive areas, if any, sold to Maryland franchisees; and If the Commissioner directs with respect to a particular franchisor, current financial statements of the franchisor. Records to Be Maintained. A franchisor offering or selling a franchise in the State shall maintain complete and accurate records of offers and sales of franchises, including but not limited to: Offering circulars; Advertising; Correspondence with franchisees and prospective franchisees; Past and present operations manuals; Training records; Training manuals; and Copies of executed agreements. Form of Records. The records may be maintained on photographic or electronic media, but shall be printed if the Commissioner so orders. Retention Schedule. The records described in §A of this regulation shall be maintained at an office readily accessible to the franchisor for 5 years. Inspection of Records. The Commissioner or the Commissioner's designated representatives shall have access to the records described in §A of this regulation at any time, upon reasonable request during business hours, in order to conduct such examinations as the Commissioner considers necessary or appropriate in the public interest or for the protection of prospective franchisees. Other Investigative Powers. Nothing in this regulation is intended to limit the investigative powers of the Commissioner. Scope of Antifraud Provisions. Unless otherwise indicated, the antifraud provisions of the Maryland Franchise Law, Business Regulation Article, §14-229, Annotated Code of Maryland, and this regulation apply to any offer to sell or sale of a franchise in the State regardless of whether the franchise offering is exempt from registration under the Maryland Franchise Law. Fraudulent Representations and Deceptive Statements. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise commits a “misrepresentation to, deceit of, or fraud on the buyer” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-221(2), Annotated Code of Maryland, and engages in an “act, practice, or course of business which operates or would operate as a fraud or deceit on another person” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-229(a)(3), Annotated Code of Maryland, if that person makes, or causes to be made, oral or written statements that do not comply with §§C—H of this regulation. Representations Concerning Nature of Franchise. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise may not make, or cause to be made, oral or written statements concerning the: Exclusivity of the franchise rights granted to the franchisee without disclosing the exact nature of the exclusivity; Nature and number of locations or sites appropriate for the franchisee's enterprise, whether or not to be obtained by the franchisor, without disclosing: By whom each site is to be secured; The manner in which the procurement of any site is to be financed; The source and terms for financing; The relationship, if any, between site procurement and the execution of a franchise agreement; The identity of anyone with whom the franchisor has a binding obligation for the procurement of any site; Whether use of a site by a franchisee will entitle the franchisee to become affiliated with any existing enterprise; and Whether the use of a site by a franchisee will create an obligation on the part of the franchisor or franchisee to any third party; Interest or readiness of other persons to enter into a franchise agreement substantially similar to that being offered or sold without disclosing the source of this information and the identities, including names and addresses, of those persons; Total number of franchises substantially similar to the franchise being offered or sold that have been established or are planned to be established in a geographical area without disclosing: Graphically, the area represented; and Whether the subject franchises are operating or have conducted business within the meaning of Item 20 of the MFOC; or Endorsement or approval of the franchise or its business by any person or entity without disclosing the nature of the endorsement or approval and any compensation by the franchisor or the franchisees to the person or entity. Representations Concerning Income, Earnings, and Net Worth. A person authorizing, aiding in, or causing to be made, an offer or sale of a franchise may not make, or cause to be made, oral or written statements concerning: Industry-wide total income or the income applicable to the prospective franchisee, whether actual or projected, for a product or service marketed by the franchisor, without disclosing the relationship, if any, of these representations to the franchisor's and its franchisees' actual income experience; The actual income experience of the franchisor unless the person discloses the availability of certified audited financial statements and how they may be obtained; Potential earnings from operation of the franchise if these earnings claims have not been included in the MFOC or other offering circular required to be filed with the Commissioner; The net worth of the franchisor and its affiliates unless the person discloses whether financial statements of the franchisor are available and how they may be obtained; or The amount or value of revenue, sales, income, contracts, or business intended to be provided to a franchisee within a specified period of time, without disclosing the actual revenue, sales, income, contract, or business experience of existing franchisees purchasing similarly described franchises, and the period of time in which those franchisees achieved and maintained that revenue, sales, income, contracts, or business. Representations Concerning the Operation of the Franchise. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise may not make, or cause to be made, oral or written statements concerning the: Date by which a prospective franchisee's enterprise will be totally operational without disclosing the: Factual basis upon which that date has been determined or estimated; and Average elapsed time between the signing of a franchise contract and the beginning of conduct of business of the franchisor's other franchisees throughout the continental United States and Canada; Sources from which a franchisee is required to purchase its goods, services, equipment, inventory, or real estate pursuant to the franchise agreement without disclosing: An affiliation between these sources and the franchisor; and The relationship between the price at which a franchisee will make the purchases and the prevailing market price, if any, for these goods, services, supplies, equipment, inventory, or real estate; Franchisor's affiliation with any person or business entity from whom the franchisee shall be required to purchase goods or services or with whom the franchisee shall otherwise be required to do business without disclosing the legal nature of the affiliation; or Qualifications or experience that the franchisor or any affiliate requires or recommends be possessed by a potential franchisee without disclosing whether additional personnel will be required for operation of the franchisee's business if the potential franchisee does not possess the requisite qualifications or experience. Representations Concerning the Franchise Agreement. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise may not make, or cause to be made, oral or written statements concerning: The application for a franchise agreement without disclosing that an application is a preliminary document and not the agreement by which a franchise will be sold or the creation of a contractual relationship; A payment or consideration without disclosing its significance in the franchise sale transaction; The execution of any contract, release, or any negotiable or other written instrument in connection with the franchise agreement without disclosing the complete contents of the document and the significance of the execution of the document in the franchise sale transaction; or Recovery of a portion or all of the franchise fee or other investment without disclosing: Whether the franchise fee or other investment is secured or guaranteed and, if so, in what manner; or If the franchise fee or other investment is not secured or guaranteed, over what period of time, based on the actual experience of other franchises of the franchisor, the franchisee might expect to recover the franchise fee or other investment. Representations Concerning Franchisor Support. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise may not make, or cause to be made, oral or written statements concerning the: Advertising support to be provided by the franchisee and by the franchisor without disclosing the manner by which: The funds are to be raised and spent; and A franchisee may obtain an accounting of expenditures; Extent of any training, supervision, and technical assistance to be provided by the franchisor under the franchise agreement without disclosing the: Frequency with which the training, supervision, and technical assistance will be provided; Cost of the training, supervision, and technical assistance to the franchisee; and Effect of any failure of the franchisee to participate in the same; or Aid or assistance that the franchisor will provide to the franchisee in training, obtaining locations for conducting business, or in marketing the product or service of the franchisor without disclosing, before the execution of the franchise agreement, whether the franchise agreement imposes these obligations on the franchisor. Representations Concerning Public Agencies. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise may not make, or cause to be made, any oral or written statement concerning: Approval or endorsement of a franchise or a franchisor by the Division of Securities, any other State agency, or any other public agency or the employees of any public agency; A finding by any agency of any state, or of any public agency, or by its agents or employees that any contents of advertising are true and not misleading; or The name of the state or any state agency or the name of any public agency or any agency agents or employees in connection with promoting, advertising, offering, or selling a franchise other than to: State that compliance with applicable laws has been accomplished; and Demonstrate compliance by a showing of copies of correspondence or official records. Misrepresentations. A person authorizing, aiding in, or causing to be made, an offer or sale of a franchise commits a “misrepresentation to, deceit of, or fraud on the buyer” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-221(2), Annotated Code of Maryland, and engages in an “act, practice, or course of business which operates or would operate as a fraud or deceit on another person” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-229(a)(3), Annotated Code of Maryland, if that person misrepresents: That execution of any document in connection with the offer or sale of a franchise constitutes only an application for a franchise if execution of the document creates a contractual relationship; The number of franchises of the franchisor that are similar in type and which are conducting or have conducted business within the meaning of Item 20 of the MFOC, within a given area at any time; That the franchise agreement and all of its obligations are embodied in one or several documents presented to, made available to, or executed by a prospective franchisee when, in fact: The execution of additional documents, or the giving by the franchisee of additional consideration, is required for the creation of a contractual relationship; or The execution of one or more of these documents is not related to or necessary for the sale of the franchise; Any element of a franchise agreement or of the business of the franchisor that is required to be disclosed by the Maryland Franchise Law, Business Regulation Article, §14-216, Annotated Code of Maryland, or by this regulation. False, Fraudulent, and Deceptive Omissions. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise commits a “misrepresentation to, deceit of, or fraud on the buyer” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-221(2), Annotated Code of Maryland, and engages in an “act, practice, or course of business which operates or would operate as a fraud or deceit on another person” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-229(a)(3), Annotated Code of Maryland, if that persons fails to make the following disclosures: When a relationship exists between the franchisor and any other person or entity that has offered, is offering, or will offer a franchise program substantially similar to that being offered or sold, to disclose the: Nature of the relationship; and Similarity, if any, between the trademark or commercial symbol or the production and marketing plan of the other person or entity to that of the franchise being offered or sold; If a franchisee is required to purchase goods, services, equipment, inventory, real estate, or other items from designated sources, including the franchisor, to disclose: In the case of sources other than the franchisor, any affiliation of the franchisor with these sources; If the source is affiliated with the franchisor, the cost to the seller of these goods, services, equipment, inventory, real estate, or other items; The prevailing market price, if any, for the goods, services, equipment, inventory, real estate, or other items, and if none, an explanation as to the inability of the seller to determine and disclose same; or The manner, if any, in which the availability of the goods, services, equipment, inventory, real estate, or other items will be insured by the franchisor or its affiliates under the terms of the franchise agreement; or Any representation required to be made by the Maryland Franchise Law, Business Regulation Article, §14-216, Annotated Code of Maryland, which is an element of the franchise being offered or sold. Misapplication of Proceeds. A person authorizing, aiding in, or causing to be made an offer or sale of a franchise commits a “misrepresentation to, deceit of, or fraud on the buyer” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-221(2), Annotated Code of Maryland, and engages in an “act, practice, or course of business which operates or would operate as a fraud or deceit on another person” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-229(a)(3), Annotated Code of Maryland, if that person applies, authorizes, or causes any material part of the proceeds from the sale of franchises to be applied: In any material way contrary to the purpose specified in the offering circular, advertising, or oral representations used in connection with the offer or sale of the franchise; or For a purpose not reasonably related to the business of the franchisor as described in the offering circular, advertising, oral representations, or any contract related to the offer or sale of the franchise. Prohibited Releases from Liability and Waivers. A person authorizing, aiding in, or causing to be made, an offer or sale of a franchise commits a “misrepresentation to, deceit of, or fraud on the buyer” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-221(2), Annotated Code of Maryland, Annotated Code of Maryland, and engages in an “act, practice, or course of business which operates or would operate as a fraud or deceit on another person” within the meaning of the Maryland Franchise Law, Business Regulation Article, §14-229(a)(3), Annotated Code of Maryland, if that person requires a franchisee to: Provide a release from liability under the provisions of the Maryland Franchise Law as part of a franchise agreement or as a condition of the sale, renewal, or assignment of a franchise; Assent to a period of limitations for causes of action under the Maryland Franchise Law, Business Regulation Article, §14-226, Annotated Code of Maryland, other than the period of limitations set forth in that statute; or Waive the franchisee's right to file a lawsuit alleging a cause of action arising under the Maryland Franchise Law in any court of competent jurisdiction in this State. Filing of Request. A request for an interpretive opinion or a no action position under the Maryland Franchise Law, Business Regulation Article, §14-209, Annotated Code of Maryland, shall be filed with the Commissioner. Form of Request. A request for an interpretive opinion or a no action position shall include: An original and one copy of the letter requesting the interpretive opinion or no action position; and Two copies of any supporting documentation or materials. Content of Request. A request shall state the names of any franchisor, individual, or entity involved. Requests concerning unnamed franchisors, individuals, or entities, or hypothetical situations are not acceptable. A request shall indicate in a prominent manner the specific parts of the statute or regulation to which the request pertains. A request shall be limited to a particular fact situation and shall contain a legal analysis indicating why the requesting party believes that it is appropriate, given the language, meaning, and intent of the pertinent statutes and regulations, and the interests of investor protection, that the Commissioner should take a particular position. A request shall contain the name of the individual to be contacted by the Division if additional information is required. The designated individual shall be fully versed in the facts and legal analysis underlying the request for the interpretive opinion or no action position. Request for Confidential Treatment. If a person requesting an interpretive opinion or no action position seeks to keep all or part of the request confidential, the person shall submit, together with the request for an interpretive opinion or no action position, a separate letter that states why the person believes that confidential treatment is appropriate or necessary. Payment of Fee. A request for an interpretive opinion or a no action position shall be accompanied by the fee set forth in the Maryland Franchise Law, Business Regulation Article, §14-209(b)(2), Annotated Code of Maryland. The filing fee is nonrefundable. Any communication made through the Internet, the World Wide Web, or any other similar proprietary or common carrier electronic delivery system, of an offer to sell a franchise (Internet Offer) is exempt from the registration provisions of the Maryland Franchise Law if: The Internet Offer indicates, directly or indirectly, that the franchise is not being offered to residents of Maryland; The Internet Offer is not otherwise directed to any person in Maryland by or on behalf of the franchisor or anyone acting with the franchisor's knowledge; and No franchises are sold in Maryland by or on behalf of the franchisor until the offering has been registered and declared effective and the MFOC has been delivered to the offeree before the sale and in compliance with the Maryland Franchise Law. Reliance on an exemption from registration under this regulation does not preclude a franchisor from relying on any other exemption provided under the Maryland Franchise Law or these regulations. Business Regulation Article, §14-206, Annotated Code of Maryland Effective date: Regulations .01—.08 adopted as an emergency provision effective December 2, 1977 (4:26 Md. R. 2005); emergency status extended at 5:8 Md. R. 587 Regulations .01—.08 adopted effective May 5, 1978 (5:9 Md. R. 683) (Recodified from COMAR 02.02.04 to 02.02.10) Regulations .02—.08 recodified to Regulations .02—.12 and amended effective May 19, 1986 (13:10 Md. R. 1154) Regulation .02C amended effective October 29, 1990 (17:21 Md. R. 2525) Regulation .04 amended effective October 29, 1990 (17:21 Md. R. 2525) Regulation .10A amended and .10B adopted effective October 29, 1990 (17:21 Md. R. 2525) Regulation .12B amended effective October 29, 1990 (17:21 Md. R. 2525) Regulation .13 adopted effective April 15, 1991 (18:7 Md. R. 770) Regulations .01—.13 under COMAR 02.02.10 repealed effective January 17, 1994 (21:1 Md. R. 27) Regulations .01—.17 adopted effective January 17, 1994 (21:1 Md. R. 27) Regulation .01B amended effective May 23, 1994 (21:10 Md. R. 840) Regulation .04A amended and C adopted effective May 23, 1994 (21:10 Md. R. 840) Regulation .10G amended effective May 23, 1994 (21:10 Md. R. 840) Chapter revised effective December 18, 1995 (22:25 Md. R. 1960) Regulation .04B amended effective June 29, 1998 (25:13 Md. R. 992) Regulation .08F amended effective June 29, 1998 (25:13 Md. R. 992) Regulation .09B amended effective June 29, 1998 (25:13 Md. R. 992) Regulation .10B, D, H amended effective June 29, 1998 (25:13 Md. R. 992) Regulation .11 amended effective June 29, 1998 (25:13 Md. R. 992) Regulation .18 adopted effective June 29, 1998 (25:13 Md. R. 992) In this chapter, the following terms have the meanings indicated. Terms Defined. “Federal covered security” has the meaning stated in Corporations and Associations Article, §11-101(f), Annotated Code of Maryland. “Investment company” has the meaning stated in §3 of the Investment Company Act of 1940, 15 U.S.C. §80a-3. “Registration statement” has the meaning stated in §2(a)(8) of the Securities Act of 1933, 15 U.S.C. §77b(a)(8). “Unit investment trust” has the meaning stated in §4(2) of the Investment Company Act of 1940, 15 U.S.C. §80a-4(2). In this chapter, the following documents are incorporated by reference. Documents Incorporated. 15 U.S.C. §80a-3. 15 U.S.C. §80a-4(2). 15 U.S.C. §77b(a)(8). Required Uniform Forms. To comply with the notice filing requirements of this chapter and Corporations and Associations Article, §11-503.1, Annotated Code of Maryland, an issuer may use the following forms: Form NF (Uniform Investment Company Notice Filing); Form U-2 (Uniform Consent to Service of Process); SEC Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption). Effect on Maryland Law. An instruction, undertaking, or other matter appearing in the forms listed in §A of this regulation does not limit the application of Corporations and Associations Article, Title 11, Annotated Code of Maryland, or this chapter. Notice Filing. An issuer registered with the SEC under the Investment Company Act of 1940 that intends to offer or sell securities that are federal covered securities under §18(b)(2) of the Securities Act of 1933 shall, before an offer or sale in Maryland, submit a notice filing for those securities. Separate Classes or Series of Securities. An issuer that offers multiple classes or series of securities shall file a separate notice filing with the Commissioner and pay a separate fee for each class or series of securities. Initial Notice Filing. An initial notice filing shall consist of: Form NF (Uniform Investment Company Notice Filing) or a copy of the investment company's registration statement filed with the SEC; Form U-2 (Uniform Consent to Service of Process) or, if this document has been previously filed with the Commissioner, a cross-reference to the Maryland file number of an effective notice filing with which the Form U-2 was filed; The name and CRD number, if any, of at least one broker-dealer or issuer agent that will effect transactions in the securities in Maryland; The fee required by Corporations and Associations Article, §11-510.1, Annotated Code of Maryland; and Any documents filed with the SEC that the Commissioner may request. Response to Notice Filing. Notice to Issuer. Following receipt of a notice filing, the Division shall notify an issuer that its notice filing is: Effective; Effective pending SEC effectiveness; or Incomplete. Effectiveness. The Division shall notify an issuer that its notice filing is effective upon receipt in Maryland if: The notice filing is complete; The issuer's registration statement has been declared effective by the SEC; and No stop order is in effect and no proceeding is pending under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland. Notice Filing Effective Pending SEC Effectiveness. The Division shall notify an issuer that its notice filing is effective pending SEC effectiveness if: The notice filing is complete; The issuer's registration statement has not been declared effective by the SEC; and No stop order is in effect and no proceeding is pending under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland. An issuer shall notify the Commissioner when its registration statement is declared effective by the SEC. The notice filing in Maryland is effective in Maryland immediately upon SEC effectiveness. Incomplete Notice Filing. Notice of Deficiency. If a notice is incomplete, the Commissioner, before issuing a stop order under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland, shall notify an issuer of the deficiencies in the notice filing that must be corrected in order to complete the notice filing. If an issuer cures the deficiencies in its notice filing, the Commissioner shall notify the issuer that its notice filing is effective or effective pending SEC effectiveness. Stop Order. If an issuer fails to cure the deficiencies in its notice filing within 15 calendar days of notification of the deficiencies, the Commissioner may issue a stop order suspending the offer or sale of the securities in Maryland under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland. If, after the Commissioner issues a stop order, the issuer completes the notice filing, the Commissioner may vacate or otherwise modify the stop order and declare the filing effective. Duration of Notice Filing. Investment Companies Other Than Unit Investment Trusts. An initial or renewal notice filing submitted for an issuer is effective until the last day of the issuer's fiscal year end, when it must be renewed under Regulation .06 or terminated under Regulation .07 of this chapter. Unit Investment Trusts. An initial or renewal notice filing submitted for an issuer is effective for a 1-year period from the date of effectiveness, and must be renewed under Regulation .06 or terminated under Regulation .07 of this chapter. The Division will run the effective period of the issuer's notice filing concurrently with the SEC effective period for the notice filing if: The issuer's SEC filing is already effective at the time the notice filing is made with the Division; and The issuer requests that the Division set the Maryland effective period to run concurrently. SEC Termination. If, after an issuer's notice filing is declared effective in Maryland, the issuer's registration with the SEC terminates, the issuer shall terminate its notice filing under Regulation .07 of this chapter. Amendment of Notice Filing. Filing Requirement. An issuer shall file with the Commissioner an amendment to the notice filing for any material changes in the information contained in the filing. Material Changes. Events requiring an issuer to amend its notice filing include, but are not limited to, changes in the: Fiscal year-end date; Name of the issuer or of a portfolio, series, or class of securities of the issuer; or Business form of the issuer. Change in Fiscal Year End—Investment Companies Other Than Unit Investment Trusts. If an issuer changes its fiscal year-end date, the issuer shall: Submit a renewal notice filing at the end of its new fiscal year-end date in accordance with Regulation .06 of this chapter; and Pay a fee in accordance with Regulation .05 of this chapter. Filing Deadline. An issuer shall file amendments required by this section within 15 days of the event giving rise to the need to amend the filing. Registration Requirement—Nonpayment of Fees. Until October 10, 1999, if a notice filing is incomplete for nonpayment or underpayment of any fees required under Regulation .05 of this chapter and the deficiency is not remedied within 15 calendar days after notification is sent to an issuer, the Commissioner may require the registration of the securities under Corporations and Associations Article, §11-503, Annotated Code of Maryland. Notice Filing Fee. An issuer submitting a notice filing under Regulation .04 or .06 of this chapter shall pay an initial part of its fee at the time of the notice filing and the remaining part of its fee by the due date under §B of this regulation, or upon termination under Regulation .07 of this chapter. Initial Part of Fee. As part of its notice filing, an issuer shall pay $500 as required by Corporations and Associations Article, §11-510.1, Annotated Code of Maryland. Remaining Part of Fee. An issuer may pay the remaining part of its fee by either: Paying a flat fee of $1,300; or Filing with the Commissioner a year-end sales report on Form NF and paying a calculated fee computed as follows: If gross sales in Maryland are $500,000 or less, no additional fee is due, If gross sales in Maryland are equal to or greater than $1,500,000, the remaining part of the fee is $1,000, or If gross sales in Maryland are greater than $500,000 but less than $1,500,000, the remaining part of the fee is equal to 0.1 percent of gross sales in Maryland, minus $500. Due Date for Remaining Part of Fee. Investment Companies Other Than Unit Investment Trusts. An issuer shall submit the remaining part of its fee within 60 days after its fiscal year-end date. Unit Investment Trusts. An issuer shall submit the remaining part of its fee within 60 days after expiration of effectiveness under Regulation .04E(2) of this chapter. Change in Fiscal Year End—Prorated Fee. Renewing Issuer. If, as a result of a change in fiscal year-end date, the effective period for an issuer's existing notice filing extends beyond 12 months, an issuer renewing its notice filing under Regulation .06 shall submit a prorated fee in accordance with §C(3) of this regulation. Terminating Issuer. If, as a result of a change in fiscal year-end date, the effective period for an issuer's existing notice filing extends beyond 12 months, an issuer terminating its notice filing under Regulation .07 of this chapter shall submit a prorated fee in accordance with §C(3) of this regulation, minus $500. Prorated Fee—Tables. Flat Fee Table. Calculated Fee Table. Renewal Notice Filing. An issuer shall renew its notice filing for a successive 1-year period by paying $500 as the initial part of its renewal fee and submitting to the Commissioner, within the due date under §B of this regulation, the remaining part of its fee required by Regulation .05 of this chapter. Due Date for Renewal Notice Filing. Investment Companies Other Than Unit Investment Trusts. An issuer shall submit its renewal notice filing within 60 days after its fiscal year-end date. If an issuer changes its fiscal year-end date, its existing notice filing may not remain effective for more than 24 months. Unit Investment Trusts. An issuer shall submit its renewal notice filing within 60 days after expiration of effectiveness under Regulation .04E(2) of this chapter. If an issuer terminates an offering in Maryland, it shall: Notify the Commissioner of the termination of the offering; and Pay the fee and file any year-end sales report required by Regulation .05 of this chapter. Surviving Issuer. Within 15 days after the combination or reorganization of two or more issuers: A surviving issuer with an effective notice filing in Maryland shall amend its notice filing in accordance with Regulation .04F of this chapter; A surviving issuer without an effective notice filing in Maryland shall submit a notice filing in accordance with Regulation .04 of this chapter. Terminating Issuers. Within 15 days after the combination or reorganization of two or more issuers, issuers terminating their offerings in Maryland shall make the filings required by Regulation .07 of this chapter. General. An issuer that intends to offer or sell federal covered securities under §18(b)(4)(D) of the Securities Act of 1933 shall, not later than 15 days after the first sale of securities in Maryland, submit a notice filing unless the securities or transactions would qualify for a self-executing exemption under Corporations and Associations Article, §11-601 or 11-602, Annotated Code of Maryland. Notice Filing. A notice filing shall consist of: A completed copy of SEC Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption), as filed with the SEC, including Part E, manually signed, and the Maryland portion of the appendix to the form; Form U-2 (Uniform Consent to Service of Process); The date of the first sale of the securities in Maryland under this offering; The name and CRD number, if any, of at least one broker-dealer or issuer agent that will effect transactions in the securities in Maryland; and The fee required by Corporations and Associations Article, §11-506, Annotated Code of Maryland. Response to Notice Filing. Notice to Issuer. Following receipt of a notice filing, the Division shall notify an issuer that its notice filing is: Effective; or Incomplete. Effectiveness. A notice filing is effective in Maryland if: The notice filing is complete; and No stop order is in effect and no proceeding is pending under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland. Incomplete Notice Filing. Notice of Deficiency. If a notice filing is incomplete, the Commissioner, before issuing a stop order under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland, shall notify an issuer of the deficiencies in the notice filing that must be corrected in order to complete the notice filing. If an issuer cures the deficiencies in its notice filing, the Commissioner shall notify the issuer that the notice filing is effective. Stop Order. If an issuer fails to cure the deficiencies in its notice filing within 15 calendar days of notification of the deficiencies, the Commissioner may issue a stop order suspending the offer or sale of the securities in Maryland under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland. If, after the Commissioner issues a stop order, the issuer completes the notice filing, the Commissioner may vacate or otherwise modify the stop order and declare the filing effective. Registration Requirement—Nonpayment of Fees. Until October 10, 1999, if a notice filing is incomplete for nonpayment or underpayment of any fees required under §B of this regulation and the deficiency is not remedied within 15 calendar days after notification is sent to an issuer: The Commissioner may require the issuer to register the securities under Corporations and Associations Article, §11-503, Annotated Code of Maryland; or The issuer may establish an exemption for the securities under Corporations and Associations Article, §11-601 or 11-602, Annotated Code of Maryland. General. An issuer that intends to offer or sell federal covered securities under §18(b)(3) or (b)(4)(A)—(C) of the Securities Act of 1933 shall submit a notice filing unless the securities or transactions would qualify for a self-executing exemption under Corporations and Associations Article, §11-601 or 11-602, Annotated Code of Maryland. A notice filing shall be filed with the Commissioner: At the same time an issuer submits its filing for securities with the SEC; or If no SEC filing is required, not later than 15 days after the first sale in Maryland. Notice Filing. A notice filing shall consist of: A copy of each document filed, if any, with the SEC under the Securities Act of 1933 with respect to the offer or sale of federal covered securities under this regulation; (2) Form U-2 (Uniform Consent to Service of Process); Form U-2 (uniform Consent to Service of Process); The date of the first sale of the securities in Maryland; The name and CRD number, if any, of at least one broker-dealer or issuer agent that will effect transactions in the securities in Maryland; and The fee required by Corporations and Associations Article, §11-506, Annotated Code of Maryland. Response to Notice Filing. Notice to Issuer. Following receipt of a notice filing, the Division shall notify an issuer that its notice filing is: Effective; or Incomplete. Effectiveness. A notice filing is effective in Maryland if: The notice filing is complete; and No stop order is in effect and no proceeding is pending under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland. Incomplete Notice Filing. Notice of Deficiency. If a notice filing is incomplete, the Commissioner, before issuing a stop order under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland, shall notify an issuer of the deficiencies in the notice filing that must be corrected in order to complete the notice filing. If an issuer cures the deficiencies in its notice filing, the Commissioner shall notify the issuer that the notice filing is effective. Stop Order. If an issuer fails to cure the deficiencies in its notice filing within 15 calendar days of notification of the deficiencies, the Commissioner may issue a stop order suspending the offer or sale of the securities in Maryland under Corporations and Associations Article, §§11-503.1 and 11-513, Annotated Code of Maryland. If, after the Commissioner issues a stop order, the issuer completes the notice filing, the Commissioner may vacate or otherwise modify the stop order and declare the filing effective. Registration Requirement—Nonpayment of Fees. Until October 10, 1999, if a notice filing is incomplete for nonpayment or underpayment of any fees required under §B of this regulation and the deficiency is not remedied within 15 calendar days after notification is sent to an issuer: The Commissioner may require the issuer to register the securities under Corporations and Associations Article, §11-503, Annotated Code of Maryland; or The issuer may establish an exemption for the securities under Corporations and Associations Article, §11-601 or 11-602, Annotated Code of Maryland. A person engaged in sales activity relating to the offer or sale of federal covered securities under this chapter shall: Register as a broker-dealer agent under Corporations and Associations Article, §11-401, Annotated Code of Maryland, and COMAR 02.02.02.04; Register as an issuer agent under Corporations and Associations Article, §11-401, Annotated Code of Maryland, and COMAR 02.02.03.11; or Qualify for an exclusion under Corporations and Associations Article, §11-101, Annotated Code of Maryland, or an exemption under another provision. Corporations and Associations Article, §§11-203, 11-501, 11-503.1, 11-506, 11-510.1, 11-513, and 11-802, Annotated Code of Maryland Effective date: August 24, 1998 (25:17 Md. R. 1358) Regulations .09, .10 adopted effective December 28, 1998 (25:26 Md. R. 1918)