Orders

Order Implementing Investment Adviser Representative Continuing Education

In the matter of: Investment Adviser Representative Continuing Education

    WHEREAS, the North Dakota Securities Commissioner (the “Securities Commissioner”) is charged with the administration of the North Dakota Securities Act, Chapter 10-04 of the North Dakota Century Code, (the “Act”); and

    WHEREAS, Section 10-04-03(2) of the Act provides that the Securities Commissioner may make, amend, and rescind such rules, forms and orders as are necessary or appropriate to carry out the provisions of the Act; and

    WHEREAS, Section 10-04-10(5) of the Act was amended to require investment adviser representatives to “comply with any continuing education requirements as prescribed by the commissioner”; and

    WHEREAS, the Commissioner finds that the issuance of this order is necessary and appropriate, in the public interest, for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act. 

IT IS HEREBY ORDERED that:

(1)   Definitions. As used in this order, the following terms mean: 
(A)   “Act” means the North Dakota Securities Act. 
(B)   “Approved IAR Continuing Education Content” means the materials, written, oral, or otherwise that have been approved by NASAA or its designee and which make up the educational program provided to an investment adviser representative under this order. 
(C)   “Authorized Provider” means a person that NASAA or its designee has authorized to provide continuing education content required by this order. 
(D)   “Credit” means a unit that has been designated by NASAA or its designee as at least 50 minutes of educational instruction. 
(E)   “FINRA” means the Financial Industry Regulatory Authority. 
(F)   “Home State” means the state in which the investment adviser representative has its principal office and place of business. 
(G)   “IAR Ethics and Professional Responsibility Content” means Approved IAR Continuing Education Content that addresses an investment adviser representative’s ethical and regulatory obligations. 
(H)   “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. 
(I)   “Investment adviser representative” or “IAR” means an individual who meets the definition of “investment adviser representative” under the Act.
(J)   “NASAA” means the North American Securities Administrators Association or a committee designated by its Board of Directors. 
(K)   “Reporting Period” means one twelve month (12) 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.

(2)   IAR Continuing Education. Every investment adviser representative registered under Section 10-04-10(5) of the Act must complete the following IAR continuing education requirements each Reporting Period: 
(A)   IAR Ethics and Professional Responsibility Requirement. An investment adviser representative must complete six (6) Credits of IAR Regulatory and Ethics Content offered by an Authorized Provider, with at least three (3) hours covering the topic of ethics; and 
(B)   IAR Products and Practice Requirement. An investment adviser representative must complete six (6) Credits of IAR Products and Practice Content offered by an Authorized Provider. 

(3)   Agent of FINRA-Registered Broker-Dealer Compliance. An investment adviser representative who is also registered as an agent of a FINRA member broker-dealer and who complies with FINRA’s continuing education requirements is considered to be in compliance with the subsection (2)(B) IAR Products and Practice Requirement for each applicable Reporting Period so long as FINRA continuing education content meets all of the following baseline criteria as determined by NASAA: 
(A)   The continuing education content focuses on compliance, regulatory, ethical, and sales practices standards;
(B)   The 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
(C)   The continuing education content requires that its participants demonstrate proficiency in the subject matter of the educational materials.

(4)   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 Section 10-04-10(5) comply with subsections (2)(A) and (2)(B) of this order provided all of the following are true: 
(A)   The investment adviser representative completes the credits of continuing education as a condition of maintaining the credential for the relevant Reporting Period; 
(B)   The credits of continuing education completed during the relevant Reporting Period by the investment adviser representative are mandatory to maintain the credential; and 
(C)   The continuing education content provided by the credentialing organization during the relevant Reporting Period is Approved IAR Continuing Education Content. 

(5)   IAR Continuing Education Reporting. Every investment adviser representative is responsible for ensuring that the Authorized Provider reports the investment adviser representative’s completion of the applicable IAR continuing education requirements. 

(6)   No Carry-Forward. An investment adviser representative who completes Credits of continuing education in excess of the amount required for the Reporting Period may not carry forward excess credits to a subsequent Reporting Period. 

(7)   Failure to Complete or Report. 
(A)  An investment adviser representative who fails to comply with this order by the end of a Reporting Period will renew as “CE Inactive.” 
(B)  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. 
(C)  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 order.  
(D)  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.

(8)   Discretionary Waiver by the Commissioner. The Securities Commissioner may, in their discretion, waive any requirements of this order. 

(9)   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 this order provided that both of the following are true: 
(A) The investment adviser representative’s Home State has continuing education requirements that are at least as stringent as those set forth in this order; and 
(B) The investment adviser representative is in compliance with the Home State’s investment adviser representative continuing education requirements. 

(10)   Unregistered Periods. An investment adviser representative who was previously registered under the Act and became unregistered must complete IAR continuing education for all reporting periods that occurred between the time that the investment adviser representative became unregistered and when the person became registered again under the Act unless the investment adviser representative takes and passes the examination under Section 10-04-10(5) or receives an examination waiver as required by Section 10-04-10(5), in connection with the subsequent application for registration. 
 

REVISED ORDER MANDATING ELECTRONIC FILINGS

STATE OF NORTH DAKOTA

SECURITIES DEPARTMENT

In the Matter of: Electronic Filing of Securities Registration Applications, Notice Filings, and Exemption Filings

WHEREAS, Section 10-04-03(2) of the North Dakota Century Code provides that the Securities Commissioner may issue an order necessary or appropriate to carry out the provisions of the North Dakota Securities Act, including rules and forms governing registration statements, applications, notice filings and other records;

WHEREAS, certain securities registration applications, exemption filings, and other notice filings are time sensitive; and

WHEREAS, in order to implement a more complete remote work policy that provides timely service to the Securities Department's constituency, the Securities Commissioner has determined that it is in the best interest of the staff of the Securities Department, issuers, and the public to mandate that securities registration applications, notice filings, and exemption filings, are filed electronically. Filings must be presented through the North American Securities Administrators Association Electronic Filing Depository (EFD), BlueExpress, or the Securities Department’s filing portal.

    IT IS HEREBY ORDERED that:

1. All securities registration applications filed under Sections 10-04-07.1, 10-04-07.2 or 10-04-08 of the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.
    
2.  All unit investment trust notice filings made under 10-04-08.4 of the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.
    
3. All investment company fund notice filings made under 10-04-08.4 of the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.
    
4. All Regulation D, Rule 506 notice filings made under 10-04-08.4 of the Act shall be made via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.
    
5. All Regulation A, Tier 2 notice filings made under 10-04-08.4 of the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.
    
6. Any other securities filing required to be made under the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/ or the Securities Department’s filing portal at https://securitiesfilingportal.nd.gov.
    
7. Payment of fees shall be made by electronic fund transfer. Filings are effective when payment is received by the Department.
    
8. This Revised Order shall be effective immediately.

IN TESTIMONY WHEREOF, witness my hand and seal this 31st day of January, 2023. 

Karen J. Tyler, Securities Commissioner
North Dakota Securities Department
600 East Boulevard Ave.
State Capitol – Fourteenth Floor
Bismarck, ND  58505-0510
(701) 328-2910
 

Order Relating to an Exemption for Investment Advisers to VC Funds

STATE OF NORTH DAKOTA
SECURITIES DEPARTMENT

WHEREAS, the North Dakota Securities Commissioner (Commissioner) is charged with the administration of the North Dakota Securities Act, Chapter 10-04 of the North Dakota Century Code, (the "Act"); and

WHEREAS, Section 10-04-03(2) of the Act provides that the Securities Commissioner may issue an order necessary or appropriate to carry out the provisions of the Act, including rules and forms governing registration statements, applications, notice filings and other records; and

WHEREAS, Section 10-04-02(10) of the Act defines the term "investment adviser" to mean “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. The term includes financial planners and other persons who, as an integral component of other financially related services, provide the foregoing investment advisory services to others for compensation and as part of a business or who hold themselves out as providing the foregoing investment advisory services to others for compensation;” and

WHEREAS, Section 10-04-10 of the Act provides that a person with a place of business in this state shall not transact business in this state as an investment adviser or investment adviser representative unless such person is registered, or exempt from registration, under the Act or, if the person has no place of business in the state and meets the de minimus exemption in Section 10-04-10(3)(a); and

WHEREAS, on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub L. No.111-203, 124 Stat. 1376 (2010) ("Dodd­Frank") became law  and eliminated the exemption from registration for investment advisers contained in Section 203(b)(3) of the Investment Advisers Act of 1940 (15 U.S.C. §§ 80b-l - 80b-21) ("Advisers Act") known as the "Private Adviser Exemption"; and

WHEREAS, effective July 21, 2011, Dodd-Frank amended Section 203 of the Advisers Act to add an exemption from registration in Section 203(l) of the Advisers Act for investment advisers rendering advice solely to one or more venture capital ("VC") funds, subject to such reporting and record keeping requirements as the Securities and Exchange Commission ("SEC") may prescribe; and

WHEREAS, Section 10-04-02(10) of the Act provides the Commissioner with the authority to exclude from the definition of "investment adviser" any person not within the intent of this subsection as the Commissioner, by rule or order, may designate, thereby causing those persons to not be subject to the investment adviser registration requirements of Section 10-04-10 of the Act; and

WHEREAS, the Commissioner finds that, subject to the provisions of this Order, investment advisers rendering advice solely to one or more venture capital funds are not within the intent of the definition of "investment adviser" under Section 10-04-02(10) of the Act; and 

WHEREAS, the Commissioner finds that the issuance of this Order is necessary and appropriate, in the public interest, for the protection of investors and clients and consistent with the purposes fairly intended by the policies and provisions of the Act.

    IT IS HEREBY ORDERED that:

1. An investment adviser that: (a) acts solely as an adviser to one or more “venture capital funds” (meaning a private fund that meets the definition of a venture capital fund in SEC Rule 203(l)-1, 17 C.F.R. § 275.203(l)-1), (b) is exempt from the investment adviser registration requirements under Section 203(l) of the Advisers Act; and (c) is in compliance with SEC Rule 203(l)-1 ("Exempt VC Adviser") shall be excluded from the definition of "investment adviser" under Section 10-04-02(10) of the Act for purposes of the investment adviser registration requirements of Section 10-04-10 of the Act.
    
2. An Exempt VC Adviser that is excluded from the definition of investment adviser pursuant to this Order shall comply with the reporting requirements of SEC Rule 204-4, 17 C.F.R. § 275.204-4, and shall make a notice filing with the North Dakota Securities Department ("the Department") of its exempt reporting adviser status on Form ADV through the Investment Adviser Registration Depository ("IARD") system.
    
3. An Exempt VC Adviser that is excluded from the definition of investment adviser pursuant to this Order shall pay a notice filing fee of $100 to the Department through the IARD system.
    
4. An Exempt VC Adviser that is excluded from the definition of investment adviser pursuant to this Order may not be subject to an event that would disqualify an issuer under Rule 506(d)(1) of SEC Regulation D, 17 C.F.R. § 230.506(d)(1); and may not hold itself out generally to the public as an investment adviser.
    
5. Any venture capital funds being advised under the terms set forth in this Order must continue to meet all of the requirements and qualifications of “venture capital funds” as set forth in SEC Rule 203(l)-1, 17 C.F.R. § 275.203(l)-1); and all of the investors in the venture capital funds being advised must be “accredited investors” as defined in 17 C.F.R. § 230.501(a).
    
6. An individual employed by or associated with an Exempt VC Adviser that is exempt from the investment adviser registration requirements pursuant to this Order shall be excluded from the definition of "investment adviser representative" in Section 10-04-02(11) of the Act, by virtue of such individual's activities on behalf of the Exempt VC Adviser, during such time as the exemption pursuant to this Order is in effect.
    
7. The exclusions and exemptions provided in this Order extend to state investment adviser registration requirements and investment adviser representative registration requirements only and do not excuse the obligation to comply with all other applicable securities registration, anti-fraud, fiduciary and related provisions.
    
8. This Order is effective as of March 1, 2022, and shall remain in effect until modified or rescinded.

    IN TESTIMONY WHEREOF, witness my hand and seal this 1st day of March, 2022.
 

Karen J. Tyler, Securities Commissioner
North Dakota Securities Department
600 East Boulevard Ave.
State Capitol – Fifth Floor
Bismarck, ND  58505-0510
(701) 328-2910
 

REVISED ORDER MANDATING ELECTRONIC FILINGS  

STATE OF NORTH DAKOTA

SECURITIES DEPARTMENT

WHEREAS, Section 10-04-03(2) of the North Dakota Century Code provides that the Securities Commissioner may issue an order necessary or appropriate to carry out the provisions of the North Dakota Securities Act, including rules and forms governing registration statements, applications, notice filings and other records;

WHEREAS, certain securities registration applications, exemption filings, and other notice filings are time sensitive; and

WHEREAS, in order to implement a more complete remote work policy that provides timely service to the Securities Department's constituency, the Securities Commissioner has determined that it is in the best interest of issuers, other filers, the public, and the staff of the Securities Department, to mandate that certain securities related filings, pre-need funeral service contract report filings, and requests for interpretive opinion, be filed electronically utilizing, as directed, either the North American Securities Administrators Association   Electronic Filing Depository (EFD) portal or the ND Securities Filing Portal accessible through the Department’s website https://www.securities.nd.gov/.  

IT IS HEREBY ORDERED that:

1. All securities registration applications filed under Sections 10-04-07.1, 10-04-07.2 or 10-04-08 of the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.

2. All unit investment trust notice filings made under Section 10-04-08.4 of the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.

3. All investment company fund notice filings made under Section 10-04-08.4 of the Act shall be filed via BlueExpress or via email to securitiesfilings@ND.gov.

4. All Regulation D, Rule 506 notice filings made under Section 10-04-08.4 of the Act shall be made via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.

5. All Regulation A, Tier 2 notice filings made under Section 10-04-08.4 of the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/.

6. Any other securities related filing required to be made under the Act shall be filed via the North American Securities Administrators Association EFD Portal (EFD) at https://efdnasaa.org/ or via the ND Securities Filing Portal at https://securitiesfilingportal.nd.gov.

7. All Pre-need Funeral Service Contract reports made under N.D.C.C. Chapter 43-10.1 shall be filed via the ND Securities Filing Portal at https://securitiesfilingportal.nd.gov.

8. Any Request For Interpretive Opinion made under Section 10-04-03(6) of the Act shall be filed via the ND Securities Filing Portal at https://securitiesfilingportal.nd.gov.

9. Payment of fees shall be made electronically as directed by the EFD or ND Securities Filing Portal.   Submitted filings will not be processed until payment is received by the Department.

10. This Revised Order shall be effective immediately.        

IN TESTIMONY WHEREOF, witness my hand and seal this 10th day of November, 2021.

Karen J. Tyler, Securities Commissioner
North Dakota Securities Department
600 East Boulevard Ave.
State Capitol – Fifth Floor
Bismarck, ND 58505-0510
(701) 328-2910

Limited Registration of Canadian Broker-Dealers

STATE OF NORTH DAKOTA

SECURITIES DEPARTMENT

WHEREAS, the North Dakota Securities Commissioner (Commissioner) is charged with the administration of the North Dakota Securities Act, Chapter 10-04 of the North Dakota Century Code, (the "Act"); and 

WHEREAS, Section 10-04-03(2) of the Act provides that the Commissioner may issue an order necessary or appropriate to carry out the provisions of the Act, including rules and forms governing registration statements, applications, notice filings and other records; and 

WHEREAS, Section 10-04-10(1) of the Act provides that "It is unlawful for a person to transact business in this state as a broker-dealer unless the person is registered under this chapter as a broker-dealer or is exempt."; and 

WHEREAS, the Commissioner finds that the issuance of this Order is necessary and appropriate in the public interest and is issued with a view toward achieving uniformity. 

NOW THEREFORE, IT IS HEREBY ORDERED, pursuant to Section 10-04-03(2) of the Act, that the following persons are exempt from the registration requirements of Section 10-04-10 of the Act: 

A broker-dealer that is registered in good standing in Canada and that does not have a place of business in this state and complies with the following conditions: 

1. Only effects or attempts to effect transactions in securities:
   • With or through the issuers of securities involved in the transactions, broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies (as defined in the Investment Company Act of 1940), pension or profit-sharing trusts, or other financial institutions or institutional buyers, whether acting for themselves or as trustees;
   • With or for a person from Canada who is temporarily present in this state, with whom the Canadian broker-dealer had a bona fide business-client relationship before the person entered this state; or
   • With or for a person from Canada who is present in this state, whose transactions are in a self-directed tax advantage retirement plan in Canada of which the person is the holder or contributor;
2. Electronically files a notice in the form of its current application required by the jurisdiction in which its primary office is located and a consent to service of process;
3. Is a member of a self-regulatory organization or stock exchange in Canada; 
4. Maintains its provincial or territorial registration and its membership in a self regulatory organization or stock exchange in good standing;
5. Provides the Commissioner upon request with its books and records relating to its business in this state as a broker-dealer;
6. Discloses to its clients in this state that such person is not subject to the full regulatory requirements of the Act and the rules promulgated thereunder; and 
7. Is not in violation of any provisions of the Act or any rules promulgated thereunder

IT IS HEREBY FURTHER ORDERED that any offer, sale or purchase of a security effected by a broker-dealer exempt from the broker-dealer registration requirements pursuant to this Order shall be exempt from the registration requirements of the Act. 
This Order shall remain in effect until amended or rescinded by the Commissioner. The Commissioner's Order entitled "Limited Registration of Canadian Broker-Dealers and Agents" dated July 1, 1999 is hereby rescinded and superceded by this Order. Any Orders previously entered by the Commissioner which are inconsistent, in whole or in part, with this order are hereby superseded by this Order. 

IN TESTIMONY WHEREOF, witness my hand and seal this 10th day of June, 2021.

Karen J. Tyler, Securities Commissioner
North Dakota Securities Department
600 East Boulevard Ave.
State Capitol – Fifth Floor
Bismarck, ND 58505-0510
(701) 328-2910

Limited Registration of Canadian Broker-Dealers

Order Relating to Suitability Requirements in Direct Participation Programs (May 2018)

WHEREAS, the North Dakota Securities Commissioner (Commissioner) is charged with the administration of the North Dakota Securities Act of 1951, as amended, (the "Act", N.D.C.C. Chapter 10-04) and the North Dakota Administrative Rules regarding securities; and

WHEREAS, Section 10-04-03(2) of the Act provides in part that "the commissioner may from time to time make, amend, and rescind such rules, forms, and orders as are necessary under this chapter, including . . . "; and

WHEREAS, Section 73-02-01-02 of the North Dakota Administrative Code adopted certain North American Securities Administrators Association (NASAA) Statements of Policy concerning the registration of securities, including Direct Participation Program offerings, such as non-traded real estate investment trusts (“REITs”) which have suitability standards establishing minimum income and net worth standards for the protection of potential investors; and

WHEREAS, the Commissioner finds that the issuance of this Order is necessary and appropriate in the public interest and for the protection of investors;

THEREFORE, IT IS HEREBY ORDERED, pursuant to Section 10-04-03(2) of the Act, that in addition to meeting the applicable suitability standards set forth in Section 73-02-01-02 of the North Dakota Administrative Code for Direct Participation Program offerings, including non-traded REITs, a North Dakota investor must have a net worth of at least ten times his or her investment in the issuer.

This Order shall remain in effect until amended or rescinded by the Commissioner.

Dated at Bismarck, North Dakota, this 14th day of May, 2018.  

Karen J. Tyler
Securities Commissioner
North Dakota Securities Department
600 East Boulevard Ave
State Capitol – Fifth Floor
Bismarck, ND  58505-0510

(701) 328-2910

WHEREAS, The North Dakota Securities Commissioner is charged with the administration of North Dakota's Franchise Investment law (N.D.C.C. Ch. 51-19); and,

WHEREAS, Section 51-19-10 N.D.C.C. provides, in relevant part, that no person may publish in this state any advertisement offering a franchise required to be registered under the Franchise Investment Law unless the advertisement has been filed with the administrator at least five business days prior to its first publication; and,

WHEREAS, Section 51-19-02(1) defines "advertisement" to include a communication published in connection with an offer or sale of a franchise; and,

WHEREAS, Section 51-19-17(3) allows the Commissioner to promulgate rules, forms and orders necessary or appropriate to administer the Franchise Investment Law and may define terms, whether or not used in the Franchise Investment law. As such, the Securities Commissioner may classify franchises, persons and matters within the Securities Commissioner's discretion and prescribe different rules for different classes; and,

WHEREAS, The Securities Commissioner recognizes that communication on the Internet about a franchise offering may be construed as advertising requiring the person making that communication to file that communication with the Securities Commissioner; and,

WHEREAS, The Securities Commissioner finds that it is necessary and appropriate in the public interest and for the protection of North Dakota franchisees to require that Internet advertising be filed with the Securities Commissioner under certain circumstances;

NOW, THEREFORE, THE NORTH DAKOTA SECURITIES COMMISSIONER HEREBY ORDERS THAT:

• Pursuant to section 51-19-17(3) N.D.C.C., any communication about a franchise offering posted on a website on the Internet is exempted from the requirements for filing advertisement with the Securities Commissioner if the following conditions are observed:
  • The franchisor discloses to the Securities Commissioner the Uniform Resource Locator (URL) address or similar address or device identifying the location of the Internet Advertising: (1) on the cover page of a franchise offering circular included with an application for registration that is effective in North Dakota; (2) on the cover page of a franchise offering circular included with an application for exemption from registration on file with the Securities Commissioner; or (3) on a notice filed with the Securities Commissioner; and,
  • The Internet Advertising is not directed to any person in North Dakota by or on behalf of the franchisor or anyone acting with the franchisor's knowledge.
• Nothing in this Order shall not be construed to affect the Securities Commissioner's ability to bring an action against any person for violating any antifraud provision of the North Dakota Franchise Investment law, or any other provision of the Franchise Investment Law not specifically limited by this Order.

This Order shall remain in effect until modified or rescinded by the Securities Commissioner.

Signed and Sealed this 2nd day of April, 2002.

Karen J. Tyler
Securities Commissioner
Office of the Securities Commissioner
600 East Boulevard Ave.
State Capitol - Fifth Floor
Bismarck, ND 58505-0510
(701) 328-2910

WHEREAS, the North Dakota Securities Commissioner (Commissioner) is charged with the administration of the North Dakota Securities Act of 1951, as amended, (the "Act") and the North Dakota Administrative Rules regarding securities; and

WHEREAS, Section 1 0-04-03(2) of the Act provides in part that "the commissioner may from time to time make, amend, and rescind such rules, forms, and orders as are necessary under this chapter, including ......... "; and

WHEREAS, a person who is an investment adviser, a federal covered adviser, or an investment adviser representative is a fiduciary and has a duty to act primarily for the benefit of its clients. The provisions of this Order apply to federal covered advisers only to the extent that the conduct alleged is fraudulent or deceptive under Section 10-04-10.1 of the Act, or to the extent otherwise permitted by the National Securities Markets Improvement Act of 1996 (Pub. l. No. 1 04-290). The extent and nature of this duty will vary according to the nature of the relationship between an investment adviser, a federal covered adviser, an investment adviser representative and their clients and the circumstances of each case.

WHEREAS, the Commissioner finds that the issuance of this Order is necessary and appropriate in the public interest and is issued with a view toward achieving uniformity.

THEREFORE, IT IS HEREBY ORDERED, pursuant to Section 10-04-03(2) of the Act, that an investment adviser, a federal covered adviser, or an investment adviser representative shall not engage in unethical business practices, including the following:

• Recommending to a client to whom supervisory, management or consulting services are provided the purchase, sale or exchange of any 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 by the investment adviser or investment adviser representative.
• Exercising any 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 ten (10) business days after the date of the first transaction placed pursuant to 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, investment objectives and character of the account in light of the fact that an adviser in such situations can directly benefit from the number of securities transactions effected in a client's account. The order appropriately forbids an excessive number of transaction orders to be induced by an adviser or investment adviser representative for a "customer's account."
• Placing an order to purchase or sell a security for the account of a client without 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.
• 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.
• Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.
• To misrepresent to any advisory client, or prospective advisory client, the qualifications of the investment adviser or any employee of the investment adviser, or to misrepresent the nature of the advisory services being offered or fees to be charged for such service, or to omit 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 any advisory client prepared by someone other than the adviser without disclosing that fact. (This prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advise or where an adviser orders such a report in the normal course of providing service.)
• Charging a client an unreasonable advisory fee.
• Failing to disclose to clients in writing before any advise is rendered any material conflict of interest relating to the adviser or any of its employees which could reasonable be expected to impair the rendering of unbiased and objective advise including:
  • Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; and
  • Charging a client an advisory fee for rendering advise when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees.
• Guaranteeing a client that a specific result will be achieved (gain or no loss) with advise which will be rendered.
• Publishing, circulating or distributing any advertisement which does not comply with Rule 206 (4)-1 under the Investment Advisers Act of 1940.
• Disclose the identity, affairs, or investments of any client unless required by law to do so, unless consented to by the client.
• Taking any action, directly or indirectly, with respect to those securities or funds in which any client has any beneficial interest, where the investment adviser has custody or possession of such securities or funds when the adviser's action is subject to and does not comply with requirements of Reg. 206 (4)-2 under the Investment Advisers Act of 1940.
• Entering into, extending or renewing any investment advisory contract unless such contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of prepaid fee to be returned in the event of contract termination or non-performance, whether the contract grants discretionary power to the adviser and that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract.
• Failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information contrary to the provisions of Section204A of the Investment Advisers Act of 1940.
• Entering into, extending, or renewing any advisory contract contrary to the provisions of Section 205 of the Investment Advisers Act of 1940. This provision shall apply to all advisers registered or required to be registered under this Act, notwithstanding whether such adviser would be exempt from federal registration pursuant to Section 203 (b) of the Investment Advisers Act of 1940.
• To indicate, in an advisory contract, any condition, stipulation, or provisions binding any person to waive compliance with any provision of this Act or of the Investment Advisers Act of 1940, or any other practice contrary to the provisions of Section 215 of the Investment Advisers Act of 1940.
• Engaging in any act, practice, or course of business which is fraudulent, deceptive, or manipulative in contrary to the provisions of Section 206 (4) of the Investment Advisers Act of 1940, notwithstanding the fact that such investment adviser is not registered or required to be registered under Section 203 of the Investment Act of 1940.
• Engaging in conduct or any act, indirectly or through or by any other person, which would be unlawful for such person to do directly under the provisions of this Act or any rule or regulation thereunder. The conduct set forth above is not inclusive. Engaging in other conduct such as forgery, embezzlement, theft, nondisclosure, incomplete disclosure, deceptive practices, or aiding and abetting shall be deemed an unethical business practice. The federal statutory and regulatory provisions referenced herein shall apply to investment advisers, federal covered advisers, and investment adviser representatives, to the extent permitted by the National Securities Markets Improvement Act of 1996 (Pub. l. No. 104-290).

This Order shall remain in effect until amended or rescinded by the Commissioner.

Dated at Bismarck, North Dakota, this 2nd day of January, 2002.

KAREN J.TYLER
SECURITIES COMMISSIONER
STATE OF NORTH DAKOTA

SECURITIES COMMISSIONER
STATE OF NORTH DAKOTA

WHEREAS, the North Dakota Securities Commissioner (the “Commissioner”) is charged with the administration of the Securities Act (Chapter 10-04 of the North Dakota Century Code); and,

WHEREAS, in NDCC §10-04-03(2), it is provided, in part, that “[t]he Commissioner may from time to time make, amend, and rescind…orders as are necessary under this chapter…”; and,

WHEREAS, in NDCC §10-04-10, it is provided that a “dealer or salesman may not offer for sale or sell any securities within or from this state…unless registered as a dealer or salesman pursuant to the provisions of this section”; and,

WHEREAS, in NDCC §10-04-10(3), it is provided that “[I]t is unlawful for any person to transact business in this state as an investment advisor unless…the person is registered under this chapter…[or] the person’s only clients in this state are investment companies…”; and,

WHEREAS, the Commissioner acknowledges that the Internet, the World Wide Web, and similar proprietary or common carrier electronic systems (collectively, the “Internet”) have facilitated greatly the ability of broker-dealers (“BDs”), investment advisor (“IAs”), sales agents, and investment advisor representatives (“IA Reps”) to advertise and otherwise disseminate information on products and services to prospective customers and clients; and,

WHEREAS, the Commissioner also acknowledges that certain communications made on the Internet are directed generally to anyone having access to the Internet and may be transmitted through postings on Bulletin Boards, displays on “Home Pages” or similar methods (collectively, “Internet Communications”); and,

WHEREAS, the Commissioner further acknowledges that in certain instances, by distributing information on available products and services through Internet Communications available to persons in this state, BDs, IAs, sales agents and IA Reps could be construed as making an “offer for sale…of securities” for the purposes of NDCC §10-04-10 or “transacting business” for the purposes of NDCC §10-04-10(3) so as to require registration in this state, since the Internet Communications would be received in this state regardless of the intent of the person originating such communication; and,

WHEREAS, the Commissioner finds that the issuance of this Order is necessary and appropriate in the public interest and for the protection of investors and consistent with the purposes fairly intended by the Securities Act.

NOW THEREFORE, it is hereby ORDERED, as follows:

1. BDs, IAs, sales agents and IA Reps who use the Internet to distribute information on available products and services through certain communications made on the Internet directed generally to anyone having access to the Internet, and transmitted though Internet Communications shall not be deemed to be “transacting business” or making an “offer for sale” in this state for purposes of Section NDCC §10-04-10 based solely on that fact if each of the following conditions are observed:
   1. The Internet Communications include a legend in which it is clearly stated that:
      1. The BD, IA, sales agent, or IA Rep in question may only transact business in this state if first registered, excluded or exempted from state BD, IA, sales agent or IA Rep registration requirements; and,
      2. follow-up, individualized responses to persons in this state by such BD, IA, sales agent or IA Rep that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advise for compensation, will not be made absent compliance with state BD, IA, sales agent or IA Rep registration requirements, or an applicable exemption or exclusion.
   2. The Internet Communication contains a mechanism, including and without limitation, technical “firewalls” or other implemented policies and procedures, reasonably designed to ensure that prior to any subsequent, direct communication with prospective customers or clients in this state, said BD, IA, sales agent or IA Rep is first registered in this state or qualifies for an exemption or exclusion from such requirement. Nothing in this paragraph shall be construed to relieve a state-registered BD, IA, sales agent or IA Rep from any applicable securities registration requirement in this state.
   3. The Internet Communication does not involve either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advise for compensation, in this state over the Internet, but is limited to the dissemination of general information on products and services.
   4. In the case of a sales agent or IA Rep:
      1. the affiliation with the BD or IA of the sales agent or IA Rep is prominently disclosed within the Internet Communication;
      2. the BD or IA with whom the sales agent or IA Rep is associated retains responsibility for reviewing and approving the content of any Internet Communication by the sales agent or IA Rep;
      3. the BD or IA with whom the sales agent or IA Rep is associated first authorizes the distribution of information on the particular product and services through the Internet Communication; and,
      4. in disseminating information through the Internet Communication, the sales agent or IA Rep acts within the scope of the authority granted by the BD or IA.
2. The position expressed in this Order extends to state BD, IA, sales agent and IA Rep registration requirements only and does not excuse compliance with applicable securities registration, antifraud or related provisions.
3. Nothing in this Order shall be construed to affect the activities of any BD, IA, sales agent and IA Rep engaged in business in this state that is not subject to the jurisdiction of the Commissioner as a result of the National Securities Markets Improvement Act of 1996, as amended.
4. This order shall remain in effect unless and until amended or rescinded.

Signed and Sealed this 5th day of November, 1997

CAL HOOVESTOL
North Dakota Securities Commissioner
State Capitol – Fifth Floor
600 East Boulevard Ave.
Bismarck, ND 58505-0510
(701) 328-2910

Order Selling Securities on Internet

SECURITIES COMMISSIONER

STATE OF NORTH DAKOTA

WHEREAS, the Securities Commissioner is authorized by Section 10-04-03(2) of the North Dakota Century Code to make such orders as are necessary to define terms and to cooperate with the administrators of the securities laws of other states and of the United States for uniform statutory interpretations;

WHEREAS, “offer for sale” and “offer to sell” securities, as defined in Section 10-04-02(6) of the North Dakota Century Code, include every attempt or offer to dispose of, or solicitation of an order or offer to buy, a security or interest in a security for value;

WHEREAS, access to communications on the Internet computer system and World Wide Web and similar electronic communications systems in some instances might be available to any individuals, including North Dakota residents, who have access to the Internet system when some individuals are not intended recipients of communications to “offer” securities for sale in locations outside the state of North Dakota; and

WHEREAS, the registration of some offers to sell securities on the Internet might not be intended for North Dakota residents and need not be registered in North Dakota;

NOW, THEREFORE, it is hereby ORDERED that:

1. offers to sell securities on the Internet shall be exempt from registration in North Dakota if (a) the Internet offer indicates, directly or indirectly, that the securities are not being offered to residents of North Dakota, (b) the Internet offer is not specifically directed to any person in North Dakota by, or on behalf of, the issuer of the securities, and (c) no sales of the issuer’s securities are made in North Dakota as a result of the Internet offering until such time as the securities being offered have been registered in North Dakota and a final prospectus or Form U-7 is delivered to North Dakota investors prior to such sales;
2. nothing in this Order shall preclude an issuer, or a person acting on behalf of an issuer, which offers securities on the Internet or effects sales to North Dakota residents following such an offering from relying upon any other applicable exemption pursuant to North Dakota law, nor shall this Order relieve such persons from liability for failure to register securities under North Dakota law; and
3. this Order shall remain in effect until amended or rescinded by the North Dakota Securities Commissioner.

Entered on April 17, 1996 at Bismarck, North Dakota.

Cal Hoovestol
Securities Commissioner