[48 Pa.B. 389]
[Saturday, January 13, 2018]

[Continued from previous Web Page]

§ 304.022. Investment adviser required financial reports.

 (a) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) that has custody of client funds or securities or requires prepayment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file with the Department an audited balance sheet as of the end of its fiscal year with the following conditions:

 (1) The balance sheet shall be prepared in accordance with generally accepted accounting principles and contain an unqualified opinion of an independent certified public accountant.

 (2) The accountant shall submit, as a supplementary opinion, comments based on the audit as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures for safeguarding securities and funds, and shall indicate corrective action taken or proposed.

 (b) An investment adviser registered under section 301 of the act that has discretionary authority over client funds or securities, but not custody, shall file with the Department a balance sheet as of the end of its fiscal year with the following conditions:

 (1) The balance sheet is not required to be audited but shall be prepared in accordance with generally accepted accounting principles.

 (2) The balance sheet must contain a representation by the investment adviser that it is true and accurate.

 (c) A sole proprietor registered under section 301 of the act required to file an affirmative statement under § 303.012(c)(3) (relating to investment adviser registration procedure) shall file with the Department an affirmative statement as of the end of its fiscal year.

 (d) Except as provided in subsections (e) and (f), investment advisers required to file the reports of financial condition set forth in subsections (a)—(c) shall file the reports with the Department within 120 days of the investment adviser's fiscal year end.

 (e) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act whose principal place of business is in a state other than this Commonwealth if the investment adviser:

 (1) Is registered in the state in which it maintains its principal place of business.

 (2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.

 (3) Has not taken custody of assets of any client residing in this Commonwealth at any time during the preceding 12-month period.

 (f) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act who:

 (1) Has custody of client funds or securities solely as a result of activities set forth in § 303.042(a)(3) (relating to investment adviser capital requirements).

 (2) Is in compliance with the requirements set forth in § 303.042(a)(3).

§ 304.041. Examinations of broker-dealers and investment advisers.

 (a) In the conduct of an examination authorized under section 304(d) of the act (70 P.S. § 1-304(d)), every broker-dealer and investment adviser registered under the act:

 (1) Shall honor all requests by representatives of the Department to have physical access to all areas of the office which is the subject of the examination.

 (2) Shall permit the Department to review and examine the files in the physical place where the files routinely are maintained on request.

 (3) May accompany the representatives of the Department themselves or through a representative of the broker-dealer or investment adviser.

 (b) Files referred to in subsection (a) include books, ledgers, accounts, records and electronic files required to be kept by broker-dealers and investment advisers in accordance with this chapter, rules of the Securities and Exchange Commission and rules of a National securities exchange or National securities association, and any document reasonably related to these required records.

§ 304.051. Broker-dealer compensation.

 (a) A broker-dealer registered under the act may not charge or receive commissions or other compensation in connection with the purchase or sale of securities.

 (b) The prohibition contained in subsection (a) does not apply if the compensation is:

 (1) Fair and reasonable.

 (2) Determined on an equitable basis.

 (3) Adequately disclosed to each customer in writing at or before final confirmation.

 (c) Compensation which complies with the Conduct Rules of FINRA will be considered fair and reasonable and, unless otherwise required to be disclosed in writing by the Conduct Rules, does not need to be disclosed in writing.

§ 304.061. Free credit balances.

 (a) A broker-dealer registered or required to register under the act may not use funds arising out of a free credit balance carried for the account of a customer in connection with the operation of the business of the broker-dealer.

 (b) The prohibition contained in subsection (a) does not apply if the broker-dealer has established adequate procedures under which each customer for whom a free credit balance is carried will be given or sent a written statement which:

 (1) Informs the customer of the amount due to the customer by the broker-dealer on the date of the statement.

 (2) Contains a written notice that:

 (i) Funds are not segregated and may be used in the business of the broker-dealer.

 (ii) Funds are payable on the demand of the customer.

 (iii) Is sent no less than once every 3 months together with or as a part of the customer's statement of account.

§ 304.071. Business continuity and succession planning.

 (a) An investment adviser registered or required to be registered with the Department shall establish, implement and maintain written procedures relating to a business continuity and succession plan.

 (b) The investment adviser shall base the business continuity and succession plan on the facts and circumstances of the investment adviser's business model including the size of the firm, type of services provided and the number of locations of the investment adviser.

 (c) The business continuity and succession plan must provide for at least the following:

 (1) Protection, backup and recovery of books and records.

 (2) Alternate means of communicating notice to customers, key personnel, employees, vendors, regulators and service providers, including third-party custodians, about issues such as:

 (i) A significant business interruption.

 (ii) The death or unavailability of key personnel.

 (iii) Other disruptions or cessation of business activities.

 (3) Office relocation if a temporary or permanent loss of a principal place of business occurs.

 (4) Assignment of duties to a qualified responsible person if the death or unavailability of key personnel occurs.

 (5) Otherwise minimizing service disruptions and client harm that could result from a sudden significant business interruption.

CHAPTER 305. DENIAL, SUSPENSION, REVOCATION AND CONDITIONING OF REGISTRATION

§ 305.011. Supervision of agents, investment adviser representatives and employees.

 (a) Every broker-dealer and investment adviser registered under section 301 of the act (70 P.S. § 1-301) shall exercise diligent supervision over the securities activities and securities related activities of its agents, investment adviser representatives and employees by:

 (1) Establishing and maintaining written procedures and a system for applying and enforcing those written procedures which are reasonably designed to:

 (i) Achieve compliance with the act and this title.

 (ii) Detect and prevent any violations of statutes, rules, regulations or orders described in any of the following:

 (A) Section 305(a)(v) and (ix) of the act (70 P.S. § 1-305(a)(v) and (ix)).

 (B) The Conduct Rules of FINRA.

 (C) An applicable fair practice or ethical standard promulgated by the Securities and Exchange Commission or by a National securities exchange.

 (2) Accepting final responsibility for proper supervision.

 (b) Every issuer who employs agents registered under section 301 of the act shall be subject to the supervision requirements of subsection (a) with respect to those agents.

 (c) As evidence of compliance with the supervisory obligations imposed by this section, a broker-dealer or investment adviser shall:

 (1) Implement written procedures, a copy of which shall be kept in each location at which the broker-dealer or investment adviser conducts business.

 (2) Establish, maintain and enforce those written procedures designed to achieve compliance with the act and this title and to detect and prevent violations described in subsection (a).

 (d) The written procedures required under subsection (c), at a minimum, must address all of the following:

 (1) The supervision of every agent, investment adviser representative, employee and supervisor by a designated qualified supervisor.

 (2) The methods to be used to determine that all supervisory personnel are qualified by virtue of character, experience and training to carry out their assigned responsibilities.

 (3) The methods to be used to determine the good character, business repute, qualifications and experience of any person before making application for registration of that person with the Department and hiring that person.

 (4) The review and written approval by the designated supervisor of the opening of each new customer account.

 (5) The frequent examination of customer accounts to detect and prevent violations, irregularities or abuses.

 (6) The prompt review and written approval of the handling of customer complaints.

 (7) The prompt review and written approval by the designated supervisor of all securities transactions and all correspondence pertaining to the solicitation or execution of all securities transactions.

 (8) The review and written approval by the designated supervisor of the delegation by a customer of discretionary authority with respect to the customer's account and frequent examination of discretionary accounts to prevent violations, irregularities or abuses.

 (9) The participation of each agent and investment adviser representative either individually or collectively, no less than annually, in an interview or meeting conducted by persons designated by the broker-dealer or investment adviser at which compliance matters relevant to the activities of the agents and investment adviser representatives are discussed. Written records shall be maintained reflecting the interview or meeting.

 (10) The periodic inspection of each location in this Commonwealth from which business is conducted to ensure that the written procedures and systems are enforced.

 (e) The periodic inspections referenced in subsection (d)(10) shall occur according to the following time frames:

 (1) At least annually for an office of supervisory jurisdiction of a broker-dealer.

 (2) In accordance with an inspection cycle established in the broker-dealer's written supervisory procedures for branch offices and nonbranch locations of a broker-dealer.

 (i) In establishing an inspection cycle, the broker-dealer and investment adviser shall give consideration to the nature and complexity of the securities activities for which the location is responsible, the volume of business done and the number of agents or investment adviser representatives assigned to the location.

 (ii) The obligation of diligent supervision required under this section may require that one or more locations of a broker-dealer or investment adviser in this Commonwealth receive more inspections or be on a periodic inspection cycle different than other locations of the broker-dealer or investment adviser in this Commonwealth and that inspections be unannounced.

 (f) It is the responsibility of the broker-dealer or investment adviser to ensure through inspections of each location in this Commonwealth that the written procedures and systems are enforced and the supervisory obligations imposed by this section are being honored.

 (g) Written records shall be maintained reflecting each inspection conducted.

 (h) In acquitting their obligations under this section, registrants are to consult FINRA Notice to Members 98-38 (May 1998) and Securities and Exchange Commission Release No. 34-38174 (January 15, 1997).

 (i) In accordance with FINRA Notice to Members 98-38, unannounced visits may be appropriate if there are indicators of misconduct including any of the following:

 (1) Significant customer complaints.

 (2) Personnel with disciplinary records.

 (3) Excessive trade corrections, extensions, liquidations or variable contract replacements.

 (j) Records required under this section:

 (1) Shall be maintained for 5 years.

 (2) Shall be maintained in an easily accessible place for the first 2 years.

 (3) May be retained and preserved on microfilm, computer disks or tapes, or other electronic medium if adequate facilities are maintained for examination of facsimiles.

 (k) To the extent that this section imposes any recordkeeping requirement on an investment adviser registered under section 301 of the act, the recordkeeping requirement does not apply if the investment adviser meets the following conditions:

 (1) Has its principal place of business in a state other than this Commonwealth.

 (2) Is licensed as an investment adviser in the state where it has its principal place of business.

 (3) Is in compliance with the recordkeeping requirements of the state in which it has its principal place of business.

§ 305.012. (Reserved).

§ 305.019. Dishonest and unethical practices.

 (a) Every person registered under section 301 of the act (70 P.S. § 1-301) is a fiduciary and shall:

 (1) Act primarily for the benefit of its customers.

 (2) Observe high standards of commercial honor and just and equitable principals of trade in the conduct of their business.

 (b) Under section 305(a)(ix) of the act (70 P.S. § 1-305(a)(ix)), the Department may deny, suspend, condition or revoke a broker-dealer, agent, investment adviser or investment adviser representative registration or censure a broker-dealer, agent, investment adviser or investment adviser representative registrant if the registrant or applicant, or in the case of any broker-dealer or investment adviser, any affiliate, has engaged in dishonest or unethical practices in the securities business or has taken unfair advantage of a customer within the previous 10 years.

 (c) The Department, for purposes of section 305(a)(ix) of the act, will consider actions such as those in paragraphs (1)—(3) to constitute dishonest or unethical practices in the securities business or taking unfair advantage of a customer.

 (1) Broker-dealers. Includes the following actions:

 (i) Engaging in a pattern of unreasonable and unjustifiable delays in the delivery of securities purchased by any of its customers or in the payment on request of free credit balances reflecting completed transactions of any of its customers.

 (ii) Inducing trading in a customer's account which is excessive in size or frequency in view of the financial resources and character of the account.

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

 (iv) Executing a transaction on behalf of a customer without authorization to do so.

 (v) Exercising discretionary power in effecting a transaction for a customer's account without first obtaining written discretionary authority from the customer, unless the discretionary power relates solely to the time or price, or both, for the execution of orders.

 (vi) Executing a transaction in a margin account without securing from the customer a properly executed written margin agreement promptly after the initial transaction in the account.

 (vii) Failing to segregate customers' free securities or securities held in safekeeping.

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

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

 (x) Failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include information set forth in the final prospectus.

 (xi) Charging unreasonable and inequitable fees for services performed, including miscellaneous services such as collection of moneys due for principal, dividends or interest, exchange or transfer of securities, appraisals, safekeeping or custody of securities and other services related to its securities business.

 (xii) Offering to buy from or sell to a person at a stated price unless the broker-dealer is prepared to purchase or sell at a price and under the conditions that are stated at the time of the offer to buy or sell.

 (xiii) Representing that a security is being offered to a customer ''at the market'' or a price relevant to the market price unless the broker-dealer knows or has reasonable grounds to believe that a market for the security exists other than that made, created or controlled by the broker-dealer, or by a person for whom the broker-dealer is acting or with whom is associated in the distribution, or a person controlled by, controlling or under common control with the broker-dealer.

 (xiv) Effecting a transaction in, or inducing the purchase or sale of, a security by means of a manipulative, deceptive or fraudulent device, practice, plan, program, design or contrivance, which may include:

 (A) Effecting a transaction in a security which involves no change in the beneficial ownership.

 (B) Entering an order for the purchase or sale of a security with the knowledge that an order of substantially the same size, at substantially the same time and substantially the same price, for the sale of the security, has been or will be entered by or for the same or different parties to create a false or misleading appearance of active trading in the security or a false or misleading appearance with respect to the market for the security. This subsection does not prohibit a broker-dealer from entering bona fide agency cross transactions for its customers.

 (C) Effecting, along or with one or more other persons, a series of transactions in a security creating actual or apparent active trading in the security or raising or depressing the price of the security, to induce the purchase or sale of the security by others.

 (xv) Guaranteeing a customer against loss in a securities account of the customer carried by the broker-dealer or in a securities transaction effected by the broker-dealer with or for the customer.

 (xvi) Publishing or circulating, or causing to be published or circulated, a notice, circular, advertisement, newspaper article, investment service or communication of any kind which purports to report a transaction as a purchase or sale of a security unless the broker-dealer believes that the transaction was a bona fide purchase or sale of the security; or which purports to quote the bid price or asked price for a security, unless the broker-dealer believes that the quotation represents a bona fide bid for, or offer of, the security.

 (xvii) Using advertising or sales presentation in a fashion as to be deceptive or misleading. An example of this practice would be a distribution of nonfactual data, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in a brochure, flyer or display by words, pictures, graphs or otherwise designed to supplement, detract from, supersede or defeat the purpose or effect of a prospectus or disclosure.

 (xviii) Failing to disclose that the broker-dealer is controlled by, controlling, affiliated with or under common control with the issuer of a security before entering into a contract with or for a customer for the purchase or sale of the security, the existence of the control to the customer, and if the disclosure is not made in writing, it shall be supplemented by the giving or sending of written disclosure at or before the completion of the transaction.

 (xix) Failing to make a bona fide public offering of all of the securities allotted to a broker-dealer for distribution, whether acquired as an underwriter, a selling group member or from a member participating in the distribution as an underwriter or selling group member.

 (xx) Failing or refusing to furnish a customer, on reasonable request, information to which he is entitled, or to respond to a formal written request or complaint.

 (xxi) Failing to comply with an applicable fair practice or ethical standard promulgated by the Securities and Exchange Commission or by a self-regulatory organization approved by the Securities and Exchange Commission.

 (xxii) Failing to comply with investor suitability standards imposed as a condition of the registration of securities under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206) in connection with the offer, sale or purchase of a security in this Commonwealth.

 (2) Agents. Includes the following actions:

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

 (ii) Effecting securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer before execution of the transaction.

 (iii) Establishing or maintaining an account containing fictitious information to execute transactions which would otherwise be prohibited.

 (iv) Sharing directly or indirectly in profits or losses in the account of a customer without the written authorization of the customer and the broker-dealer which the agent represents.

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

 (vi) Engaging in conduct specified in paragraph (1)(ii)—(vi), (ix), (x), (xiv)—(xvii), (xxi) and (xxii).

 (3) Investment advisers and investment adviser representatives. Includes the following actions:

 (i) 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 by the investment adviser or investment adviser representative.

 (ii) 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 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.

 (iii) 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.

 (iv) Placing an order to purchase or sell a security for the account of a client without authority to do so.

 (v) Placing an order to purchase or sell a security for the account of a client on instruction of a third party without first having obtained a written third-party trading authorization from the client.

 (vi) 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.

 (vii) 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.

 (viii) Misrepresenting to an advisory client, or prospective advisory client, the qualifications of the investment adviser, investment adviser representative or an employee of the investment adviser or misrepresenting the nature of the advisory services being offered or fees to be charged for the 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.

 (ix) Providing a report or recommendation to an advisory client prepared by someone other than the investment adviser or investment adviser representative without disclosing that fact. This prohibition does not apply to a situation when the investment adviser or investment adviser representative uses published research reports or statistical analyses to give advice or when an investment adviser or investment adviser representative orders the report in the normal course of providing advice.

 (x) Charging a client an unreasonable advisory fee.

 (xi) Failing to disclose to a client in writing, before advice is given, a material conflict of interest relating to the investment adviser, the investment adviser representative or an employee of the investment adviser which could reasonably be expected to impair the giving of unbiased and objective advice including:

 (A) A compensation arrangement connected with advisory services to a client which is in addition to compensation from the client for the services.

 (B) An advisory fee charged to a client for giving advice when a commission for executing securities transactions under the advice will be received by the investment adviser, the investment adviser representative or an employee or affiliated person of the investment adviser.

 (xii) Guaranteeing a client that a specific result will be achieved, either a gain or no loss, with advice which will be given.

 (xiii) Publishing, circulating or distributing an advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940 (15 U.S.C.A. §§ 80b-1—80b-21).

 (xiv) Disclosing the identity, investments or other financial information of a client unless required under law to do so, or unless consented to by the client.

 (xv) Taking an action, directly or indirectly, with respect to those securities 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 adviser's action is subject to, and does not comply with, the requirements of § 404.014 (relating to custody requirements for investment advisers).

 (xvi) 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, the formula for computing the fee, the amount of a prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the adviser and that no assignment of the contract shall be made by the investment adviser without the consent of the other party to the contract.

 (xvii) 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 section 204A of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-4a) and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.

 (xviii) Entering into, extending, or renewing any advisory contract contrary to the provisions of section 205 of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-5) and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. This applies to all investment advisers and investment adviser representatives registered under section 301 of the act notwithstanding whether the investment adviser is exempt from registration with the Securities and Exchange Commission under section 203(b) of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-3(b)).

 (xix) Indicating, in an advisory contract, any condition, stipulation or provision binding any person to waive compliance with any provision of the act.

 (xx) Engaging in any act, practice or course of business which is fraudulent, deceptive or manipulative or contrary to the provisions of section 206(4) of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-6(4)) and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. This applies to all investment advisers and investment adviser representatives registered under section 301 of the act notwithstanding whether the investment adviser is exempt from registration with the Securities and Exchange Commission under section 203(b) of the Investment Advisers Act of 1940.

 (xxi) Engaging in conduct or committing any act, directly, indirectly or through or by another person, which would be unlawful for the person to do directly under the act or any rule, regulation or order issued thereunder.

 (d) In addition to the conduct described in paragraphs (1)—(3), the Department may deny, suspend, condition or revoke a registration or application for registration of a broker-dealer, agent, investment adviser or investment adviser representative for conduct inconsistent with the standards in subsection (a), including any of the following:

 (1) Forgery.

 (2) Embezzlement.

 (3) Nondisclosure, incomplete disclosure or misstatement of material facts.

 (4) Manipulative or deceptive practices.

 (5) Taking unfair advantage of a customer or former customer in any aspect of a tender offer.

 (e) This section does not apply to Federally covered advisers unless the conduct otherwise is actionable under section 401(a) or (c) or 404 of the act (70 P.S. §§ 1-401(a) and (c) and 1-404).

§ 305.020. Use of senior specific certifications and professional designations.

 (a) General rule. The use of a senior specific certification or designation by a person in connection with the offer, sale or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to securities, that indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees, in a way as to mislead any person is a dishonest and unethical practice in the securities business within the meaning of section 305(a)(ix) of the act (70 P.S. § 1-305(a)(ix)).

 (b) Prohibitions. The prohibited use of senior specific certification or professional designation includes the use of:

 (1) A certification or professional designation by a person who has not actually earned or is otherwise ineligible to use the certification or designation.

 (2) A nonexistent or self-conferred certification or professional designation.

 (3) A certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training or experience that the person using the certification or professional designation does not have.

 (4) A certification or professional designation that was obtained from a designating or certifying organization to which any of the following applies:

 (i) Is primarily engaged in the business of instruction in sales or marketing, or both.

 (ii) Does not have reasonable standards or procedures for assuring the competency of its designees or certificants.

 (iii) Does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct.

 (iv) Does not have reasonable continuing education requirements for its designees or certificants to maintain the designation or certificate.

 (c) Rebuttable presumption. There is a rebuttable presumption that a designating or certifying organization is not disqualified solely for purposes of subsection (b)(4) when the organization has been accredited by any of the following:

 (1) The American National Standards Institute.

 (2) The National Commission for Certifying Agencies.

 (3) An organization that is on the United States Department of Education's ''Accrediting Agencies Recognized for Title IV Purposes'' list and the designation or credential issued therefrom does not primarily apply to sales or marketing, or both.

 (d) Factors to be considered. In 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, the Department will consider the following factors:

 (1) Use of one or more words such as ''senior,'' ''retirement,'' ''elder'' or like words, combined with one or more words such as ''certified,'' ''registered,'' ''chartered,'' ''adviser,'' ''specialist,'' ''consultant,'' ''planner'' or like words, in the name of the certification or professional designation.

 (2) How those words are combined.

 (e) Exception. For purposes of this section, 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, including an agency that regulates broker-dealers, investment advisers or investment companies as defined under the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-64), when that job title does either of the following:

 (1) Indicates seniority or standing within the organization.

 (2) Specifies an individual's area of specialization within the organization.

 (f) No limitation on Department enforcement. This section does not limit the Department's authority to enforce existing provisions of law.

§ 305.061. Withdrawal of registration or notice filing.

 (a) Investment adviser. To withdraw from registration as an investment adviser registered under section 301 of the act (70 P.S. § 1-301) because the investment adviser has:

 (1) Become a Federally covered adviser subject to exclusive registration with the Securities and Exchange Commission, the investment adviser shall file an amendment to the uniform application for investment adviser registration (Form ADV) or successor form thereto with the Department or with IARD.

 (2) Stopped transacting business in this Commonwealth as an investment adviser, the investment adviser shall file a notice of withdrawal from registration as an investment adviser form (Form ADV-W) or a successor form with the Department or with IARD.

 (b) Broker-dealer. To withdraw from registration as a broker-dealer, the broker-dealer shall file a completed Uniform Request for Withdrawal from Registration as a Broker-Dealer Form (Form BDW) or a successor form with the Department.

 (c) Investment adviser representative. To withdraw from registration as investment adviser representative, the investment adviser or Federally covered adviser for whom the investment adviser representative was employed shall file the Uniform Termination Notice for Securities/Futures Industry Registration (Form U-5) or a successor form with the Department or with IARD within 30 days from the date of termination.

 (d) Agent of a broker-dealer or an issuer. To withdraw from registration as an agent of a broker-dealer or an issuer, the broker-dealer or issuer shall file Form U-5 or successor form with the Department within 30 days from the date of termination.

 (e) Federally covered adviser. To withdraw a notice filing, a Federally covered adviser shall file a notice with the Department or with IARD.

Subpart D. FRAUDULENT AND PROHIBITED PRACTICES

CHAPTER 401. SALES AND PURCHASES

§ 401.020. Professional responsibility.

 For the purposes of any action or proceeding initiated by the Department, under 2 Pa.C.S. § 503 (relating to discipline), 1 Pa. Code § 31.28 (relating to suspension and disbarment) or under any other applicable rules of practice adopted by the Department, the phrase ''act, practice or course of business'' as used in this chapter shall include a statement, opinion, report or service by an attorney, accountant, engineer, appraiser or other professional person who examines, gives or produces a statement, opinion, report or service if the professional person knew or in the exercise of reasonable care should have known that the statement, opinion, report or service materially aided or abetted a violation of the act or the regulations adopted thereunder.

CHAPTER 404. PROHIBITED ACTIVITIES; INVESTMENT ADVISERS AND INVESTMENT ADVISER REPRESENTATIVES

§ 404.010. Advertisements by investment advisers and investment adviser representatives.

 (a) The Department will consider the direct or indirect publication, circulation or distribution of an advertisement by an investment adviser or investment adviser representative to be a fraudulent, deceptive or manipulative act, practice or course of conduct within the meaning of section 404 of the act (70 P.S. § 1-404) if the advertisement:

 (1) Refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or investment adviser representative concerning any advice, analysis, report or other service given to the customer by the investment adviser or investment adviser representative.

 (2) Refers, directly or indirectly, to past specific recommendations of the investment adviser or investment adviser representative which were or would have been profitable to any person except that an advertisement setting forth or offering to furnish a list of all recommendations made by the investment adviser or investment adviser representative for the 12-month period immediately preceding the date of the publication of the advertisement is not prohibited if the advertisement:

 (i) Includes the name of each security recommended, the date and nature of each recommendation including whether to buy sell or hold, the market price at the time, the price at which the recommendation was to be acted on, and the current market price of each security.

 (ii) Contains the following cautionary legend prominently displayed on the first page in print or type as large as the largest print or type used in the body or text stating: ''IT SHOULD NOT BE ASSUMED THAT RECOMMENDATIONS MADE IN THE FUTURE WILL BE PROFITABLE OR WILL EQUAL THE PERFORMANCE OF THE SECURITIES IN THIS LIST.''

 (3) Represents, directly or indirectly, that any graph, chart, formula or other device being offered:

 (i) Can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them.

 (ii) Will assist any person in making decisions as to which securities to buy or sell, or when to buy or sell them, without prominently disclosing in the advertisement the limitations and the difficulties with respect to its use.

 (4) Contains any statement that any report, analysis or other service will be furnished free or without charge, unless the report, analysis or other service actually is or will be furnished absolutely without condition or obligation.

 (5) Contains any untrue statement of a material fact, or which is otherwise false or misleading in any material respect, including the failure to disclose compensation, including free or discounted securities, received directly or indirectly in connection with making a recommendation concerning a specific security.

 (6) Recommends the purchase or sale of any security unless the investment adviser or investment adviser representative simultaneously offers to furnish to any person on request a tabular presentation of:

 (i) The total number of shares or other units of the security held by the investment adviser or investment adviser representative for its own account or for the account of officers, directors, trustees, partners or affiliates of the investment adviser or for discretionary accounts of the investment adviser or investment adviser representative maintained for clients.

 (ii) The price or price range at which the securities listed in subparagraph (i) were purchased.

 (iii) The date or range of dates during which the securities listed in response to subparagraph (i) were purchased.

 (b) This section does not apply to Federally covered advisers unless the conduct otherwise is actionable under section 401(a) or (c) of the act (70 P.S. § 1-401(a) and (c)) or section 404 of the act.

§ 404.011. Investment adviser brochure disclosure.

 (a) An investment adviser's failure to provide an advisory client or prospective advisory client with the disclosure required under this section shall constitute a fraudulent, deceptive or manipulative act, practice or course of business, within the meaning of section 404 of the act (70 P.S. § 1-404).

 (b) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) shall offer and deliver to each client and prospective client a current firm brochure and one or more supplements as required under this section which must contain the information required under Part 2 of Form ADV (17 CFR 279.1) (relating to Form ADV, for application for registration of investment adviser and for amendments to such registration statement).

 (c) An investment adviser shall deliver to each client and prospective client all of the following:

 (1) A current firm brochure.

 (2) The current brochure supplements for each investment adviser representative who will provide advisory services to a client.

 (d) The firm brochure and one or more supplements required under this section shall be delivered in compliance with one of the following:

 (1) Not less than 48 hours before entering into any investment advisory contract with the client or prospective client.

 (2) At the time of entering into a contract, if the advisory client has a right to end the contract without penalty within 5 business days after entering into the contract.

 (e) An investment adviser shall:

 (1) Deliver or offer in writing to deliver to each of its clients the current brochure and any current brochure supplements required under subsection (b) without charge at least once a year.

 (2) Send to a client that accepts a written offer the current brochure and supplements within 7 days after the investment adviser is notified of the acceptance.

 (f) If, as an investment adviser, the adviser is the general partner of a limited partnership, the manager of a limited liability company, or the trustee of a trust, then for purposes of this section the investment adviser shall treat each of the partnership's limited partners, the company's members or the trust's beneficial owners as a client. For the purposes of this section, a limited liability partnership or limited liability limited partnership is a ''limited partnership.''

 (g) If an investment adviser gives substantially different types of investment advisory services to different clients, the investment adviser may do the following:

 (1) Provide the clients with different brochures, so long as each client receives all applicable information about services and fees.

 (2) Omit from the brochure delivered to a client any information required under Part 2A of Form ADV if the information applies only to a type of investment advisory service or fee which is not given or charged, or proposed to be given or charged, to that client or prospective client.

 (h) Except as provided in paragraph (1), if the investment adviser is a sponsor of a wrap fee program, the brochure required to be delivered by subsection (b) to a client or prospective client of the wrap fee program must be a wrap fee brochure containing all the information required under Form ADV.

 (1) The investment adviser does not have to offer or deliver a wrap fee brochure if another sponsor of the wrap fee program offers or delivers to the client or prospective client of the wrap fee program a wrap fee program brochure containing all the information specified in Part 2A, Appendix 1 to Form ADV.

 (2) A wrap fee brochure does not take the place of any brochure supplements that the investment adviser is required to deliver under this section.

 (3) Additional information in a wrap fee brochure must be limited to information applicable to wrap fee programs that the investment adviser sponsors.

 (i) In accordance with Part 2 of Form ADV, if information contained in the brochure or brochure supplement becomes materially inaccurate, the investment adviser shall:

 (1) Amend its brochure and any brochure supplement.

 (2) Deliver the amendments to clients promptly.

 (3) Promptly file the amendments with the Department or with IARD.

 (j) Delivering a brochure or supplement in compliance with this section does not relieve the investment adviser of any other disclosure obligations which the investment adviser may have to its clients or prospective clients under the act or this title.

 (k) The delivery requirement set forth in subsection (d) does not apply to the extension or renewal of an investment advisory contract without material changes of the contract which is in effect immediately prior to the extension or renewal.

§ 404.012. Cash payment for client solicitation.

 (a) An investment adviser's failure to comply with the requirements of this section concerning cash payments for client solicitation constitutes a fraudulent, deceptive or manipulative act, practice or course of business, within the meaning of section 404 of the act (70 P.S. § 1-404).

 (b) An investment adviser may not pay a cash fee or other economic benefit, directly or indirectly, to a solicitor with respect to solicitation activities unless:

 (1) The investment adviser is registered under the act.

 (2) The solicitor is registered as an investment adviser representative or is exempt from registration under § 302.071 (relating to registration exemption for solicitors) or qualifies for another exemption under the act.

 (3) The cash fee or other economic benefit is paid under a written agreement to which the investment adviser is a party.

 (4) The written agreement required under paragraph (3):

 (i) Describes the solicitation activities to be engaged in by the solicitor on behalf of the investment adviser and the compensation to be received therefor.

 (ii) Contains an undertaking by the solicitor to perform its duties under the agreement in a manner consistent with the instructions of the investment adviser and the provisions of the act and the rules thereunder.

 (iii) Requires that the solicitor, at the time of any solicitation activities for which compensation is paid or to be paid by the investment adviser, provide the prospective client with a current copy of the following:

 (A) The investment adviser's written disclosure statement required under § 404.011 (relating to investment adviser brochure disclosure).

 (B) A separate written disclosure document which contains all of the following:

 (I) The name of the solicitor.

 (II) The name of the investment adviser.

 (III) The nature of the relationship, including any affiliation, between the solicitor and the investment adviser.

 (IV) A statement that the solicitor will be compensated for the solicitation services by the investment adviser.

 (V) The terms of the compensation arrangement, including a description of the compensation paid or to be paid to the solicitor.

 (VI) The amount, if any, for the cost of obtaining his account the prospective client will be charged in addition to the advisory fee, and the differential, if any, among clients with respect to the amount or level of the advisory fees charged by the investment adviser if the differential is attributable to the existence of any arrangement under which the investment adviser has agreed to compensate the solicitor for soliciting prospective clients for, or referring prospective clients to, the investment adviser.

 (5) The investment adviser receives from the prospective client before, or at the time of, entering into any written or oral investment advisory contract with the prospective client, a signed and dated acknowledgment of receipt of the investment adviser's written disclosure statement required under § 404.011 and the solicitor's written disclosure document required under paragraph (4)(iii)(B).

 (c) For purposes of subsection (b)(5), this section does not apply to an investment adviser as follows:

 (1) If the cash fee is paid to a solicitor with respect to solicitation activities for the provision of impersonal investment advisory services only.

 (2) If the cash fee is paid to a solicitor who is either of the following:

 (i) A partner, officer, director or employee of the investment adviser.

 (ii) A partner, officer, director or employee of a person which controls, is controlled by, or is under common control with the investment adviser if the status of the solicitor as a partner, officer, director or employee of the investment adviser or other person, is disclosed to the client at the time of the solicitation or referral.

 (d) This section does not relieve a person of a fiduciary or other obligation to which the person may be subject under the law.

§ 404.013. (Reserved).

§ 404.014. Custody requirements for investment advisers.

 (a) Safekeeping required. It is unlawful and considered to be a fraudulent, deceptive or manipulative act, practice or course of business, within the meaning of section 404 of the act (70 P.S. § 1-404), for an investment adviser, registered or required to be registered under section 301 of the act (70 P.S. § 1-301), to have custody of client funds or securities unless:

 (1) The investment adviser notifies the Department promptly in writing on Form ADV that the investment adviser has or may have custody.

 (2) A qualified custodian maintains those funds and securities in one of the following:

 (i) A separate account for each client under that client's name.

 (ii) Accounts that contain only the investment adviser's clients' funds and securities under the investment adviser's name as agent or trustee for the clients or, in the case of a pooled investment vehicle that the investment adviser manages, in the name of the pooled investment vehicle.

 (3) The investment adviser meets the following conditions:

 (i) If the investment adviser opens an account with a qualified custodian on its client's behalf, under the client's name, under the name of the investment adviser as agent or under the name of a pooled investment vehicle, the investment adviser shall notify the client in writing of the qualified custodian's name, address and how the funds or securities are maintained, promptly when the account is opened and following any changes to this information.

 (ii) If the investment adviser sends account statements to a client to which the investment adviser is required to provide the notice in subparagraph (i), the investment adviser shall include in the notification provided to that client and in any subsequent account statement the investment adviser sends that client a statement urging the client to compare the account statements from the custodian with those from the investment adviser.

 (4) The investment adviser meets the following conditions:

 (i) The investment adviser has a reasonable basis, after due inquiry, for believing that the qualified custodian sends an account statement, at least quarterly, to each client for which it maintains funds or securities and the account statement:

 (A) Identifies the amount of funds in the account.

 (B) Identifies the amount of each security in the account at the end of the period.

 (C) Sets forth all transactions in the account during that period.

 (ii) If the investment adviser or a related person is a general partner of a limited partnership (or managing member of a limited liability company, or holds a comparable position for another type of pooled investment vehicle), the account statements required under paragraph (3) shall be sent to each limited partner (or member or other beneficial owner).

 (5) The investment adviser meets the following conditions:

 (i) The client funds and securities of which the investment adviser has custody are verified by actual examination at least once during each calendar year, by an independent certified public accountant, under a written agreement between the investment adviser and the independent certified public accountant, at a time that is chosen by the independent certified public accountant without previous notice or announcement to the investment adviser and that is irregular from year to year.

 (ii) The written agreement provides for the first examination to occur within 6 months of becoming subject to this paragraph, except that, if the investment adviser maintains client funds or securities under this section as a qualified custodian, the agreement must provide for the first examination to occur no later than 6 months after obtaining the internal control report.

 (iii) The written agreement must require the independent certified public accountant to:

 (A) File a certificate on Form ADV-E with the Department within 120 days of the time chosen by the independent certified public accountant in this paragraph, stating that it has examined the funds and securities and describing the nature and extent of the examination.

 (B) Notify the Department within 1 business day of the finding, by means of a facsimile transmission or e-mail, followed by first class mail, directed to the attention of the Department on finding any material discrepancies during the course of the examination.

 (C) File Form ADV-E within 4 business days of the resignation or dismissal from, or other termination of, the engagement or removing itself or being removed from consideration for being reappointed, accompanied by a statement that includes:

 (I) The date of resignation, dismissal, removal or other termination, and the name, address and contact information of the independent certified public accountant.

 (II) An explanation of any problems relating to examination scope or procedure that contributed to resignation, dismissal, removal or other termination.

 (6) If the investment adviser has custody because a related person maintains client funds or securities under this section as a qualified custodian in connection with advisory services the investment adviser provides to clients, the investment adviser shall obtain, or receive from its related person, within 6 months of becoming subject to this paragraph and thereafter no less frequently than once each calendar year a written internal control report prepared by an independent certified public accountant that performs the independent verification required under paragraph (5) that complies with the following:

 (i) The internal control report must include an opinion of an independent certified public accountant as to whether controls have been placed in operation as of a specific date, and are suitably designed and are operating effectively to meet control objectives relating to custodial services, including the safeguarding of funds and securities held by either the investment adviser or a related person on behalf of the investment advisers clients, during the year.

 (ii) The independent certified public accountant shall verify that the funds and securities are reconciled to a custodian other than the investment adviser or the investment advisers related person.

 (7) A client may designate an independent representative to receive, on his behalf, notices and account statements as required under paragraphs (3) and (4).

 (b) Exceptions.

 (1) Shares of mutual funds. With respect to shares of an open-end company as defined in section 5(a)(1) of the Investment Company Act of 1940 (15 U.S.C.A. § 80a-5(a)(1)) (mutual fund), the investment adviser may use the mutual fund's transfer agent instead of a qualified custodian to comply with subsection (a).

 (2) Certain privately offered securities.

 (i) The investment adviser does not need to comply with subsection (a)(2) with respect to securities that are:

 (A) Acquired from the issuer in a transaction or chain of transactions not involving any public offering.

 (B) Uncertificated and ownership is recorded only on the books of the issuer or its transfer agent in the name of the client.

 (C) Transferable only with previous consent of the issuer or holders of the outstanding securities of the issuer.

 (ii) Notwithstanding subparagraph (i), the provisions of this paragraph are available with respect to securities held for the account of a pooled investment vehicle only if the pooled investment vehicle is audited, and the audited financial statements are distributed, in accordance with § 303.042(a)(3)(ii) (relating to investment adviser capital requirements) and the investment adviser notifies the Department in writing on Form ADV that the investment adviser intends to provide audited financial statements, as described in this subparagraph.

 (3) Fee deduction. Notwithstanding subsection (a)(5), an investment adviser does not need to obtain an independent verification of client funds and securities maintained by a qualified custodian if the investment adviser is in compliance with § 303.042(a)(3)(i).

 (4) Limited partnerships subject to annual audit. An investment adviser does not need to comply with subsection (a)(3) and (4) and will be considered to have complied with subsection (a)(5) with respect to the account of a pooled investment vehicle that is subject to audit and is in compliance with § 303.042(a)(3)(ii).

 (5) Registered investment companies. The investment adviser does not need to comply with this section with respect to the account of an investment company registered under the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-64).

 (c) Delivery to related persons. Sending an account statement under subsection (a)(4) or distributing audited financial statements under subsection (b)(4) does not satisfy the requirements of this section if the account statements or financial statements are sent solely to limited partners (or members or other beneficial owners) that themselves are limited partnerships (or limited liability companies, or another type of pooled investment vehicle) and are related persons of the investment adviser.

 (d) Department authority. An investment adviser who cannot comply with one or more of the specific provisions in this section may request that the Department waive the specific provisions if the investment adviser can establish that undue hardship would be placed on the investment adviser and that investment adviser can establish sufficient alternative safeguards.

Subpart E. ENFORCEMENT

CHAPTER 501. CIVIL LIABILITIES

§ 501.011. Criminal referrals.

 (a) The Department may:

 (1) Take action as it considers necessary to institute a prosecution or obtain a conviction for offenses as set forth in section 511 of the act (70 P.S. § 1-511).

 (2) Refer the evidence as is available concerning any violation of the act or of any rule or order thereunder or any other applicable statute to the appropriate authorities, Federal and State, who may, with or without the reference, institute appropriate criminal proceedings.

 (b) The act, and this part, do not limit the power of the Commonwealth to punish a person for conduct which constitutes a crime under any other statute.

CHAPTER 504. TIME LIMITATIONS ON RIGHTS OF ACTION

§ 504.060. Rescission offers.

 (a) A person proposing to make an offer under section 504(d) or (e) of the act (70 P.S. § 1-504(d) and (e)) shall follow the procedure for the registration of securities by qualification, as described in sections 206 and 207 of the act (70 P.S. §§ 1-206 and 1-207).

 (1) The forms required to be filed and time periods for Department action are those applicable to registration by qualification and a person shall note at the top of Form R that the offer is a rescission offer.

 (2) The Department may, on petition by the proposed offeror, waive or modify any requirement for the registration if it finds the requirement burdensome and not necessary for the protection of investors.

 (b) The Department may waive compliance with the procedures in subsection (a) for a person making a rescission offer for possible violations of the act if the securities which are the subject of the rescission offer were sold to and purchased by no more than 35 persons in this Commonwealth during 12 consecutive months and all of the following conditions are met:

 (1) The person making the rescission offer files the form designated by the Department as Form RO in accordance with the General Instructions requesting waiver of the procedures in subsection (a) accompanied by disclosure materials prepared to satisfy the antifraud provisions of section 401(b) of the act (70 P.S. § 1-401(b)).

 (2) The person making the rescission offer gives the documents specified in paragraph (1) to each rescission offeree.

 (3) The Department does not deny the waiver request within either of the following time periods:

 (i) Five business days from the date a complete filing is made with the Department if the issuer is making the rescission offer for possible violations of section 201 of the act (70 P.S. § 1-201) and the issuer or a promoter, general partner of a limited partnership, managing general partner of a limited partnership, executive officer or director of the issuer are not subject to the disqualifications in § 204.010(b) (relating to increasing the number of purchasers and offerees).

 (ii) Ten business days from the date a complete filing is made with the Department for all other rescission offers made under this subparagraph.

 (4) If a rescission offer is being made under section 504(e) of the act, the offeror shall comply with section 201 of the act as section 102(r)(vi) of the act (70 P.S. § 1-102(r)(vi)) states that an offer of rescission made under section 504(e) of the act involves an offer and sale.

 (c) The Department may waive compliance with the procedures in subsection (a) for a person making a rescission offer for possible violations of section 301 or sections 401—409 of the act (70 P.S. §§ 1-301 and 1-401—1-409) if the following apply:

 (1) The transactions subject to the rescission offer were effected in compliance with section 202 or 203 of the act (70 P.S. §§ 1-202 and 1-203) which did not require any filing to be made with the Department.

 (2) The rescission offer is not being made to more than five investors in this Commonwealth, exclusive of investors which purchased under section 203(c) of the act.

 (3) The person making the rescission offer, and if the person is the issuer, a general partner of a limited partnership, managing general partner of a limited partnership, promoter, executive officer or director of the issuer are not subject to the disqualifications in § 204.010(b).

 (4) The rescission offer is being made under section 504(d) of the act or if a rescission offer is being made under section 504(e) of the act, the offeror complies with section 201 of the act in that section 102(r)(vi) of the act states that an offer of rescission made under section 504(e) of the act involves an offer and sale.

 (5) Public media advertising or general solicitation were not used in connection with the offer or sale of the securities subject to the rescission offer.

 (6) Mass mailings were not used in connection with the offer or sale of the securities subject to the rescission offer, except in offerings made in good faith reliance on Rule 505 or 506 of Regulation D.

 (7) The person making the rescission offer provides to each offeree disclosure materials prepared to satisfy the antifraud provisions of section 401(b) of the act.

 (8) The person making the rescission offer provides a letter offering rescission to each rescission offeree which contains only the information set forth in Item 14 of the General Instructions to Department Form RO which will be given to each rescission offeree.

 (d) The Department may waive compliance with the procedures in subsection (a) for an issuer which, after offering rescission for possible violations of section 201 of the act under this subsection, will not have made rescission offers to more than five investors in this Commonwealth within the past 24 months, exclusive of investors which purchased under section 203(c) of the act and the following apply:

 (1) A person did not receive commissions directly or indirectly for the sale of the securities subject to the rescission offer.

 (2) The issuer or a promoter, general partner, executive officer or director of the issuer is not subject to the disqualifications in § 204.010(b).

 (3) The issuer provides a letter offering rescission to each rescission offeree which contains only the information set forth in Item 14 of the General Instructions to Department Form RO which will be given to each rescission offeree.

 (4) The issuer provides to each offeree disclosure materials prepared to satisfy the antifraud provisions of section 401(b) of the act.

 (5) Public media advertising or general solicitation were not used in connection with the offer or sale of the securities subject to the rescission offer.

 (6) Mass mailings were not used in connection with the offer or sale of the securities subject to the rescission offer, except in offerings made in good faith reliance on Rule 505 or 506 of Regulation D.

 (e) If an offer is made under section 504(d) or (e) of the act and this section, an offeree's right to remedy under the act is terminated by either of the following:

 (1) A nonresponse to the offer within 30 days of receipt of the offer.

 (2) An affirmative rejection of the offer within 30 days of receipt of the offer.

 (f) A person making a rescission offer under this section shall:

 (1) Advise the Department of the results of the rescission offer within 15 calendar days after the expiration of the rescission offer period.

 (2) Keep and maintain for 3 years following the expiration of each rescission offer period a complete set of books, records and accounts of the rescission offers made including:

 (i) Copies of the rescission offers given or mailed to rescission offerees in this Commonwealth.

 (ii) Records of acceptances and rejections and records of cash disbursements to offerees who accepted the rescission offer.

 (3) Promptly furnish to the Department on request records concerning a rescission offer made in this Commonwealth under this section.

 (g) The requirements of this section also apply if the following rescission offers are made:

 (1) The purchaser of securities which are the subject of a rescission offer under this section no longer owns the securities before receipt of the rescission offer and, under section 504(d)(i) of the act, is being offered an amount in cash equal to damages, if any, as computed in accordance with section 501(a) of the act (70 P.S. § 1-501(a)).

 (2) A person who purchased a security in violation of the act no longer owns the security and, under section 504(e)(ii) of the act, offers to pay the seller an amount in cash equal to damages, if any, computed in accordance with section 501(b) of the act.

CHAPTER 513. RESCISSION ORDERS

§ 513.010. Rescission orders.

 When the Department, under section 513 of the act (70 P.S. § 1-513), orders an issuer or control person of an issuer to effect a rescission offer, the rescission offer shall be effected in accordance with § 504.060(a) (relating to rescission offers) unless the Department, by order, otherwise requires.

Subpart F. ADMINISTRATION

CHAPTER 601. ADMINISTRATION

§ 601.010. (Reserved).

§ 601.020. (Reserved).

§ 601.030. Access to confidential information.

 (a) General rule. The Department may, on a showing that the information is needed, provide confidential information in its possession to any of the following persons if the person receiving the confidential information provides assurances of confidentiality as the Department considers appropriate:

 (1) A Federal, state, local or foreign government or any political subdivision, authority, agency or instrumentality of the government.

 (2) A self-regulatory organization.

 (3) A foreign financial regulatory authority as defined in section 3(a)(52) of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78c(a)(52)).

 (4) The Securities Investor Protection Corporation or any trustee or counsel for a trustee appointed under section 5(b) of the Securities Investor Protection Act of 1970 (15 U.S.C.A. § 78eee(b)).

 (5) A trustee in bankruptcy.

 (6) A trustee, receiver, master, special counsel or other person that is appointed by a court of competent jurisdiction or as a result of an agreement between the parties in connection with litigation or an administrative proceeding involving allegations of violations of the act, if the trustee, receiver, master, special counsel or other person is specifically designated to perform particular functions with respect to, or as a result of, the litigation or proceeding or in connection with the administration and enforcement by the Department of the act.

 (7) A duly authorized agent, employee or representative of any of the persons listed in this subsection.

 (b) Nonapplicability. This section does not affect the Department's authority or discretion to provide access to, or copies of, nonpublic information in its possession in accordance with the other authority or discretion as the Department possesses by statute, regulation or statement of policy.

CHAPTER 602. (Reserved)

§ 602.022. (Reserved).

§ 602.060. (Reserved).

CHAPTER 603. ADMINISTRATIVE FILES

§ 603.011. Filing requirements.

 (a) Except as set forth in subsection (f), documents and other communications to be filed with the Department shall be filed in the Harrisburg office of the Department.

 (b) If mailed, all documents and communications shall be sent registered or certified mail, postage prepaid, return receipt requested.

 (c) The Department will consider a completed and properly executed document or communication to be filed on receipt.

 (d) Unless the filings and request are accompanied by the required fees or charges as provided by the act and this section, the Department will not:

 (1) Accept for filing a notice, statement, form or other document.

 (2) Grant a request for copies of documents.

 (3) Take action.

 (e) Except as set forth in subsection (f), checks for payment of fees and charges shall be:

 (1) Made payable to the order of ''Commonwealth of Pennsylvania.''

 (2) Delivered or mailed to the Department of Banking and Securities, 17 North Second Street, Suite 1300, Harrisburg, Pennsylvania 17101, or other address as the Department may designate.

 (f) Required documents shall be filed in the following manner:

 (1) Broker-dealer. The Uniform Application for Broker-Dealer Registration (Form BD), the Uniform Request for Withdrawal from Registration as a Broker-Dealer (Form BDW), or successor forms, and amendments thereto required to be filed with the Department by a member firm of FINRA with respect to an initial registration, renewal, amendment or withdrawal from registration as a broker-dealer shall be:

 (i) Made solely with the CRD maintained by FINRA under an agreement and guidelines established by NASAA.

 (ii) Mailed to NASAA/FINRA Central Registration Depository, Post Office Box 9401, Gaithersburg, Maryland 20898-9401 or any successor address.

 (2) Agent.

 (i) Documents and other communications required to be filed with the Department by a member firm of FINRA with respect to the initial registration, renewal, transfer or withdrawal from registration as an agent shall be made solely with the CRD to the address in paragraph (1)(ii).

 (ii) Checks for payment of fees required under sections 602(d) and 602.1(a) of the act (70 P.S. §§ 1-602(d) and 1-602.1(a)) for the filing of a document described in this subsection shall be made payable to the order of ''FINRA'' and mailed with the documents to the address listed in paragraph (1)(ii).

 (g) The Department will consider filings made with the CRD under subsection (f) as filed with the Department.

 (h) Required forms will be available on the Department's web site at www.dobs.pa.gov and in paper format from the Department.

§ 603.031. Public inspection of records.

 (a) During the regular business hours of the Department, members of the public may, on written request to do so, inspect at the Department's Harrisburg office documents which are public records. The written request required under this subsection must set forth the public records to be inspected.

 (b) The Department may withhold from public inspection those records which it determines are excluded from the definition of ''public records'' in section 102 of the Right-to-Know Law (65 P.S. § 67.102), and any successor statute.

 (c) A request for the confidential treatment of information contained in a statement, application, notice or report submitted to the Department may accompany the statement, application, notice or report and specify the reasons for the request.

 (1) Material which is the subject of the request should be separated from other parts of the filing.

 (2) On proper showing, the Department will treat as confidential the material which is the subject of the request.

 (d) This section does not make available for public inspection the following:

 (1) Books, papers, correspondence, memoranda, agreements or other documents or records contained in an investigative or examination file maintained by the Department.

 (2) Minutes, documents or other memoranda of the Department or of the staff which deal with or concern the institution, maintenance or termination of an investigation.

 (e) Except as set forth in paragraphs (1) and (2), financial statements required to be filed under §§ 303.011, 303.012, 304.021 and 304.022 are public.

 (1) Statements of income required to be filed under §§ 303.011 and 304.021 (relating to broker-dealer registration procedures; and broker-dealer required financial reports) and nonrequired statements of income filed under §§ 303.011, 303.012, 304.021 and 304.022 are confidential if the income statements are bound separately from the accountant's report, the statement of financial condition and the accompanying notes.

 (2) Financial statements which are considered confidential under paragraph (1) are available for official use by persons described in § 601.030(a) (relating to access to confidential information).

 (3) This section is not in derogation of the rules of a National securities exchange or National securities association which give customers of a member broker or dealer the right, on request to the member broker or dealer, to obtain information relative to its financial condition.

 (f) The Department will treat all of the following information as confidential and not be available for public inspection under any provision of the act and considers the information excluded from the definition of ''public records'' in section 102 of the Right-to-Know Law:

 (1) The Social Security number and date of birth of an individual registered or applying for registration as an agent or an investment adviser representative that appears on the uniform application for securities industry registration or transfer, Form U-4 or successor form, filed with the Department under § 303.013 (relating to agent registration procedures) or with IARD under § 303.014 (relating to investment adviser representative registration procedures).

 (2) The Social Security number and date of birth of an individual registered or applying for registration as an investment adviser or filing a notice as a Federally covered adviser that appears on the uniform application for investment adviser registration, Form ADV or successor form (Form ADV), filed with the Department or with IARD under § 303.012 or § 303.015 (relating to investment adviser registration procedure; and notice filing for Federally covered advisers).

 (3) The Social Security number and date of birth of an individual who is a principal of a person registered or applying for registration as a broker-dealer or investment adviser or filing a notice as a Federally covered adviser that appears on the uniform application for broker-dealer registration, Form BD or successor form (Form BD) or Form ADV.

§ 603.040. Charges for Department services.

 The following fees will be charged by the Department and remitted to the General Fund of the Commonwealth:

 (1) Photocopies of documents on file with the Department—50¢ per page.

 (2) Certification of documents on file with the Department—$5 per certification.

 (3) Facsimile transmission of copies of documents on file with the Department—$2 per page.

CHAPTER 604. (Reserved)

§§ 604.010—604.012. (Reserved).

§§ 604.016—604.023. (Reserved).

CHAPTER 605. DEPARTMENT EMPLOYEES; RELATIONSHIP WITH LICENSED PERSONS OR QUALIFIED ORGANIZATIONS

§ 605.020. Conflict of interest.

 (a) To protect the public interest and avoid conflicts of interest, the Department has determined, under section 605(b) of the act (70 P.S. § 1-605(b)), that the provisions of section 605(a) of the act do not prohibit the holding or purchasing of any securities by any employee of the Department if one of the following applies:

 (1) The employee did not perform a principal review of the application for the registration of the securities or any other securities of the same issuer registered with the Department under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206) or was not involved in an investigation, audit or examination of the registration.

 (2) The securities to be held or purchased are those of an open-end or closed-end investment company, face amount certificate company or unit investment trust, as those terms are defined in section 2 of the Investment Company Act of 1940 (15 U.S.C.A. § 80a-2) for which the issuer is registered or has filed a registration statement under the Investment Company Act of 1940 (15 U.S.C.A. §§ 80a-1—80a-64).

 (3) The employee did not perform a principal review of the application for licensure or registration of a broker-dealer, agent, investment adviser or investment adviser representative filed with the Department under section 303 of the act (70 P.S. § 1-303) or was not involved in an investigation, audit or examination of the licensee or registrant.

 (b) If, under section 605(a) and (b) of the act, there may be a conflict of interest with an employee of the Department which is not permitted by subsection (a), the employee may present a formal request to the Department for permission to hold or purchase the securities.

 (1) The request must set forth the type and amount of securities to be held or purchased, the issuer of the securities, any other relationship between the employee and the issuer, the functions which the employee performed relative to the registration of the issuer and all other pertinent reasons as to why the employee feels the Department should grant the employee's request.

 (2) The Department may grant the employee's request if it finds that in doing so it would be protecting the public interest and avoiding conflicts of interest.

 (c) An employee of the Department may not hold or purchase a security which would otherwise be permitted by subsections (a) and (b) if the holding and purchasing of the security would violate any other applicable conflict of interest statute or regulation.

CHAPTER 606. MISCELLANEOUS POWERS OF THE DEPARTMENT

§ 606.011. Financial reports to securityholders.

 (a) In the case of securities issued under section 203(d) or (p) of the act (70 P.S. § 1-203(d) and (p)), or registered under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206), the issuer shall, so long as the securities are held of record by a Commonwealth resident, deliver its financial statements to each holder at least annually and within 120 days after the close of the fiscal year of the issuer.

 (b) The financial statements must comply with section 609(c) of the act (70 P.S. § 1-609(c)) and the rules and regulations adopted thereunder, except that, if the securities were issued in a transaction subject to this section wherein the financial statements delivered to offerees were not required to be audited or if the financial statements were not required to be given to the offerees, the financial statements do not need to be audited.

 (c) This section does not apply if, on the date of the close of the issuer's fiscal year, the issuer is subject to section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78m and 78o(d)) and, within 120 days of that date, has made a filing with the Securities and Exchange Commission in accordance with either of those sections.

§ 606.031. Advertising literature.

 (a) Advertisements. Except as permitted by section 606(c) of the act (70 P.S. § 1-606(c)), a person may not publish an advertisement concerning a security in this Commonwealth unless all of the following are met:

 (1) The advertisement is either of the following:

 (i) Permitted by this section and complies with any requirements imposed by this section.

 (ii) Specifically excluded from application of this section by subsection (f).

 (2) The character and composition of the statements and graphics contained in the advertisement do not exaggerate the investment opportunity, overemphasize any aspect of the offering, minimize the risks of the enterprise or predict revenues, profits or payment of dividends, including financial projections or forecasts.

 (3) The advertisement does not contain any statement that is false or misleading in any material respect or omits to make any material statement necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.

 (b) Registered offerings: permitted advertisements after filing but before effectiveness. The following apply with respect to publication of advertisements in this Commonwealth in connection with an offering of securities in this Commonwealth for which a registration statement has been filed with the Department under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206) that has not yet become effective.

 (1) In connection with a registration statement filed with the Department under section 205 or 206 of the act for the sale of securities in this Commonwealth which also are the subject of a registration statement filed under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e), a person may publish any of the following in this Commonwealth before effectiveness of the registration statement under the act:

 (i) Advertisements which comply with section 2(a)(10)(b) of the Securities Act of 1933 (15 U.S.C.A. § 77b(a)(10)(b)).

 (ii) Advertisements which comply with Rule 134 (17 CFR 230.134) (relating to communications not deemed a prospectus) promulgated by the Securities and Exchange Commission.

 (iii) A preliminary prospectus which is part of a registration statement that has been filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 and complies with Rule 430 (17 CFR 230.430) (relating to prospectus for use prior to effective date) promulgated by the Securities and Exchange Commission.

 (iv) A summary prospectus which is part of a registration statement that has been filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 and complies with Rule 431 (17 CFR 230.431) (relating to summary prospectuses) promulgated by the Securities and Exchange Commission.

 (2) In connection with an offering circular for the offer and sale of securities in this Commonwealth filed with the Securities and Exchange Commission under Regulation A (17 CFR 230.251—230.263) (relating to conditional small issues exemption), promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)) and with the Department under section 205 or 206 of the act, a person may publish an advertisement in this Commonwealth that complies with Rule 251(d)(1)(ii)(C) (17 CFR 230.251(d)(1)(ii)(C)) (relating to scope of exemption) promulgated by the Securities and Exchange Commission before effectiveness of the offering circular under the act if all of the following conditions are met:

 (i) The advertisement is filed with the Department 10 days before publication in this Commonwealth.

 (ii) The Department does not issue a letter disallowing its publication in this Commonwealth before the expiration of the 10-day period.

 (3) In connection with a registration statement filed with the Department under section 206 of the act for the offer and sale of securities in this Commonwealth for which no registration statement has been filed with the Securities and Exchange Commission in reliance on section 3(a)(4) or (11) of the Securities Act of 1933 and regulations promulgated thereunder or Rule 504 (17 CFR 230.504) (relating to exemption for limited offerings and sales of securities not exceeding $5,000,000) promulgated by the Securities and Exchange Commission under section 3(b) of the Securities Act of 1933, a person may publish an advertisement in this Commonwealth before effectiveness of the registration statement under the act if all of the following are met:

 (i) The advertisement contains no more than the following:

 (A) The name and address of the issuer of the security.

 (B) The title of the security, the number of securities being offered, the total dollar amount of securities being offered, yield and the per unit offering price to the public.

 (C) A brief, generic description of the issuer's business.

 (D) A statement, if applicable, that completion of the offering is subject to receipt of subscriptions meeting a stated minimum offering amount.

 (E) A statement providing the name and address of the underwriter or where a prospectus may be obtained.

 (F) A statement in the following form: ''A registration statement has been filed with the Pennsylvania Department of Banking and Securities but has not yet become effective. These securities may not be sold nor may offers to buy be accepted before the time the registration statement becomes effective. This advertisement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in the Commonwealth of Pennsylvania before registration of the securities under the Pennsylvania Securities Act of 1972.''

 (ii) The advertisement is filed with the Department 10 days before publication in this Commonwealth.

 (iii) The Department does not issue a letter disallowing its publication in this Commonwealth before the expiration of the 10-day period.

 (c) Registered offerings: permitted advertisements after effectiveness. The following apply with respect to publication of advertisements in this Commonwealth in connection with an offering of securities in this Commonwealth for which a registration statement has become effective under section 205 or 206 of the act.

 (1) In connection with a registration statement filed with the Department under section 205 or 206 of the act for the offer and sale of securities in this Commonwealth which also are the subject of a registration statement filed under section 5 of the Securities Act of 1933 which has become effective, a person may publish an advertisement in this Commonwealth if it is preceded or accompanied by a copy of the final prospectus.

 (2) In connection with an offering circular for the offer and sale of securities in this Commonwealth that has been filed with the Securities and Exchange Commission under Regulation A (17 CFR 230.251—230.263) promulgated under section 3(b) of the Securities Act of 1933 and with the Department under section 205 or 206 of the act and has been qualified by the Securities and Exchange Commission under Regulation A and has become effective under section 205 or 206 of the act, a person may publish an advertisement in this Commonwealth if the advertisement is accompanied or preceded by a copy of the final offering circular.

 (3) In connection with a registration statement filed with the Department under section 206 of the act for the offer and sale of securities in this Commonwealth for which no registration statement has been filed with the Securities and Exchange Commission in reliance on section 3(a)(4) or (11) of the Securities Act of 1933 and regulations promulgated thereunder or Rule 504 (17 CFR 230.504) promulgated by the Securities and Exchange Commission under section 3(b) of the Securities Act of 1933 that has become effective under the act, a person may publish in this Commonwealth an advertisement if all of the following are met:

 (i) The advertisement contains no more than the following:

 (A) The name and address of the issuer of the security.

 (B) The title of the security, the number of securities being offered, the total dollar amount of securities being offered, yield and the per unit offering price to the public.

 (C) A brief, generic description of the issuer's business.

 (D) A statement, if applicable, that completion of the offering is subject to receipt of subscriptions meeting a stated minimum offering amount.

 (E) A statement, if applicable, that funds accompanying the subscription agreement are subject to escrow and the terms of the escrow.

 (F) The name and address where the final prospectus may be obtained if delivery of the final prospectus does not precede or accompany the advertisement.

 (G) A statement in the following form: ''This advertisement does not constitute an offer to sell nor a solicitation of an offer to buy any of the securities. The offering is made only by the prospectus.''

 (ii) The advertisement is filed with the Department 5 days before publication in this Commonwealth.

 (iii) The Department does not issue a letter disallowing publication in this Commonwealth before the expiration of the 5-day period.

 (4) A person may not publish an advertisement in this Commonwealth in connection with the offer and sale of any security registered under section 205 or 206 of the act at any time after the expiration of the effective period of the registration statement relating to that security as determined by section 207 of the act (70 P.S. § 1-207).

 (d) Exempt securities. The following apply:

 (1) Exempt securities other than sections 202(a) and (i) of the act. Except as provided in paragraphs (2) and (3), a person may publish an advertisement in this Commonwealth in connection with the offer or sale of a security in this Commonwealth which is exempt under section 202 of the act (70 P.S. § 1-202).

 (2) Section 202(a) of the act. In connection with the offer or sale of any security in this Commonwealth made in reliance on section 202(a) of the act which is issued by the Commonwealth, any political subdivision, or any agency or corporate or instrumentality of the Commonwealth and which security represents less than a general obligation of the issuer, a legend adequately describing the limited nature of the obligation must appear prominently in bold face type of at least 12 points in size on the face page of any preliminary offering statement, official offering statement or advertisement published in this Commonwealth.

 (3) Section 202(i) of the act. A person may publish an advertisement in this Commonwealth in connection with the offer or sale of a security in this Commonwealth which is exempt under section 202(i) of the act except if the Department, by rule or order, has prohibited use of advertisements as a condition of the availability of the exemption.

 (e) Exempt transactions. All of the following apply:

 (1) Advertisements permitted. Except as provided in paragraph (2), a person may publish any advertisement in this Commonwealth in connection with a securities transaction in this Commonwealth which is exempt from registration under section 203 of the act (70 P.S. § 1-203).

 (2) Advertisements prohibited. A person may not publish any advertisement in this Commonwealth in connection with the following securities transactions which are effected in this Commonwealth:

 (i) A sale of a security made in reliance on section 203(d) of the act.

 (ii) An offer of a security made in reliance on section 203(e) of the act which results in a sale under section 203(d) of the act.

 (iii) An offer or sale of a security made in reliance on section 203(j) of the act.

 (iv) An offer or sale of a security made in reliance on section 203(s) of the act.

 (v) An offer or sale of a security made in reliance on § 203.187 (relating to small issuer exemption).

 (vi) An offer or sale of a security made in reliance on § 203.189 (relating to isolated transaction exemption).

 (vii) An offer or sale of a security which is exempt under section 203(r) of the act when the Department, by rule or order, has prohibited use of advertisements as a condition of the availability of the exemption.

 (f) Excluded advertisements. All of the following apply:

 (1) This section does not apply to advertisements described in paragraph (2) if all of the following are met:

 (i) The character and composition of the statements and graphics contained in the advertisement do not exaggerate the investment opportunity, overemphasize any aspect of the offering, minimize the risks of the enterprise or predict revenues, profits or payment of dividends, including financial projections or forecasts.

 (ii) The advertisement does not contain any statement that is false or misleading in any material respect or omits to make any material statement necessary to make the statements made, in the light of the circumstances under which they are made, not misleading.

 (2) The following advertisements are excluded from the provisions of this section if the requirements of paragraph (1) have been met:

 (i) General solicitation in connection with the offer or sale of a security in reliance on section 203(t) of the act.

 (ii) Advertisements which comply with Rule 135 promulgated by the Securities and Exchange Commission (17 CFR 230.135) (relating to notice of proposed registered offerings).

 (iii) Advertisements which comply with Rule 135c promulgated by the Securities and Exchange Commission (17 CFR 230.135c) (relating to notice of certain proposed unregistered offerings).

 (iv) Advertisements in connection with an offer of a security in reliance on § 203.190 (relating to certain Internet offers exempt) which comply with the legend requirement of § 203.190(a)(1).

 (v) Advertisements in connection with the offer or sale of Federally covered securities under section 18(b)(4)(C) and (E) of the Securities Act of 1933 (15 U.S.C.A. § 77r(b)(4)(C) and (E)) when the issuer relies upon and is in compliance with Rule 506(c) of Regulation D (17 CFR 230.506) (relating to exemption for limited offers and sales without regard to dollar amount of offering) or regulation crowdfunding.

 (g) Securities and Exchange Commission interpretive advice on use of electronic media. A person who uses electronic media to publish an advertisement in this Commonwealth in connection with a security which is the subject of a registration statement filed with the Department under section 205 or 206 of the act and with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 may rely on the interpretive advice of the Securities and Exchange Commission in Release No. 33-7856 (April 28, 2000) and subsequent advice given under that release. To the extent that the interpretive advice contradicts any requirement in subsection (a)(1) or (b)(1), the Department will not take any enforcement action if the person complies with the interpretive advice.

§ 606.041. (Reserved).

CHAPTER 609. REGULATIONS, FORMS AND ORDERS

§ 609.010. Use of prospective financial statements.

 (a) Except as set forth in subsection (b), the use of prospective financial statements, including those contained in feasibility studies, is prohibited in connection with offerings registered under sections 205 and 206 of the act (70 P.S. §§ 1-205 and 1-206) or in offerings exempt from registration under section 202(a) or 203(d) of the act (70 P.S. §§ 1-202(a) and 1-203(d)), unless the prospective financial statements used or distributed comply with the act and this section.

 (b) The use or distribution of prospective financial statements in connection with the following securities offerings is permissible if it complies with section 401 of the act (70 P.S. § 1-401):

 (1) Offers or sales of securities of reporting companies as the term is defined in section 102(q) of the act (70 P.S. § 1-102(q)).

 (2) Offers and sales of securities made under an exemption not set forth in subsection (b).

 (3) Offers and sales of securities made to experienced private placement investors.

 (4) Offers and sales of securities to an individual, and spouse when purchasing as joint tenants or as tenants by the entireties, if the minimum amount of securities to be purchased in the offering by the individual is $500,000 or more and the purchase of the securities is for cash or an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of sale of the securities.

 (5) Offers and sales of securities to a person which is organized primarily to purchase, in nonpublic offerings, securities of corporations or issuers engaged in research and development activities in conjunction with a corporation and one of the following exists:

 (i) The person has purchased $450,000 or more of the securities for cash or for an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of sale of the securities, excluding a purchase of securities of a corporation in which the affiliates of the person directly or beneficially own more than 50% of the corporation's voting securities.

 (ii) The person is purchasing $500,000 or more of the securities being offered for cash or an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of sale of the securities being purchased.

 (6) Offers and sales of securities made to accredited investors as that term is defined in Rule 501(a) (17 CFR 230.501(a)) (relating to definitions and terms used in Regulation D) in Regulation D of the Securities Act of 1933 (15 U.S.C.A. §§ 77a—77aa).

 (c) Except as set forth in subsection (d), prospective financial statements used or distributed in connection with the securities offerings described in subsection (a) must comply with the following requirements:

 (1) Assumptions. Assumptions include:

 (i) Prospective financial statements must be based on reasonable assumptions and clearly set forth the assumptions made with respect to all material features of the presentation.

 (ii) With respect to financial projections, the hypothetical assumptions used must be clearly identified and be consistent with the purpose of the presentation. With respect to multiple presentations there must be a preponderance of information to suitably support the amount presented being within the range of the hypothetical assumptions.

 (2) Preparation. Preparation includes:

 (i) Prospective financial statements shall either be prepared by an independent qualified person-preparer or reviewed by an independent qualified person reviewer. The preparer or reviewer may rely on another preparer or reviewer for the preparation or review of the underlying assumptions or other aspects of the prospective financial statement if the report complies with paragraph (3).

 (ii) The Department will not recognize a person as a qualified independent reviewer or preparer unless that person can demonstrate adequate knowledge of the industry and the accounting principles and practices of the industry portrayed in the prospective financial statements.

 (3) Report. The report must include:

 (i) Prospective financial statements accompanied by a report of each preparer or reviewer of the following:

 (A) The prospective financial statements.

 (B) The underlying assumptions.

 (C) Other material aspects of the prospective financial statements.

 (ii) With respect to prospective financial statements, the preparer or reviewer's report:

 (A) Must include a statement of the work performed, including a review of the assumptions.

 (B) May not contain a disclaimer with respect to the reasonableness of the assumptions or the reasonableness of the prospective financial statements.

 (C) May not contain language that suggests or implies that the preparer or reviewer vouches for the achievability of the prospective financial statements.

 (iii) A report on the preparation or review of the financial projections explicitly describing the hypothetical assumptions on which the projection is based, for example, ''assuming the granting of the requested loan to expand the Company's plant as described in the summary of significant assumption(s).''

 (4) Contents of reports with more than one preparer or reviewer. Collectively, the reports described in paragraph (3) must include a statement of the work performed by each preparer or reviewer and the degree of responsibility each is taking.

 (5) Professional responsibility. A preparer or reviewer of a prospective financial statement or of the underlying assumptions shall follow the requirements of § 401.020 (relating to professional responsibility).

 (6) Fair presentation. Prospective financial statements must include material information necessary for a fair presentation including, if applicable:

 (i) Sales or gross revenue by sources for each period presented.

 (ii) Expenses by classifications for each period presented.

 (iii) Provision for income taxes for each period presented.

 (iv) Net income for each period presented.

 (v) Primary and fully diluted earnings per share of common stock for each period presented.

 (vi) A cash flow analysis or a statement of significant changes in financial position for each period presented, including the sources and uses of cash.

 (vii) Balance sheets at the beginning and end of the entire period for which prospective financial statements are presented.

 (viii) Forecasted or projected annual taxable income or loss with a discussion of the assumptions affecting tax benefits and, if appropriate, alternative forecasted or projected results based on alternative tax treatment.

 (ix) Significant accounting principles and policies followed.

 (7) Minimum period. Prospective financial statements shall cover a minimum period of 3 years. The period must be extended if appropriate to evaluate properly the investment consequences.

 (8) Explanatory notes. Prospective financial statements must be accompanied by explanatory notes describing significant assumptions made and, if appropriate, referenced to tabular and numerical data and risk factors.

 (9) Conspicuous statement. Prospective financial statements must be clearly distinguished from historical financial statements and contain a conspicuous statement indicating that it is based on assumptions of the future.

 (d) The Department will consider prospective financial statements examined in accordance with the Statement of Standards for Attestation Engagements promulgated by the American Institute of Certified Public Accountants, Inc. (SSAE Statement) to comply with this section if a standard report on an examination prepared in accordance with the SSAE Statement is issued by an independent person.

 (e) The primary responsibility for prospective financial statements used or distributed under this section rests with management.

§ 609.011. Amendments to filings with Department.

 A person wishing to amend or otherwise ensure that a previously filed application, notice, statement, report or any other document is current and accurate in all material respects shall file with the Department an amendment which meets all of the following conditions:

 (1) The amendment must identify the previously filed document being amended.

 (2) If amending a form promulgated by the Department, the amendment must identify the:

 (i) Name of the form.

 (ii) Date the form originally was filed with the Department.

 (iii) Items or schedules of the form which are being amended.

§ 609.012. Computing the number of offerees, purchasers and clients.

 (a) Under section 609(a) of the act (70 P.S. § 1-609(a)), the Department, to provide a consistent method of computing the number of offerees, purchasers and clients under relevant provisions of the act and regulations promulgated thereunder, has determined that all of the following apply:

 (1) A person who is offered or purchases securities or becomes a client is counted as a separate offeree, purchaser or client, unless the person is otherwise specifically excluded under this section.

 (2) If more than one person, related by blood or marriage, are offerees, purchasers or clients, the persons are counted as one offeree, purchaser or client if they either:

 (i) Reside in the same household.

 (ii) Are under 18 years of age.

 (3) An entity is counted as one person, and a direct or beneficial owner of equity interests or equity securities in the entity is not counted as an offeree, purchaser or client, unless one of the following applies:

 (i) With respect to computing offerees and purchasers, the entity was organized to specifically acquire the securities being offered or purchased.

 (ii) With respect to computing clients, if the services provided by the person effecting transactions in securities for the account of the entity or providing investment advice to the entity are based on the investment decisions of the direct or beneficial owners rather than on the investment objectives of the entity.

 (4) Notwithstanding the provisions of paragraph (3)(i):

 (i) In the case of a trust, if the settlor and the beneficiaries are related by blood or marriage, the trust and the trustee, when acting on behalf of the trust or simultaneously on his own behalf, is counted only as one offeree, purchaser or client.

 (ii) Multiple trusts are counted as one offeree, purchaser or client if all of the beneficiaries are related by blood or marriage.

 (5) Notwithstanding the provisions of paragraph (3)(i) in an entity in which all owners of equity interests or equity securities, excluding contingent interests and director's qualifying shares, are persons related by blood or marriage residing in the same household, the following apply:

 (i) The entity is counted as one person.

 (ii) The owners of the interests or securities in the entity are not counted as offerees, purchasers and clients.

 (b) This section does not apply if a section of the act or a regulation promulgated thereunder sets forth another method of computing offerees, purchasers or clients.

§ 609.031. Application.

 (a) This chapter, and constructions and interpretations issued by the Department, set forth the minimum requirements for financial statements included, under the act, as part of the following:

 (1) Registration Statements under section 206 of the act (70 P.S. § 1-206).

 (2) Registration Statements under section 205 of the act (70 P.S. § 1-205) which are exempt under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)).

 (3) Proxy materials under section 203(o) of the act (70 P.S. § 1-203(o)).

 (4) Reports distributed to securityholders under section 606(a) of the act (70 P.S. § 1-606(a)).

 (5) Financial reports of broker-dealers or investment advisers required under Subpart C (relating to registration of broker-dealers, agents, investment advisers and investment adviser representatives and notice filings by Federally covered advisers).

 (6) Exempt transactions under section 203(p) of the act.

 (b) Offerings of securities registered under the Securities Act of 1933 (15 U.S.C.A. §§ 77a—77aa), or filings of proxy materials under the Securities Exchange Act of 1934 (15 U.S.C.A. §§ 78a—78qq) which meet the requirements of Reg. S-X, 17 CFR 210.8-01—210.8-03 (relating to preliminary notes to Article 8; annual financial statements; and interim financial statements), adopted by the Securities and Exchange Commission or broker-dealer reports filed under the Securities Exchange Act of 1934 under regulations adopted thereunder are exempted from this chapter, except if otherwise indicated.

 (c) References to ''registration'' under the Securities Act of 1933 are to be construed strictly. By way of illustration the procedure of ''notification'' under the Regulation A (17 CFR 230.251—230.263) (relating to conditional small issues exemption) will not be recognized as ''registration.''

§ 609.032. (Reserved).

§ 609.033. Accountants.

 (a) Qualification of accountants.

 (1) The Department will not recognize a person:

 (i) As a certified public accountant who is not registered and in good standing under the laws of the place of the person's residence or principal office.

 (ii) As a public accountant who is not in good standing and entitled to practice under the laws of the place of the individual's residence or principal office.

 (2) The Department will not recognize a 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 a person, or any of its parents, its subsidiaries or other affiliates in which either of the following applies:

 (i) During the period of the accountant's professional engagement to examine the financial statements being reported on or at the date of his report, the accountant or accountant's firm or a firm member had, or was committed to acquire, a direct financial interest or a material indirect financial interest.

 (ii) During the period of the accountant's professional engagement to examine the financial statements being reported on, at the date of his report or during the period covered by the financial statements, the accountant or accountant's firm or a firm member was connected as a promoter, underwriter, voting trustee, director, officer or employee.

 (3) A firm will be considered independent in regard to a particular person if a former officer or employee of the person is employed by the firm and the individual has completely disassociated himself from the person and its affiliates and does not participate in auditing financial statements of the person or its affiliates covering any period of the individual's employment by the person.

 (4) In determining whether an accountant is in fact independent with respect to a particular registrant, the Department will give appropriate consideration to all relevant circumstances including evidence bearing on all relationships between the accountant and the registrant or any affiliate of the registrant, and will not confine itself to the relationships existing in connection with the filing of reports with the Department.

 (b) Accountant's reports.

 (1) Auditor's report format. The format of the auditor's report must be in accordance with the reporting standards established by generally accepted auditing standards including Statements on Auditing Standards promulgated by the Auditing Standards Board of the American Institute of Certified Public Accountants or the auditing standards promulgated by the Public Company Accounting Oversight Board as required under law.

 (2) Accountant's review report format. The format of the accountant's review report must be in accordance with the reporting standards established by Statements on Standards for Attestation Engagements promulgated by the American Institute of Certified Public Accountants.

 (3) Accountant's compilation report format. The format of the accountant's compilation report must be in accordance with the reporting standards established by Statements on Standards for Attestation Engagements promulgated by the American Institute of Certified Public Accountants.

 (4) Certain accountant's reports. Auditor's reports, accountant's review reports or accountant's compilation reports issued by public accountants are not permitted for reports required under § 609.034 (relating to financial statements).

§ 609.034. Financial statements.

 (a) If an issuer proposes to register its securities for sale under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206), and for which securities a registration statement has been filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e), the issuer shall:

 (1) Comply with the financial statement requirements as set forth in the rules and regulations of the Securities and Exchange Commission (17 CFR 210.1-01—210.12-29) (relating to form and content of and requirements for financial statements, Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, Investment Advisers Act of 1940, and Energy Policy and Conservation Act of 1975).

 (2) Prepare the financial statements in accordance with generally accepted accounting principles.

 (3) Present the financial statements in comparative form.

 (b) Except as provided in subsection (d), an issuer shall file the financial statements listed in subsection (c) if one of the following conditions apply:

 (1) The issuer proposes to register its securities for sale under section 206 of the act.

 (2) The issuer proposes to sell its securities under the exemption contained in Regulation A promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)) and proposes to register the securities under section 205 of the act.

 (3) The issuer proposes to sell its securities under the exemption contained in section 203(p) of the act (70 P.S. § 1-203(p)).

 (4) The issuer is required to file proxy materials under section 203(o) of the act.

 (c) If required under subsection (b), the issuer shall file the following financial statements, prepared in accordance with generally accepted accounting principles and presented in comparative form:

 (1) A balance sheet of the issuer, dated within 120 days of the date of filing with the Department and comply with either of the following requirements if the balance sheet is not audited:

 (i) The issuer shall also file an audited balance sheet as of the issuer's last fiscal year.

 (ii) The issuer shall also file an audited balance sheet as of the end of the issuer's next preceding fiscal year if the issuer's last fiscal year ended within 90 days of the date of filing.

 (2) Statements of income, stockholders' equity and cash flows for each of 2 fiscal years or less, if the issuer and its predecessors have been in existence for less than 2 years preceding the date of the latest balance sheet filed, and for the period, if any, between the close of the latest of the fiscal years and the date of the latest balance sheet filed.

 (i) These statements shall be audited up to the date of the latest audited balance sheet filed.

 (ii) If changes in stockholders' equity accounts are set forth in a note to the financial statements, a separate statement of stockholders' equity does not need to be filed.

 (3) Consolidated balance sheets, statements of income, stockholders' equity and cash flows complying with the audit requirements in paragraphs (1) and (2) must be filed for the issuer and its subsidiaries in accordance with this section.

 (4) A balance sheet of the issuer before the reorganization, a column showing the changes to be effected in the reorganization, and a pro forma balance sheet after the reorganization if the issuer is about to undergo a reorganization which will effect substantial changes in its assets, liabilities or capital accounts.

 (i) The issuer shall explain in a footnote the adjustments made.

 (ii) If a reorganization has taken place at any time covered by the statements of income filed, the issuer shall explain in a footnote the effect of the reorganization.

 (5) A description of the plan of succession, showing in columnar form, the balance sheets of the parties to the transaction, the changes effected or to be effected and the balance sheet of the issuer as a result of the transaction, and statements of income for each of the businesses for the periods covered by paragraph (2), to include a consolidating pro forma statement of income if the issuer has succeeded, or is about to succeed, to one or more businesses, by merger, consolidation or otherwise. This paragraph does not apply to the issuer's succession to the business of any totally-held subsidiary or to the acquisition of subsidiaries not constituting, in the aggregate, a significant subsidiary.

 (6) Financial statements for the business as would be required if it were an issuer if the issuer has acquired any business (or the securities of any person giving the issuer control over the person) after the date of its latest balance sheet filed under paragraph (1), or if the issuer proposes to acquire those types of business or securities.

 (i) The issuer shall also file pro forma statements of income in columnar form.

 (ii) The acquisition of securities which will extend the issuer's control over another person is considered the acquisition of a business if the securities being registered under section 206 of the act are to be offered for the securities to be acquired, or if the purpose of the proxy statement is to effectuate the acquisition.

 (iii) Financial statements do not need to be filed under this paragraph for any acquisition from a totally-held subsidiary.

 (iv) Statements of businesses may be omitted if, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary, except that the statements may not be omitted when the securities being registered under section 206 of the act are to be offered in exchange for the securities to be acquired, or if the purpose of the proxy statement is to effectuate the acquisition.

 (7) The registration statement with summary statements for each of the 3 most recent fiscal years and for the period from the date of the end of the latest fiscal year to the date of the latest balance sheet filed if an issuer proposes to register its securities under section 206 of the act. The summary statements of income required in this paragraph are in addition to the financial statements required under paragraph (2).

 (d) If an issuer proposes to register its equity securities for sale under section 206 of the act, which securities are exempt from registration under section 5 of the Securities Act of 1933 under an exemption contained in section 3(a)(11) of the Securities Act of 1933, or Regulation A or Rule 504 of Regulation D promulgated under section 3(b) of the Securities Act of 1933, the issuer shall file the financial statements required under subsection (c) except that the financial statements may be reviewed by an independent certified public accountant in accordance with the standards established by the American Institute of Certified Public Accountants or the Canadian equivalent if:

 (1) The amount of the present offering does not exceed $1 million.

 (2) The issuer previously has not sold securities through an offering involving the general solicitation of prospective investors by means of advertising, mass mailings, public meetings, ''cold call'' telephone solicitation or any other method directed toward the public.

 (3) The issuer previously has not been required under Federal, State, provincial or territorial securities laws to provide audited financial statements in connection with any sale of its securities.

 (4) The aggregate amount of all previous sales of securities by the issuer (exclusive of debt financing with banks and similar commercial lenders) does not exceed $1 million.

 (e) The financial statements required under subsections (c) and (d) must be included in the prospectus or offering circular distributed to offerees in this Commonwealth.

 (f) For purposes of this subsection, the Department used the corporate form of financial statement title, but because financial statement title terminology may differ for other types of accounting entities, including nonprofit organizations, those entities shall include the analogous financial statements.

 (g) If consistent with the protection of investors, the Department may:

 (1) Permit the omission of one or more of the financial statements required under this section or the filing in substitution of appropriate statements of comparable character.

 (2) Require the filing of other financial statements in addition to, or in substitution for, the financial statements required under this section or when the financial statements are necessary for an adequate presentation of the financial condition of the issuer.

 (h) Subsections (b)(2) and (c) do not apply when an issuer offers or sells a security in an offering exempt from registration with the Securities and Exchange Commission under Tier 2 of regulation a adopted under the Securities Act of 1933 (15 U.S.C.A. §§ 77a—77aa) in good faith reliance on section 203(u) of the act.

§ 609.036. Financial statements; annual reports.

 (a) Distribution and auditing.

 (1) If an issuer is required under the act and this title to distribute financial information to securityholders, it must include all of the following financial statements:

 (i) Balance sheets, statements of income, stockholders' equity and cash flows all in comparative form, for the issuer's last 2 fiscal years.

 (ii) Consolidated financial statements of the issuer and its subsidiaries, or both, in comparative form, for the issuer's last 2 fiscal years.

 (2) The financial statements shall be audited and prepared in conformity with generally accepted accounting principles applied consistently with past periods or noting any changes, except that the financial statements do not need to be audited if the issuer is permitted by this title or by the Department to distribute unaudited financial information to securityholders.

 (b) Form of financial statement. For purposes of this section, the Department used the corporate form of financial statement title, but because financial statement title terminology may differ for other types of accounting entities, including nonprofit organizations, those entities shall include the analogous financial statements.

§ 609.037. Foreign financial statements.

 (a) Under section 609(c) of the act (70 P.S. § 1-609(c)), financial statements and financial information prepared in accordance with Canadian generally accepted accounting principles, consistently applied, may be distributed to the public if a registration statement designated as Form F-7, F-8, F-9 or F-10 by the Securities and Exchange Commission has been filed with the Department under section 205 or 206 of the act (70 P.S. §§ 1-205 and 1-206) and all of the following apply:

 (1) The securities which are the subject of the registration statement designated as Form F-9 by the Securities and Exchange Commission are either nonconvertible preferred stock or nonconvertible debt which are to be rated in one of the four highest rating categories by one or more Nationally recognized statistical rating organizations.

 (2) The securities which are the subject of a registration statement designated as Form F-7 by the Securities and Exchange Commission are offered for cash on the exercise of rights granted to existing securityholders.

 (3) The securities which are the subject of a registration statement designated as Form F-8 by the Securities and Exchange Commission are securities to be issued in an exchange offer.

 (4) The securities which are the subject of a registration statement designated as Form F-10 by the Securities and Exchange Commission are offered and sold pursuant to a prospectus in which the Securities and Exchange Commission has not required a reconciliation to United States generally accepted accounting principles with respect to the financial information presented therein.

 (b) For purposes of this section, preferred stock and debt securities which are not convertible for at least 1 year from the date of effectiveness of the registration statement will be considered to meet the requirement of subsection (a)(1).

CHAPTER 610. (Reserved)

§ 610.010. (Reserved).

Subpart G. GENERAL PROVISIONS

CHAPTER 701. ADMINISTRATIVE PROVISIONS

§ 701.010a. Filing of registration forms.

 (a) The Department will provide links to all forms and General Instructions on the Department's web site.

 (b) Forms filed with the Department must be in the format prescribed by the Department in the General Instructions.

 (c) All references to forms mean paper forms or an electronic format prescribed by the Department or the Securities and Exchange Commission, NASAA or successors.

 (d) The use of an electronic signature has the same force and effect as a manual signature.

§ 701.011. Filing of exemption forms.

 (a) The Department will provide links to all forms and General Instructions on the Department's web site.

 (b) All forms and accompanying documents filed with the Department must be in the format prescribed by the Department in the General Instructions.

 (c) All references to forms mean paper forms or an electronic format prescribed by the Department or the Securities and Exchange Commission or successors.

 (d) The use of an electronic signature has the same force and effect as a manual signature.

§ 701.020. Electronic filing.

 Unless the Department orders otherwise, all documents shall be filed with the Department in the manner prescribed in the accompanying General Instructions.

§ 701.030. Fees.

 Issuers filing registration or exemption forms by electronic means shall include the payment of fees or assessments required under section 602 or 602.1 of the act (70 P.S. §§ 1-602 and 1-602.1) by one of the following means:

 (1) Automated Clearing House transfer of funds to the Department's designated depository.

 (2) As otherwise required by the Department in the General Instructions.

Subpart H. PRACTICE AND PROCEDURE

CHAPTER 901. (Reserved)

§ 901.011. (Reserved).

Subpart I. TAKEOVER OFFERORS

CHAPTER 1001. TAKEOVER DISCLOSURES

§ 1001.010. Takeover offeror report regarding participating broker-dealers.

 The Department has determined that, to carry out the purposes of the Takeover Disclosure Law (law) (70 P.S. §§ 71—85), it is necessary to require the offeror to file, as an exhibit to the registration statement filed under section 4 of the law (70 P.S. § 74), Department Form TDL-1 in accordance with the General Instructions thereto.

[Pa.B. Doc. No. 18-89. Filed for public inspection January 12, 2018, 9:00 a.m.]

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