[46 Pa.B. 3420]
[Saturday, July 2, 2016]

[Continued from previous Web Page]

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 [Commission] 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 [Commission] 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, [renders] gives or produces a statement, opinion, report or service if [such] the professional person knew or in the exercise of reasonable care should have known that [such] 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) [It shall constitute 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), for any investment adviser or investment adviser representative, directly or indirectly, to publish, circulate or distribute any advertisement:] 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) [Which refers] Refers, directly or indirectly, to any testimonial of any kind [by any customer] concerning the investment adviser or investment adviser representative concerning any advice, analysis, report or other service [rendered] given to the customer by the investment adviser or investment adviser representative.

 (2) [Which refers] 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[; provided, however, that this does not prohibit an advertisement which sets forth or offers] 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[, and which] is not prohibited if the advertisement:

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

 (ii) Contains the following cautionary legend prominently displayed on the first page [thereof] 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) [Which represents] Represents, directly or indirectly, that any graph, chart, formula or other device being offered [can]:

 (i) Can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them[; or which represents, directly or indirectly, that any graph, chart, formula or other device being offered will].

 (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 [thereof] and the difficulties with respect to its use.

 (4) [Which contains] Contains any statement [to the effect] 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) [Which contains] 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)], including free or discounted securities, received directly or indirectly in connection with making a recommendation concerning a specific security.

 (6) [Which recommends] Recommends the purchase or sale of any security unless the investment adviser or investment adviser representative simultaneously offers to furnish to any person [upon] 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) For the purpose of this section, the term ''advertisement'' includes any notice, circular, letter or other written communication addressed to more than one person or any notice or other announcement in any publication, by radio or television, or by electronic means, which offers:

 (1) Any analysis, report or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell.

 (2) Any graph, chart, formula or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell.

 (3) Any other investment advisory service with regard to securities.

 (c) For the purpose of this section, the term ''client'' means any person to whom the investment adviser or investment adviser representative has given investment advice for which the investment adviser or investment adviser representative has received compensation.

 (d)] (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 [(70 P.S. § 1-401(a) or (c) or 1-404)].

§ 404.011. Investment adviser brochure disclosure.

 (a) [Failure of an investment adviser to provide each] An investment adviser's failure to provide an advisory client or prospective advisory client with the disclosure required [by] 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 [by this section. The brochure and supplements shall] under this section which must contain the information required [by] 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) [Current] 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 [by] under this section shall be delivered in compliance with one of the following:

 (1) Not less than 48 hours [prior to] 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 [terminate] end the contract without penalty within 5 business days after entering into the contract.

 (e) An investment adviser shall[, at least once a year, without charge, deliver]:

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

 [If a client accepts a written offer, the investment adviser shall send to that client] (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 [renders] gives substantially different types of investment advisory services to different clients, the investment adviser may [provide them] do the following:

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

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

 (h) Except as provided by 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 [shall] must be a wrap fee brochure containing all the information required [by] under Form ADV. [Any additional information in a wrap fee brochure shall be limited to information applicable to wrap fee programs that the investment adviser sponsors.]

 (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 [amend]:

 (1) Amend its brochure and any brochure supplement [and deliver].

 (2) Deliver the amendments to clients promptly [when any information contained in the brochure or brochure supplement becomes materially inaccurate]. [The amendments shall be promptly filed with the Commission or with an investment adviser registration depository designated by the Commission.]

 (3) Promptly file the amendments with the Department or with an investment adviser registration depository designated by the Department.

 (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) For the purposes of this section, the following terms have the following meanings:

 (1) Client—A person to whom the investment adviser has given investment advice and for which the investment adviser has received compensation.

 (2) Entering into—In reference to an investment advisory contract, the term does not include an extension or renewal without material change of the contract which is in effect immediately prior to the extension or renewal.

 (3) Portfolio manager—The process of determining or recommending securities transactions for any portion of a client's portfolio.

 (4) Sponsor—An investment adviser that is compensated under a wrap fee program for administering, organizing or sponsoring the program, or for selecting or providing advice to clients regarding the selection of other investment advisers in the program.

 (5) Wrap fee program—A program under which a client is charged a specified fee or fees not based directly on transactions in a client's account for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and execution of client transactions.]

 (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) [Failure of an investment adviser] 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[, unless exempted, is registered under the act] 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 [pursuant to] under a written agreement to which the investment adviser is a party.

 (4) The written agreement required [by] under paragraph (3) [shall]:

 (i) [Describe] 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) [Contain] 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) [Require] 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 [by] under § 404.011 (relating to investment adviser brochure disclosure).

 (B) A separate written disclosure document which contains 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 [pursuant to] 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 [prior to] 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 [by] under § 404.011 and the solicitor's written disclosure document required [by] under paragraph (4)(iii)(B).

 (c) For purposes of subsection [(b)(4)] (b)(5), this section does not apply to an investment adviser [when the cash fee is paid to a solicitor] as follows:

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

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

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

 (ii) A partner, officer, director or [employe] 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 [employe] employee of the investment adviser or other person, is disclosed to the client at the time of the solicitation or referral.

 (d) [Nothing in this section relieves] This section does not relieve a person of a fiduciary or other obligation to which the person may be subject under the law.

 [(e) For purposes of this section, the following terms have the following meanings:

 (1) Client—Any prospective client.

 (2) Impersonal advisory services—Investment advisory services provided solely by means of one of the following:

 (i) Written materials or oral statements which do not purport to meet the objectives or needs of the specific client.

 (ii) Statistical information containing no expressions of opinions as to the investment merits of particular securities.

 (iii) Any combination of the foregoing services.

 (3) Solicitor—A person or entity who, for compensation, directly or indirectly, solicits a client for, or refers a client to, an investment adviser.]

§ 404.013. [Investment adviser custody or possession of funds or securities of clients] (Reserved).

 [(a) Failure of an investment adviser not registered as a broker dealer that has custody or possession of funds or securities in which any client has a beneficial interest to comply with the requirements of 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) that has custody or possession of funds or securities in which any client has any beneficial interest shall:

 (1) Notify the Commission in writing that the investment adviser has or may have custody. The notification shall be given on Form ADV.

 (2) Segregate the securities of each client marked to identify the particular client having the beneficial interest therein and held in safekeeping in some place reasonably free from risk of destruction or other loss.

 (3) Deposit all client funds, in one or more bank accounts containing only clients funds.

 (4) Maintain the accounts described in paragraph (3) in the name of the investment adviser as agent or trustee for the clients.

 (5) Maintain a separate record for each account described in paragraph (3) showing the name and address of the bank where the account is maintained, the dates and amounts of deposits in and withdrawals from the account, and the exact amount of each client's beneficial interest in the account.

 (6) Immediately after accepting custody or possession of funds or securities from a client, notify the client in writing of the place where and the manner in which the funds and securities will be maintained and subsequently, if and when there is a change in the place where or the manner in which the funds or securities are maintained, the investment adviser gives written notice thereof to the client.

 (7) At least once every 3 months, send each client or the client's authorized representative as defined in this section an itemized statement showing the funds and securities in the investment adviser's custody at the end of each period and all debits, credits and transactions in the client's account during that period or have a reasonable basis for believing that a qualified custodian will send an itemized statement to each client or the client's authorized representative during the same time interval containing substantially the same information.

 (8) At least once every calendar year, engage an independent certified public accountant to verify all client funds and securities by actual examination at a time chosen by the accountant without prior notice to the investment adviser. A report stating that an accountant has made an examination of the client funds and securities, and describing the nature and extent of the examination, must be filed with the Commission within 30 days after each examination.

 (c) When an independent certified public accountant makes an examination described in subsection (b)(8) and, upon examination, finds material discrepancies, the accountant shall notify the Commission within 1 business day of the finding by means of facsimile transmission or electronic mail, followed by first class mail, directed to the Commission's Division of Licensing.

 (d) For purposes of this section, a person will be deemed to have custody if the person directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.

 (e) For the purpose of this section, the following terms have the following meanings:

 Authorized representative—The person specified in a written authorization which the client has signed and filed with the investment adviser or qualified custodian authorizing the investment adviser or qualified custodian to deliver the client's account statements to that person.

 Qualified custodian—The following will be considered qualified custodians for purposes of this section:

 (i) A bank as that term is defined in section 102(d) of the act (70 P.S. § 1-102(d)).

 (ii) A Federally covered adviser as that term is defined in section 102(f.1) of the act.

 (iii) A broker dealer registered with the Commission under section 301 of the act.]

 (Editor's Note: The following section is new and printed in regular type to enhance readability.)

§ 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 [Commission] Department may [take such action as it deems]:

 (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).

 [The Commission may refer such] (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 [such a] the reference, institute appropriate criminal proceedings.

 (b) [Neither the act nor the rules and regulations adopted thereunder shall in any way] The act, and this part, do not limit the power of the Commonwealth to punish [any a person for any] 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) [or] 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 [Commission] Department action [shall be] are those applicable to registration by qualification[, except that it shall be noted] and a person shall note at the top of Form R that the offer is a rescission offer.

 (2) The [Commission may, upon] 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) [Compliance] The Department may waive compliance with the procedures in subsection (a) [is waived : (1) For] 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 the following conditions are met:

 (1) The person making the rescission offer [shall file] files the form designated by the [Commission] 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)) [which will be given to each rescission offeree, and the waiver request is not denied within one of the following time periods:].

 (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 [Commission which contains the items required in this paragraph] Department if the issuer is making the rescission offer for possible violations of section 201 of the act (70 P.S. § 1-201) and [neither] the issuer [nor] or a promoter, general partner of a limited partnership, managing general partner of a limited partnership, executive officer or director of the issuer [is] 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 [Commission which contains the items required in this paragraph] 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 [(70 P.S. § 1-504(e))], 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.

 [(2) For] (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:

 [(i)] (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 [Commission] Department.

 [(ii)] (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 [(70 P.S. § 1-203(c))].

 [(iii) Neither the] (3) The person making the rescission offer [nor], 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 [is] are not subject to the disqualifications in § 204.010(b).

 [(iv)] (4) The rescission offer is being made under section 504(d) of the act [(70 P.S. § 1-504(d))] or if a rescission offer is being made under section 504(e) of the act, the offeror [shall comply] 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.

 [(v) No public] (5) Public media advertising or general solicitation [was utilized] were not used in connection with the offer or sale of the securities subject to the rescission offer.

 [(vi) No mass mailings were utilized] (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 [SEC] Regulation D.

 [(vii)] (7) The person making the rescission offer provides to each offeree [the] disclosure [required by the anti-fraud] materials prepared to satisfy the antifraud provisions of section 401(b) of the act [(70 P.S. § 1-401(b))].

 [(viii)] (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 [Commission Form RO] Department Form RO which will be given to each rescission offeree.

 [(3) For] (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 [paragraph] 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:

 [(i) No person directly or indirectly received commissions] (1) A person did not receive commissions directly or indirectly for the sale of the securities subject to the rescission offer.

 [(ii) Neither the issuer nor] (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).

 [(iii)] (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 [Commission Form RO] Department Form RO which will be given to each rescission offeree.

 [(iv)] (4) The issuer provides to each offeree [the disclosure required by the anti-fraud] disclosure materials prepared to satisfy the antifraud provisions of section 401(b) of the act.

 [(v) No public] (5) Public media advertising or general solicitation [was utilized] were not used in connection with the offer or sale of the securities subject to the rescission offer.

 [(vi) No mass mailings were utilized] (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 [SEC] 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.

 [(c)] (f) A person making a rescission offer under this section [shall keep and maintain] 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 [copies]:

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

 (ii) Records of acceptances and rejections and records of cash disbursements to offerees who accepted the rescission offer[—for 3 years following the expiration of each rescission offer period].

 [Records] (3) Promptly furnish to the Department on request records concerning a rescission offer made in this Commonwealth under this section [shall be furnished promptly to the Commission upon request].

 [(d) For purposes of this section, the following terms have the following applications:

 (1) The term ''executive officer'' applies to, and includes, each person who serves as chief executive officer, chief operating officer or chief financial officer of a person.

 (2) The term ''general partner'' applies to one of the following:

 (i) A person who, under the terms of the limited partnership agreement, is designated a general partner of a limited partnership.

 (ii) A person who, under the terms of the limited partnership agreement, is designated as a managing general partner of a limited partnership.

 (e) This section also applies if rescission offers are being made as follows:]

 (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 [prior to] 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 [Commission] 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 [Commission] Department, by order, otherwise [prescribes] requires.

Subpart F. ADMINISTRATION

CHAPTER 601. ADMINISTRATION

§ 601.010. [Commission quorum; action; disqualification] (Reserved).

 [(a) For the purpose of computing the quorum required for actions, determinations or dispositions by the Commission: when a single Commissioner has disqualified himself or is otherwise not available, a quorum shall consist of the two remaining Commissioners; when two Commissioners have disqualified themselves, a quorum shall consist of the single remaining Commissioner; where all three members of the Commission have disqualified themselves, a hearing examiner shall be designated by the Commission and the hearing examiner's findings, conclusions and recommended order, determination or disposition shall be adopted by the Commission.

 (b) Hearings shall be held before the Commission, a member or members thereof, or a Hearing Examiner as provided in this chapter; Commission action, determinations or dispositions as a result of any hearing shall be made at any meeting of the Commission at which a quorum, determined as set forth in subsection (a) is present. Where a hearing has been conducted before less than the full three-member Commission, all Commissioners not present at any such hearing shall render their decision on the basis of a review of all pleadings, briefs and other papers filed in the matter and on the basis of the transcript and exhibits produced at such hearing.

 (c) Commissioners may disqualify themselves from participating in any hearing or decision thereon or in any other action, determination or disposition on grounds of prejudice and bias in a particular matter, or for other good cause.]

§ 601.020. [Secretary, Assistant secretaries] (Reserved).

 [(a) The Secretary of the Commission shall attend all meetings of the Commission; keep the minutes of such meetings in one or more books provided for that purpose; be custodian of the public records of the Commission and of all orders or other documents and instruments, the execution of which on behalf of the Commission under its seal is duly authorized in accordance with the provisions of the act and this part, sign orders, subpoenas, other documents and instruments the issuance and execution of which on behalf of the Commission shall have been duly authorized in accordance with the provisions of the act and the regulations adopted thereunder or as provided in an order, approval or other direction of the Commission; have general charge of the public files and public records of the Commission; and in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Commission. The Secretary shall keep in safe custody the seal of the Commission.

 (b) The Assistant Secretaries as thereunto authorized by the Commission may sign (under seal) orders, subpoenas and other documents and instruments the issuance and execution of which on behalf of the Commission is duly authorized in accordance with the provisions of the act and the regulations adopted thereunder or as provided in any order, approval, or other direction of the Commission.]

 (Editor's Note: The following section is new and printed in regular type to enhance readability.)

§ 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 above persons.

 (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. FEES

§ 602.022. [Denial for abandonment] (Reserved).

 [The Commission may order an application for registration of securities or an application for registration as a broker-dealer, investment adviser, agent or investment adviser representative denied upon the failure of the applicant, within 60 days after written notice warning the applicant that an application will be denied and deemed abandoned, to respond to any request for additional information required under the act or the provisions thereunder or otherwise to complete the showing required for action upon the application; or the applicant may with the consent of the Commission withdraw the application. Upon denial for abandonment, there shall be no refund of any filing fee paid prior to the date of abandonment.]

§ 602.060. [Charges for Commission publications] (Reserved).

 [Under section 602(f) of the act (70 P.S. § 1-602(f)), the Commission has fixed the following charges for publications, issued under its authority:

 (1) Compendium of Commission and Staff Positions, Summary of Significant Commission Orders and Compilation of Staff No-Action Letters (Compendium), including annual supplement service for the calendar year in which Compendium was purchased: $95.

 (2) Compendium Annual Supplement Service: $20 per annual subscription.

 (3) Orders for specific Compendium Supplements: $10 per Supplement.]

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 [Commission] Department shall be filed in the Harrisburg office of the [Commission] Department.

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

 [(c) A document or communication, if complete and properly executed in all material respects, will be deemed filed when it is received by the Commission.

 (d) No notice, statement, form or other document will be accepted for filing; no request for copies of documents will be granted; and no action will be taken by the Commission unless the filings and request are accompanied by the required fees or charges as provided by the act and this section.

 (e) Except as set forth in subsection (f), checks for payment of fees and charges shall be made payable to the order of ''Commonwealth of Pennsylvania'' and delivered or mailed to: Secretary, Pennsylvania Securities Commission; 1010 N. Seventh Street, Harrisburg, Pennsylvania 17102-1410.

 (f) 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 Commission by a member firm of the National Association of Securities Dealers, Inc. (NASD) with respect to an initial registration, renewal, amendment or withdrawal from registration as a broker-dealer shall be made solely with the Central Registration Depository (CRD) maintained by the NASD under an agreement and guidelines established by the North American Securities Administrators Association, Inc. and shall be mailed to: NASAA/NASD Central Registration Depository; Post Office Box 9401, Gaithersburg, Maryland 20898-9401. Documents and other communications required to be filed with the Securities Commission by a member firm of the NASD with respect to the initial registration, renewal, transfer or withdrawal from registration as an agent shall be made solely with the CRD at this address. Checks for payment of fees required by 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 ''National Association of Securities Dealers, Inc.'' and mailed with the documents to the address listed in this subsection. Filings made with the CRD under this subsection will be deemed as filed with the Commission.

 (g) In connection with notice filings relating to a Federally-covered security under section 211 of the act (70 P.S. § 1-211), notice forms may be filed electronically with the Commission as permitted by order of the Commission. In conjunction with an electronic filing, fees or assessments required under sections 602 or 602.1 of the act (70 P.S. §§ 1-602 and 1-602.1) shall be paid by means of an Automated Clearing House transfer of funds to the Commission's depository bank.

 (h) Required forms will be available on the Commission's website at www. psc.state.pa.us. In addition, forms are available in paper format from the Commission.]

 (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 website 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 [Commission] Department, members of the public may, [upon] on written request to do so, inspect at the [Commission's Harrisburg Office those] Department's Harrisburg office documents which are public records. The written request required [by] under this subsection shall set forth the public records to be inspected.

 (b) The [Commission] Department may withhold from public inspection those records which it determines are excluded from the definition of ''public records'' in section [1 of the act of June 21, 1957 (P.L. 390, No. 212) (65 P.S. § 66.1(2)), known as the Right-to-Know Law] 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 [Commission] Department may accompany the statement, application, notice or report and specify the reasons for the request[; the material].

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

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

 (d) [Nothing in this section may be deemed to] This section does not make available for public inspection [books,] the following:

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

 [In addition, no minutes,] (2) Minutes, documents or other memoranda of the [Commission] Department or of the staff which deal with or concern the institution, maintenance or termination of an investigation [may be available for public inspection].

 (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 [shall be] 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 [shall be] 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 [deemed] considered confidential under paragraph (1) [shall be] are available for official use by [an]:

 (i) An official or [employe] employee of the government of the United States or a state[, by a].

 (ii) A National Securities Exchange or registered National securities association of which the person filing the financial statements is a member[, and by other].

 (iii) Other persons whom the [Commission] Department authorizes disclosure of the information as being in the public interest.

 [Nothing in this subsection may be deemed to be] (3) This section is not in derogation of the rules of a registered National Securities Exchange or registered National securities association which give customers of a member broker or dealer the right, [upon] on request to the member broker or dealer, to obtain information relative to its financial condition.

 (f) The [Commission has determined to treat confidential] Department will treat the following information [which will] as confidential and not be available for public inspection under any provision of the act and [which the Commission deems] considers the information excluded from the definition of ''public records'' in section [1(2)] 102 of the Right-to-Know Law:

 (1) The Social Security number[,] and date of birth [and home address] 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 thereto], Form U-4 or successor form, required to be filed with the [Commission] Department under § 303.013 or § 303.014 (relating to agent registration procedures; and investment adviser representative registration procedures).

 (2) The Social Security number[,] and date of birth [and home address] 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 thereto], Form ADV or successor form, required to be filed with the [Commission] Department or an investment adviser registration depository designated by [order of the Commission] the Department 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 [and home address] 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 Form ADV or successor forms thereto], Form BD, Form ADV or successor forms. [For purposes of this section, the term ''principal'' has the meaning as set forth in § 303.012(e).]

§ 603.040. Charges for [Commission] Department services.

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

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

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

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

CHAPTER 604. [INTERPRETATIVE OPINIONS OF COMMISSION—STATEMENT OF POLICY] (Reserved)

 (Editor's Note: As part of this proposed rulemaking, the Department is proposing to rescind Chapter 604 which appears in 10 Pa. Code pages 604-1—604-14, serial pages (364811)—(364824).)

§§ 604.010—604.012. (Reserved).

§§ 604.016—604.023. (Reserved).

CHAPTER 605. [COMMISSIONERS AND COMMISSION] DEPARTMENT EMPLOYEES; RELATIONSHIP WITH LICENSED PERSONS OR QUALIFIED ORGANIZATIONS

§ 605.020. Conflict of interest.

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

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

 (2) [the] 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.] U.S.C.A. § 80a-2) which have been registered with the [Commission under sections 205 or 206 of the act (70 P.S. §§ 1-205 or 1-206)] Department under section 205 or 206 of the act.

 (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 [employe of the Commission] employee of the Department which is not permitted by subsection (a), [such employe] the employee may present a formal request to the [Commission] Department for permission to hold or purchase [such] the securities.

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

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

 (c) [No employe of the Commission shall] 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 [such] the security would [be violative of] violate any other applicable [conflict-of-interest] conflict of interest statute or regulation.

CHAPTER 606. MISCELLANEOUS POWERS OF [COMMISSION] 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) [or] and (p)), or registered under [sections] 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 [shall] 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 [none of] the financial statements delivered to offerees were not required to be audited or if [no] the financial statements were not required to be given to the offerees, the financial statements [need not] 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 [United States] 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 [any] an advertisement concerning [any] 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 [prior to] 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 [Commission] Department under section 205 or 206 of the act (70 P.S. [§ 1-205 or § 1-206] §§ 1-205 and 1-206) that has not yet become effective.

 (1) In connection with a registration statement filed with the [Commission] 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 [prior to] 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 [United States] Securities and Exchange Commission [(SEC)].

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

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

 (2) In connection with an offering circular for the offer and sale of securities in this Commonwealth filed with the [SEC] 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 [Commission] 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 [SEC prior to] Securities and Exchange Commission before effectiveness of the offering circular under the act if the following conditions are met:

 (i) The advertisement is filed with the [Commission] Department 10 days before publication in this Commonwealth [and, prior to the expiration of the 10-day period, the Commission does not issue a letter disallowing its 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 [Commission] 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 [SEC] 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 $1,000,000) promulgated by the [SEC] Securities and Exchange Commission under section 3(b) of the Securities Act of 1933, a person may publish an advertisement in this Commonwealth [prior to] 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 [Securities Commission] Department of Banking and Securities but has not yet become effective. These securities may not be sold nor may offers to buy be accepted [prior to] 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 [prior to] before registration of the securities under the Pennsylvania Securities Act of 1972.''

 (ii) The advertisement is filed with the [Commission] Department 10 days before publication in this Commonwealth [and, prior to the expiration of the 10-day period, the Commission does not issue a letter disallowing its 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 [Commission] 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 [SEC] 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 [Commission] Department under section 205 or 206 of the act and has been qualified by the [SEC] 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 [Commission] 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 [SEC] Securities and Exchange Commission in reliance on section 3(a)(4) or [3(a)(11)] (11) of the Securities Act of 1933 and regulations promulgated thereunder or Rule 504 (17 CFR 230.504) promulgated by the [SEC] 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 [Commission] Department 5 days before publication in this Commonwealth [and, prior to the expiration of the 5-day period, the Commission does not issue a letter disallowing 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 202(i). 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). 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 [thereof] 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 [shall] 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). 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 [where the Commission] if the Department, by rule or order, has prohibited use of advertisements as a condition of the availability of the exemption.

 (e) Exempt transactions. 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 [Commission] Department, by rule or order, has prohibited use of advertisements as a condition of the availability of the exemption.

 (f) Excluded advertisements. 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) [The use of general] 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 [SEC] Securities and Exchange Commission (17 CFR 230.135) (relating to notice of proposed registered [offering] offerings).

 (iii) Advertisements which comply with Rule 135c promulgated by the [SEC] 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)(E) and (F) of the Securities Act of 1933 (15 U.S.C.A. § 77r(b)(4)(E) and (F)) where 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).

 [(g) Definitions. For purposes of this chapter, the following terms have the following meanings:

 Advertisement—The meaning in section 102(a) of the act (70 P.S. § 1-102(a)). The term ''communication'' as used in that definition includes, without limitation, letters, brochures, pamphlets, displays, sales literature and any form of electronic communication, including e-mail, which is used in connection with a sale or purchase or an offer to sell or purchase a security. The term ''publicly disseminated'' as used in that definition means that the communication has been directed to or, in fact, communicated to more than 50 persons in this Commonwealth.

 Publish—The meaning in section 102(p) of the act and includes any form of electronic communication, including Internet and e-mail.

 (h) SEC] (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 [Commission] Department under section 205 or 206 of the act and with the [SEC] Securities and Exchange Commission under section 5 of the Securities Act of 1933 [(15 U.S.C.A. § 77e)] may rely on the interpretive advice of the [SEC] Securities and Exchange Commission in [SEC] Release No. 33-7856 (April 28, 2000) and subsequent advice given [pursuant to] under that release. To the extent that the interpretive advice contradicts any requirement in subsection (a)(1) or (b)(1), the [Commission] Department will not take any enforcement action if the person complies with the interpretive advice.

§ 606.041. [Delegation and substitution] (Reserved).

 [(a) The Commission delegates to the Director and Assistant Directors of the Division of Enforcement, Litigation and Compliance:

 (1) The powers in section 510(a)(i)—(iii), (b), except for hearings, and (c) of the act (70 P.S. § 1-510(a)(i)—(iii), (b) and (c)) and the authority to close, vacate, modify or amend an action authorized under this paragraph.

 (2) The power to commence an administrative proceeding against a person under 1 Pa. Code §§ 35.14 and 35.37 (relating to orders to show cause; and answers to orders to show cause) and the authority to vacate, modify or amend an order to show cause issued under this paragraph. A hearing will not be held, nor will a remedial or disciplinary order issue following upon the institution of the proceedings, except upon the express order of the Commission.

 (3) The power exercisable by the Commission under section 606(c) of the act (70 P.S. § 1-606(c)) to issue a summary order to cease advertising and the authority to vacate, modify or amend a summary order to cease advertising issued under this paragraph.

 (4) The power exercisable under section 606(c.1) of the act to issue a cease and desist order against a registered broker-dealer or investment adviser when the registrant is engaging in an act or practice which constitutes a violation of § 304.011(e) or § 304.012(e) (relating to broker-dealer required records; and investment adviser required records) by refusing to make available for inspection by Commission staff acting under the examination authority in section 304(d) of the act (70 P.S. § 1-304(d)), the records specified in §§ 304.011 or 304.012.

 (5) The power to institute a proceeding under sections 512—514 of the act (70 P.S. §§ 1-512—1-514) to do one of the following:

 (i) Impose a statutory bar under section 512 of the act (70 P.S. § 1-514).

 (ii) Mandate a rescission offer under section 513 of the act (70 P.S. § 1-513).

 (iii) Compel the return of sales commissions under section 514 of the act (70 P.S. § 1-514).

 (b) The Commission delegates to the Director of the Division of Licensing:

 (1) The power exercisable under section 303(a)(ii) of the act (70 P.S. § 1-303(a)(ii)) to order applications for registration filed under section 303 of the act to become effective on any day earlier than the 45th day after the filing of the application or material amendment thereto as the Director may determine. For purposes of this paragraph, the term ''application'' means an application for either an initial or renewal license.

 (2) The power exercisable under section 609(a) of the act (70 P.S. § 1-609(a)) to waive the provisions of §§ 303.031 and 303.032 (relating to examination requirement for agents; and examination requirements for investment advisers and investment adviser representatives).

 (3) The power exercisable under section 305(f) of the act (70 P.S. § 1-305(f)) to order applications to withdraw from the status of a registered broker-dealer, agent, investment adviser or investment adviser representative to become effective on any day earlier than the 30th day after the filing of the application.

 (4) The power exercisable under 1 Pa. Code § 33.42(a) (relating to withdrawal or termination) for proceedings under section 303 of the act.

 (5) The power exercisable under section 609(f) of the act (70 P.S. § 1-609(f)) with respect to applications for registration of a broker-dealer, agent, investment adviser or investment adviser representative. For purposes of this paragraph, the term ''application'' means an application for either an initial or renewal license.

 (6) The power exercisable under section 303(a)(i) of the act to grant a waiver of any requirement imposed under section 303(a)(i) of the act or section 304 of the act (70 P.S. § 1-304) or any regulation promulgated thereunder and impose conditions on, or limit the scope of, an initial or renewal license of a broker-dealer, agent, investment adviser or investment adviser representative.

 (7) The power exercisable under section 603(c) of the act (70 P.S. § 1-603(c)) and § 603.031(c) (relating to public inspection of records) to treat documents filed with the Division of Licensing as temporarily confidential until the close of the Commission meeting at which the request for confidentiality is acted upon by the Commission.

 (8) The power exercisable under section 609(a) of the act to order a broker-dealer, agent, investment adviser or investment adviser representative registered under section 301 of the act (70 P.S. § 1-301) to furnish material information reasonably related to the registration.

 (9) The power exercisable under sections 303(a)(i) and 609(a) of the act to order an applicant for registration as a broker-dealer, agent, investment adviser or investment adviser representative under section 301 of the act to furnish material information reasonably related to the application.

 (10) The power exercisable under § 303.051(a) and (b) (relating to surety bonds).

 (11) The power exercisable under section 305(d) of the act to issue a summary order with respect to an application for registration.

 (c) The Commission delegates to the Director of the Division of Corporation Finance:

 (1) The power exercisable under section 206(c) of the act (70 P.S. § 1-206(c)) to order effective a registration statement filed under section 206 of the act for securities that have met the requirements for registration under the Mid-Atlantic Regional Review Protocol for Small Corporate Offering Registrations.

 (2) The power exercisable under section 204(b) of the act (70 P.S. § 1-204(b)) to:

 (i) Issue summary orders denying or revoking exemptions from registration under section 202 or 203 of the act (70 P.S. § 1-202 or § 1-203).

 (ii) Modify or vacate the summary orders.

 (3) The power exercisable under section 609(f) of the act (70 P.S. 1-609(f)) with respect to applications for registration of securities.

 (4) The power exercisable by the Commission to waive the provisions of § 504.060(a) and (b) (relating to rescission offers) when:

 (i) The securities which are the subject of the rescission offer being made in this Commonwealth were sold to and purchased by no more than 35 persons during 12 consecutive months.

 (ii) Disclosure satisfying the anti-fraud provisions of section 401(b) of the act (70 P.S. § 1-401(b)) will be given to a rescission offeree.

 (5) The power exercisable under section 206(c) of the act to order effective a registration statement filed under section 206 of the act for securities of an issuer which meets all of the following:

 (i) The issuer is an entity described in section 202(e)(i) of the act (70 P.S. § 1-202(e)(i)).

 (ii) The issuer has not registered the securities with the United States Securities and Exchange Commission under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) in good faith reliance on section 3(a)(4) thereof (15 U.S.C.A. § 77c(4)).

 (iii) The issuer, within the immediately preceding 18 months, had an effective registration statement with the Commission for similar securities.

 (iv) The registration statement complies with the Statement of Policy Regarding General Obligation Financing by Religious Denominations adopted by the North American Securities Administrators Association (April 17, 1994) or any successor statement of policy.

 (v) The issuer has not requested a waiver of any provision of the act or rule or order thereunder that otherwise would apply to the registration statement.

 (vi) The issuer or any affiliate of the person currently is not subject or, within the past 10 years, was not subject to any of the following:

 (A) An order described in section 305(a)(iv) of the act.

 (B) An injunction described in section 305(a)(iii) of the act.

 (C) A criminal conviction described in section 305(a)(ii) of the act.

 (D) An order of the Commission issued under section 512 of the act (70 P.S. § 1-512).

 (E) A court order finding civil contempt under section 509(c) of the act (70 P.S. § 1-509(c)).

 (F) An order of the Commission imposing an administrative assessment under section 602.1 of the act (70 P.S. § 1-602.1) which has not been paid in full.

 (6) The power exercisable under section 210 of the act (70 P.S. § 1-210) to grant effectiveness to an application filed under § 210.010 (relating to retroactive registration of certain investment company securities).

 (7) The power exercisable under 1 Pa. Code § 33.42(a) (relating to withdrawal or termination) for proceedings under section 202, 203, 205 or 206 of the act.

 (8) The power exercisable under section 603(c) of the act and § 603.031(c) to treat documents filed with the Division of Corporation Finance as temporarily confidential until the close of the Commission meeting at which the request for confidentiality is acted upon by the Commission.

 (9) The power exercisable under section 206(c) of the act to order effective a registration statement filed with the Commission under section 206 of the act by an issuer which also has a currently effective registration statement for the same securities on file with the SEC.

 (10) The power exercisable under section 211 of the act (70 P.S. § 1-211) to:

 (i) Issue a stop order suspending the offer or sale of any security described in section 211(b) or (c).

 (ii) Modify or vacate a stop order.

 (11) The power exercisable under section 207(l) of the act (70 P.S. § 1-207(1)) to declare effective an amendment to any currently effective registration statement relating to the increase in the specified amount of securities proposed to be offered in this Commonwealth, if the applicable filing fee, if any, required by section 602(b.1) of the act (70 P.S. § 1-602(b.1)) has been paid.

 (12) The power, exercisable under § 606.031(b)(2), (3)(ii) and (c)(3)(ii) (relating to advertising literature) to issue a letter disallowing publication of an advertisement in this Commonwealth in connection with the offer or sale of a security in this Commonwealth.

 (d) The Commission delegates to the Chief Accountant the power to waive, in a filing with the Commission, a nonmaterial technical financial statement noncompliance with a provision relating to the form and content of financial statements.

 (e) The Commission authorizes the following:

 (1) The Chief Counsel, Deputy Chief Counsel or the Assistant Director of the Division of Corporation Finance may exercise the delegations given in this section in the absence of the Director of the Division of Corporation Finance.

 (2) The Chief Counsel and Deputy Chief Counsel may exercise the delegations given in this section in the absence of the Director of the Division of Licensing.]

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