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Delaware General AssemblyDelaware RegulationsMonthly Register of RegulationsNovember 2016

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Regulatory Flexibility Act Form

Authenticated PDF Version

The Investor Protection Unit (hereinafter, the “Unit”) was created in 1973 with the passage of the Delaware Securities Act (hereinafter, the “Act”), which is found at Chapter 73 of Title 6 of the Delaware Code. The Act is administered by the Attorney General through a Deputy Attorney General designated to act as Investor Protection Director (hereinafter, the “Director”). The Director is the principal executive officer of the Unit and acts for the Attorney General in administering the Act. The purpose of the Act is to prevent the public from being victimized by unscrupulous or over-reaching broker-dealers, investment advisers or agents in the context of selling securities or giving investment advice, as well as to remedy any harm caused by securities law violations.
(d) For the purposes of these Rules, the “Presiding Officer” shall mean either the Director or the individual to whom the Director has delegated his or her authority pursuant to Rule 202 in a particular administrative proceeding commenced under the Act, as the case may be.
(a) Representing oneself. In any proceeding, an individual may appear on his or her own behalf.
(b) Representing others. In any proceeding, a person may be represented by an attorney at law admitted to practice before the Supreme Court of the State of Delaware. Attorneys who are not members of the Delaware Bar may be admitted pro hac vice pursuant to Rule 72 of the Rules of the Supreme Court of the State of Delaware as set forth in paragraph (c), below.
(c) Requirement of Delaware Counsel. Pursuant to Rule 72(a) of the Delaware Supreme Court Rules, attorneys who are not members of the Delaware Bar may be admitted pro hac vice in a proceeding in the discretion of the administrative Presiding Officer upon written motion by a member of the Delaware Bar who maintains an office in this State for the practice of law ("Delaware Counsel"). Pursuant to Delaware Supreme Court Rule 72(c), Delaware Counsel for any party shall appear in the matter for which admission pro hac vice is filed and shall sign or receive service of all notices, orders, pleadings or other papers filed in the matter and shall attend all proceedings before the Presiding Officer, unless excused by that Presiding Officer.
(d) Designation of address for service; notice of appearance; power of attorney; withdrawal.
(1) Representing oneself. When an individual first makes any filing or otherwise appears on his or her own behalf before a Presiding Officer in a proceeding, he or she shall file with the Director or otherwise state on the record, and keep current, an address at which any notice or other written communication required to be served upon him or her or furnished to him or her may be sent and a telephone number where he or she may be reached during business hours.
(2) Representing others. When a person first makes any filing or otherwise appears in a representative capacity before a Presiding Officer in a proceeding, that person shall file with the Director, and keep current, a written notice stating the name of the proceeding; the representative's name, business address and telephone number; and the name and address of the person or persons represented.
(3) Power of attorney. Any individual appearing or practicing before a Presiding Officer in a representative capacity may be required to file a power of attorney with the Director showing his or her authority to act in such capacity.
(4) Withdrawal. Withdrawal by any individual appearing in a representative capacity shall be permitted only by written order of the Presiding Officer. A motion seeking leave to withdraw shall state with specificity the reasons for such withdrawal.
(e) Procedures for Revocation.
(1) The Director may revoke a delegation of a proceeding at any time before a ruling on a substantive issue by the Presiding Officer, or the taking of oral testimony from the first witness, whichever is earlier.
(2) The Director shall issue a written notice of revocation that states briefly the reason for the revocation and specifies whether all or part of the delegation has been revoked. If only part of the delegation has been revoked, the Director shall specify in the notice of revocation the portions of the proceeding for which the delegation has been revoked.
(4) A decision issued by the Director shall reflect the revocation of delegation, and a copy of the revocation notice shall be included as part of the record.
(f) Withdrawal of Delegation with Consent of Parties. The Director may withdraw all or part of a delegation of a case as to a respondent at any time with the consent of that respondent and the Unit.
(a) Notice of disqualification. At any time a Presiding Officer believes himself or herself to be disqualified from considering a matter, the Presiding Officer shall issue a notice stating that he or she is withdrawing from the matter and setting forth the reasons therefor.
(b) Motion for Withdrawal. Any party who has a reasonable, good faith basis to believe that a Presiding Officer has a personal bias, or is otherwise disqualified from hearing a proceeding, may make a motion to the Presiding Officer that the Presiding Officer withdraw. The motion shall be accompanied by an affidavit setting forth in detail the facts alleged to constitute grounds for disqualification. If the Presiding Officer finds himself or herself not disqualified, he or she shall so rule and shall continue to preside over the proceeding.
(a) Availability for inspection. Each order, decision, and proposed decision of a Presiding Officer shall be available for inspection by the public from the date of entry, unless the order or decision is nonpublic. A nonpublic order or decision shall be available for inspection by any person entitled to inspect it from the date of entry.
(b) Date of entry of orders. The date of entry of an order shall be the date the order is signed. Such date shall be reflected in the order.
(a) Generally. Unless made during a hearing or conference, a motion shall be in writing, shall state with particularity the grounds therefor, shall set forth the relief or order sought, and shall be accompanied by a written brief of the points and authorities relied upon. All written motions shall be served in accordance with Rule 210, be filed in accordance with Rule 211, meet the requirements of Rule 212, and be signed in accordance with Rule 213. The Presiding Officer may order that an oral motion be submitted in writing. Unless otherwise ordered by the Presiding Officer, if a motion is properly made, the proceeding shall continue pending the determination of the motion. No oral argument shall be heard on any motion unless the Presiding Officer otherwise directs.
(b) Opposing and reply briefs. Briefs in opposition to a motion shall be served and filed within ten days after service of the motion. Reply briefs shall be served and filed within three days after service of the opposition.
(c) Length limitation. A brief in support of or opposition to a motion shall not exceed ten pages, exclusive of pages containing any table of contents, table of authorities, and/or addendum.
(d) Interim orders. The Presiding Officer shall rule on motions and make such other interim orders as are necessary and appropriate.
(a) When required. In every administrative proceeding, each paper, including each notice of appearance, written motion, brief, or other written communication, shall be served upon each party in the proceeding in accordance with the provisions of this section; provided, however, that absent an order to the contrary, no service shall be required for motions which may be heard ex parte.
(b) Upon a person represented by counsel. Whenever service is required to be made upon a person represented by counsel, service shall be made pursuant to paragraph (c) of this section upon counsel at the address listed on the notice of appearance filed pursuant to Rule 201, unless service upon the person represented is ordered by the Presiding Officer.
(c) How made. Service shall be made by delivering a copy of the filing. Delivery means:
(d) When service is complete. Personal service, service by U.S. Postal Express Mail or service by commercial courier or express delivery service is complete upon delivery. Service by mail is complete upon mailing. Service by e-mail or facsimile is complete upon confirmation of transmission by delivery of a receipt or other agreed-to method of confirmation.
(e) "Long-arm" service of process to initiate a proceeding. Any service of process that would be effective to create personal jurisdiction in the Superior Court under Section 3104 of Title 10 of the Delaware Code shall be effective to create personal jurisdiction in the Department of Justice administrative forum under these Rules.
(a) When to file. All papers required to be served by a party upon any person shall be filed with the Director at the time of service or promptly thereafter. Papers required to be filed with the Director must be received within the time limit, if any, for such filings.
(b) Where to file. Filing of papers with the Director shall be made by filing the original papers with the Director and (unless the Director is the Presiding Officer) one copy with the Presiding Officer.
(c) To whom to direct the filing. All motions, objections, applications or other filings made during a proceeding shall be directed to and decided by the Presiding Officer.
(d) Certificate of service. Papers filed with the Director and the Presiding Officer shall be accompanied by a certificate stating the name of the person or persons served, the date of service, the method of service and the mailing address, e-mail, or facsimile telephone number to which service was made, if not made in person.
(a) Specifications. Papers filed in connection with any administrative proceeding shall:
(b) Signature required. All papers must be dated and signed as provided in Rule 213.
(c) Suitability for recordkeeping. Documents which, in the opinion of the Director, are not suitable for computer scanning may be rejected.
(d) Form of briefs. All briefs containing more than ten pages shall include a table of contents, an alphabetized table of cases, a table of statutes, and a table of other authorities cited, with references to the pages of the brief wherein they are cited.
(e) Scandalous or impertinent matter. Any scandalous or impertinent matter contained in any brief or pleading or in connection with any oral presentation in a proceeding may be stricken on order of the Presiding Officer.
(a) General requirements. Every filing of a party represented by counsel shall be signed by Delaware Counsel of record in his or her name and shall state that counsel's business address, e-mail address, and telephone number. A party who acts as his or her own counsel shall sign his or her individual name and state his or her address, e-mail address, and telephone number on every filing.
(b) Effect of signature.
(a) Computation. In computing any period of time prescribed in or allowed by these Rules or by order of the Presiding Officer, the day of the act, event or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included unless it is a Saturday, Sunday or State legal holiday, in which event the period runs until the end of the next day that is not a Saturday, Sunday or State legal holiday. Intermediate Saturdays, Sundays and State legal holidays shall be excluded from the computation when the period of time prescribed or allowed is seven days or less, not including any additional time allowed for service by mail in paragraph (b) of this section. If on the day a filing is to be made, weather or other conditions have caused the designated filing location to close, the filing deadline shall be extended to the end of the next day that is neither a Saturday, Sunday nor State legal holiday.
(b) Additional time for service by mail. If service is made by mail, three days shall be added to the prescribed period for response.
If the Unit believes that any person is violating or has violated any provision of the Act or any rule, order, or condition lawfully imposed thereunder, it may issue a complaint as set forth in Rule 221. The complaint shall be served on each party as provided in Rule 210 and filed at the time of service with the Director pursuant to Rule 211. The service and filing of the complaint constitutes the commencement of the administrative proceeding. As set forth in Rule 225A, upon the filing of a complaint, the Director shall give notice to the Attorney General (or his or her designee) that the complaint has been filed and request that the Attorney General (or his or her designee) appoint a Presiding Officer to hear the matter, unless the Director decides to act as the Presiding Officer in the proceeding or the Unit’s complaint has requested that the Director act as the Presiding Officer in the proceeding.
(a) At any time prior to the filing of a responsive pleading or the commencement of a hearing (whichever is earlier), the Unit may amend a complaint to include new matters of fact or law. After the filing of a responsive pleading or the commencement of a hearing, upon motion by the Unit, the Presiding Officer may permit amendment of a complaint to include new matters of fact or law.
(b) At any time prior to the filing of a responsive pleading or the commencement of a hearing (whichever is earlier), the Unit may withdraw its complaint. Such withdrawal shall be without prejudice to refiling, and the Unit shall be permitted to file a complaint based on allegations concerning the same facts and circumstances that are set forth in the withdrawn complaint. The Unit may withdraw its complaint after the filing of a responsive pleading or commencement of a hearing; however, upon motion of the respondent, the Presiding Officer, after considering the facts and circumstances of the withdrawal, shall determine whether the withdrawal shall be with prejudice.
(a) Form, service, notice. Each respondent named in a complaint shall answer and serve an answer to the complaint on the Unit, all other parties, and the Presiding Officer within 25 days after service of the complaint on such respondent pursuant to Rule 210 and at the time of service file such answer with the Director pursuant to Rules 211, 212 and 213. The Presiding Officer may extend such period for good cause.
(b) Content, affirmative defenses. Unless otherwise ordered by the Presiding Officer, an answer shall specifically admit, deny, or state that the respondent does not have and is unable to obtain sufficient information to admit or deny each allegation in the complaint. When a respondent intends to deny only part of an allegation, the respondent shall specify so much of it as is admitted and deny only the remainder. A statement of lack of information shall be deemed a denial. Any allegation not denied shall be deemed admitted. Any affirmative defense shall be asserted in the answer.
(c) Amendments to Answer. Upon motion by a respondent, the Presiding Officer may permit an answer to be amended.
(d) Extension of Time to Answer Amended Complaint. If a complaint is amended pursuant to Rule 222, the time for filing an answer or amended answer shall be extended to 10 days after service of the amended complaint. If any respondent has already filed an answer, such respondent shall have 15 days after service of the amended complaint, unless otherwise ordered by the Presiding Officer, within which to file an amended answer.
(e) Failure to Answer, Default.
(a) Investor Protection Unit Request for Hearing. With the filing of its complaint or at any time later, the Unit may request a hearing. The Unit may request that the hearing be convened within a specified time after the filing of the complaint, but in no event shall that hearing be required to be held earlier than 30 days after service and filing of the complaint other than in summary proceedings under the Act.
(b) Respondent Request for Hearing. With the filing of respondent's answer such respondent may request a hearing. If a respondent requests a hearing, a hearing shall be granted. A respondent who fails to request a hearing with the filing of his or her answer waives the right to a hearing unless the Presiding Officer grants, for good cause shown, a later filed motion by such respondent requesting a hearing.
(c) Presiding Officer Order Requiring Hearing. Any complaint may be set down for a hearing upon order of the Presiding Officer. The Presiding Officer may set a complaint for hearing in the absence of a request for hearing by any party.
(d) Notice of Hearing. The Presiding Officer shall issue a notice stating the date, time and place of the hearing, and shall serve such notice on the parties at least 28 days before the hearing, unless in the discretion of the Presiding Officer, he or she determines that extraordinary circumstances require a shorter notice period, or the parties waive the notice period.
(a) Purpose of conferences. The purpose of prehearing conferences include, but are not limited to:
(b) Procedure. On his or her own motion or at the request of a party, the Presiding Officer may, in his or her discretion, direct counsel or any party to meet for an initial, final or other prehearing conference. Such conferences may be held with or without the Presiding Officer present as the Presiding Officer deems appropriate. Where such a conference is held outside the presence of the Presiding Officer, the Presiding Officer shall be advised promptly by the parties of any agreements reached. Such conferences also may be held with one or more persons participating by telephone or other remote means.
(c) Subjects to be discussed. At a prehearing conference consideration may be given and action taken with respect to any and all of the following:
(d) Prehearing orders. At or following the conclusion of any conference held pursuant to this section, the Presiding Officer shall enter a ruling or order which recites the agreements reached and any procedural determinations made by the Presiding Officer.
(e) Failure to appear: default. Any person who is named as a respondent in a complaint and who fails to appear, in person or through a representative, at a prehearing conference of which he or she has been duly notified may be deemed in default pursuant to Rule 252(a). A party may make a motion to set aside a default pursuant to Rule 252(b).
(f) Pre-hearing submissions. In connection with the pre-hearing conference, the Presiding Officer, on his or her own motion or at the request of a party, may order any party to furnish such information as deemed appropriate.
(a) Unless otherwise ordered by the Presiding Officer, no later than 20 days prior to the date of the hearing the Unit shall submit to each respondent and to the Presiding Officer copies of all documentary evidence and the names of the witnesses the Unit intends to present in its case-in-chief at the hearing. Unless otherwise ordered, no later than 10 days prior to the date of the hearing each respondent shall submit to the Unit and to the Presiding Officer all documentary evidence and the names of the witnesses the respondent intends to present at the hearing. If a party intends to use the testimony of an expert witness, that party shall include as part of its documentary production a curriculum vitae or statement of the expert's qualifications and a written summary of the expert’s opinions on the topic of the intended testimony.
(a) Objections. Objections to the admission or exclusion of evidence must be made on the record and shall be in short form, stating the grounds relied upon. Exceptions to any ruling thereon by the Presiding Officer need not be noted at the time of the ruling. Such exceptions will be deemed waived on appeal to the Court of Chancery, however, unless raised in a proposed finding or conclusion filed pursuant to Rule 248.
(b) Offers of proof. Whenever evidence is excluded from the record, the party offering such evidence may make an offer of proof, which shall be included in the record. Excluded material shall be retained pursuant to Rule 249.
(a) Contents of the record. The record shall consist of:
(b) Retention of documents not admitted. Any document offered in evidence but excluded, and any document marked for identification but not offered as an exhibit, shall not be considered a part of the record but shall be retained until the later of the date upon which an order ending the proceeding becomes final, or the conclusion of any judicial review of the Director’s or Presiding Officer’s order.
(c) Substitution of copies. A true copy of a document may be substituted for any document in the record or any document retained pursuant to paragraph (b) of this section.
251 Final Decision After a Hearing
A summary order may be issued, either on the initiative of the Director or upon application of the Unit, denying or revoking any exemption claimed under Sections 73-207(a)(9), (a)(11), or (b)(1)-(13) of the Act, whenever it appears that such exemption is inapplicable, either generally or with respect to a specific security or transaction.
A summary order may be issued, either on the initiative of the Director or upon application of the Unit, postponing or suspending the registration of a broker-dealer, broker-dealer agent, investment adviser or investment adviser representative if such an order is in the public interest and the applicant or registrant or, in the case of a broker-dealer or investment adviser, any partner, officer, director, or any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer or investment adviser:
(f) is the subject of an order entered within the past ten years by the securities administrator of any other state, a state authority that supervises or examines banks, saving associations, or credit unions, a state insurance commission (or any agency or office performing like functions), the Securities and Exchange Commission, FINRA (or any agency or office performing like function), an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or the National Credit Union Administration, either ordering the person to cease and desist from engaging in or continuing any conduct or practice involving any aspect of the securities business, or suspending, denying or revoking registration (or similar punitive action) as a broker-dealer, broker-dealer agent, investment adviser or investment adviser representative or the substantial equivalent of those terms as defined in the Act and these Rules; or is suspended or expelled from or found to have violated a rule of a national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. §78, et seq.) either by action of a national securities exchange or national securities association, the effect of which action has not been stayed by administrative or judicial order; or is the subject of a United States post office fraud order; or is subject to a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct; or
(a) Procedure. A summary order may be issued either on the initiative of the Director or upon application of the Unit to the Director in the form of an administrative complaint filed by the Unit.
(b) Information required with application. Where the Unit has requested the issuance of a summary order upon application to the Director, the administrative complaint shall: set forth a statement of the facts upon which the application is based, together with supporting documentation; cite to the relevant statutory provision or rule that each respondent is alleged to have violated; and state the summary relief sought against each respondent. The application shall include a proposed order imposing the summary relief sought and notifying respondent of the right to a hearing provided in Rule 265.
(c) Record of proceedings. A record from which a verbatim transcript can be prepared shall be made of all hearings, including ex parte presentations made by the Unit.
(a) Notice. Any person who is the subject of a summary order shall promptly be given notice of that order and of the reasons therefor. Notice shall be given by means reasonably calculated to give actual notice of issuance of the order, including telephone notification and service of the order pursuant to Rule 210. Such notice shall include notification that the subject of the order may request a hearing and that if such a request is made in writing the hearing shall be scheduled within 15 days from the date the written request is received.
(b) Request for hearing. Any person who is the subject of a summary order may request a hearing before a Presiding Officer on an application to set aside, limit or suspend the summary order. The request for hearing is to be filed with the Director and served on the Unit within 25 days of service of the notice of the order. If a hearing is requested, a Presiding Officer will be selected in accordance with the procedures set forth in Rule 225A.
(c) Procedure at hearing. The procedure at a hearing on a summary order shall be determined by the Presiding Officer, with the understanding that each party shall be entitled to be heard in person or through counsel. The Presiding Officer shall rule on the admissibility of evidence and other matters, including, but not limited to: whether oral testimony will be heard; the time allowed each party for the submission of evidence or argument; and whether post-hearing submission of briefs and/or proposed findings of fact and conclusions of law will be permitted and if so, the procedures for submissions.
(d) Final Decision After Hearing - Delegated Powers. In any hearing on a summary order in which the delegation to the Presiding Officer to issue an order under Rule 202(a) has not been revoked:
(1) After hearing evidence pursuant to subsection (c) of this Rule, the Presiding Officer shall, within fifteen (15) days of the hearing, issue a final written decision, which shall be filed with the Director and served upon the parties, containing:
(e) Final Decision After Hearing – Revoked Powers. In any hearing on a summary order in which the delegation to the Presiding Officer to issue an order under Rule 202(a) has been revoked:
(f) Duration. Unless set aside, limited or suspended, either by the Director or a court of competent jurisdiction, a summary order shall remain in effect until the completion of the proceedings on whether a permanent order shall be entered or, if no such proceedings occur, until otherwise modified or vacated by the Director.
The Rules of Part C (Rule 300 through Rule 307) apply only to investigations conducted by the Unit. They do not apply to administrative proceedings under the Act.
(2) A self-regulatory organization as defined in Section 3(a)(26) of the Securities Exchange Act of 1934 (15 U.S.C. §78, et seq.) (the "Exchange Act"), or any similar organization empowered with self-regulatory responsibilities under the federal securities laws (as defined in Section 3(a)(47) of the Exchange Act), the Commodity Exchange Act (7 U.S.C. 1, et seq.) or any substantially equivalent foreign statute or regulation;
(a) For the purpose of any investigation under the Act, the Director, any Deputy Attorney General in the Unit, or any officer designated by the Director may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the Director deems relevant or material to the inquiry. The Director’s authority to subpoena witnesses and documents outside the State shall exist to the maximum extent permissible under federal constitutional law.
(c) Content of subpoena. A subpoena shall:
(d) Subpoenas to corporations and other entities.
(e) Service of subpoena.
(f) Effect of other proceedings. The pendency or beginning of administrative or judicial proceedings against a person by the Unit does not relieve the person of his or her obligation to respond to a subpoena issued under this Rule.
(g) Refusal to testify or produce documents.
(h) Petition to modify or quash subpoena.
(i) Application to Court of Chancery upon refusal to obey subpoena. In case of contumacy by, or refusal to obey a subpoena issued to, any person, the Court of Chancery, upon application by the Director, may issue to the person an order requiring such person to appear before the Court of Chancery or the officer designated by the Director, there to produce documentary evidence if so ordered or to give evidence touching the matter under investigation or in question. Failure to obey the order of the Court may be punished by the Court as a contempt of court.
(3) One copy of an executed registration statement which complies with SEC Form S-1, together with all exhibits, which shall include all information required under Sections 73-204(b)(1)-(16) and 73-205(b) of the Act. For securities offerings pursuant to Tier 1 of Regulation A for which Form 1-A has been filed with the SEC, filing a copy of Form 1-A with the Unit will satisfy the registration statement filing requirement.
402 Repealed Small company offering registrations
(c) The fee for notice filings for covered securities under Section 18(b)(4)(E) of the Securities Act of 1933 pursuant to Section 73-208(b) of the Act and Rule 406 shall be one half of one percent of the maximum aggregate offering price of securities to be offered in Delaware during the initial registration period, but not less than $200.00 or more than $1,000.00.
(df) All filing fees are due at the time of the initial application. No application fee is refundable even though an application may be withdrawn or denied.
(eg) Any filing fee required by these Rules that is not paid when due shall be doubled, unless the Director waives the late payment, but in no case shall the total fee be more than the relevant statutory maximum amount.
(a) An issuer offering a security that is a covered security under Section 18(b)(4)(E) of the Securities Act of 1933 (or as such section may be renumbered), including a security that is being offered under SEC Rule 506, 17 C.F.R. §230.506, shall file with the Director a notice on SEC Form D no later than 15 days after the first sale of such covered security in this state, or if an earlier filing is required by the SEC, at such earlier date, if a sale is contemplated in Delaware.
(a) Each issuer of securities relying on the intrastate crowdfunding exemption found in 6 Del.C. §73-207(b)(15) shall file a notice with the Investor Protection Unit pursuant to 6 Del.C. §73-207(b)(15)(h) on Form DCF. The notice must include all documentation required by Form DCF and shall be filed with the Investor Protection Unit no later than ten days prior to the first offer of securities in reliance on the exemption. Incomplete filings will be rejected. The filing fee required by Section 73-207(b)(15)(o) and Rule 404(e) shall be submitted with the filing.
(b) Each internet site operator participating in a securities offering pursuant to the intrastate crowdfunding exemption found in 6 Del.C. §73-207(b)(15) shall register with the Investor Protection Unit by filing Form DIO, unless exempted from registration by 6 Del.C. §73-207(b)(15)(k)(2). Registrations must be received and approved prior to the internet site operator participating in a securities offering. Incomplete registrations will be rejected.
(b) Except as provided otherwise in these Rules, an offer of securities in the State of Delaware that qualifies for exemption under any limited or private offering exemption in or promulgated pursuant to the Securities Act of 1933 or the Securities and Exchange Act of 1934, including Rules 504 and 505 of SEC Regulation D (17 C.F.R. §§230.504 and 230.505), shall be exempt from the requirements of Sections 73-202, 73-208 and 73-211 of the Act, so long as the issuer has filed with the Director a notice on Form LOE (“Notice of Limited Offering Exemption”) no later than 15 days after the first sale of such security in this state.
(d) Disqualification.
(e) General Announcement.
(3) Non-convertible debt securities rated in one of the four highest rating categories of a nationally recognized statistical rating organization registered with the SEC under Section 15E of the Securities Exchange Act of 1934 (15 U.S.C. § 780-7) or such other statistical rating organization the Director by rule or order may designate. For purpose of this subparagraph, the term "non-convertible debt securities" means securities that cannot be converted for at least one year from the date of issuance and then, only into equity shares of the issuer or its parent; or
(a) A communication that is placed on the internet by or on behalf of an issuer that is designed to raise capital and/or to distribute information on securities, products or services and that is directed generally to anyone having access to the internet, whether through postings on "Bulletin Boards," displays on webpages, the placement of internet advertisements, postings on or through application or social media websites, or otherwise (an "Internet Communication"), shall not constitute an offer within the meaning of Section 73-103(a)(17) of the Act, and shall therefore not be required to be registered under the Act, provided that:
(65) Fitch's Individual Stock Bulletin
(76) Mergent's OTC Industrial Manual
(a) Broker-dealers and broker-dealer agents who use the internet to distribute information on securities, products or services through communications made on the internet directed generally to anyone having access to the internet, and transmitted through postings on Bulletin Boards, displays on webpages, the placement of internet advertisements, postings on or through applications or social media websites, or otherwise (an "Internet Communication") shall not be deemed to be "transacting business" in Delaware for purposes of Section 73-301 of the Act based solely on the Internet Communication if the following conditions are met:
(c) Exempt transactions. Offers or sales of any security effected by a broker-dealer who is exempt from registration under this Rule are exempt from the registration requirements of Section 73-202 of the Act and the filing requirements of Section 73-211 of the Act.
(d) Agent exemption. An agent who represents a Canadian broker-dealer that is exempt from registration under this Rule is also exempt from the registration requirement of Section 73-301 of the Act, provided such agent maintains his or her provincial or territorial registration in good standing.
(e) Denial, Suspension or Revocation. The Director may by order deny, suspend, or revoke the exemption of a particular Canadian broker-dealer provided pursuant to Rule 608 if he or she finds that the order is in the public interest and that the Canadian broker-dealer (or any partner, officer, director, or any person occupying a similar status or performing similar functions, or any person directly or indirectly, controlling the broker-dealer) has done anything prohibited by Section 73-304(a)(1) to (8),(12) or (13) of the Act.
(b) Broker-Dealers. For the purposes of Section 73-304(a)(7) of the Act, dishonest or unethical practices by a broker-dealer shall include, but not be limited to, the following conduct:
(3) Recommending a transaction or investment strategy involving a security or securities without reasonable grounds to believe that such transaction or investment strategy is suitable for the customer, in light of the customer's investment profile, including but not limited to, age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information material to the investment, based on the information obtained through the reasonable diligence of the broker-dealer or agent to ascertain the customer’s investment profile along with such other information about the customer’s investment profile known to the broker-dealer or agent;
(4) Failing to reasonably supervise such broker-dealer’s agents or employees. Reasonable supervision shall include, but not be limited to:
(c) Broker-Dealer Agents and Issuer Agents. For the purposes of Section 73-304(a)(7) of the Act, dishonest or unethical practices by a broker-dealer agent or an issuer agent shall include, but not be limited to, the following conduct:
(d) Prohibited practices in connection with investment company shares. For purposes of Section 73-304(a)(7) of the Act, unethical practices by a broker-dealer, broker-dealer agent or issuer agent shall include, but not be limited to, the following conduct:
(4) In connection with the offer or sale of investment company shares, recommending to a customer a transaction or investment strategy involving a specific class of investment company shares in connection with a multi-class sales charge or fee arrangement without reasonable grounds to believe that the sales charge or fee arrangement associated with such transaction or investment strategy is suitable for the customer, in light of the customer's investment profile, including but not limited to, age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, the associated transaction or other fees, and any other information material to the charge or fee arrangement;
(5) In connection with the offer or sale of investment company shares, recommending to a customer a transaction or investment strategy involving the purchase of investment company shares which results in the customer simultaneously holding shares in different investment company portfolios having similar investment objectives and policies without reasonable grounds to believe that such transaction or investment strategy is suitable and appropriate, in light of the customer's investment profile, including but not limited to, age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, any associated transaction charges or other fees, and any other information material to the investment;
(6) In connection with the offer or sale of investment company shares, recommending to a customer a transaction or investment strategy involving the liquidation or redemption of investment company shares for the purpose of purchasing shares in a different investment company portfolio having similar investment objectives and policies without reasonable grounds to believe that such recommendation is suitable and appropriate, in light of the customer's investment profile, including but not limited to, age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, any associated transaction charges or other fees, and any other information material to the investment;
An individual applying to be registered as a broker-dealer or a broker-dealer agent under the Act must successfully complete the North American Securities Administrators Association (NASAA) Uniform Securities Agent State Law Examination (NASAA Series 63 or 66), administered by FINRA.
Such record shall state: the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale or other acquisition or disposition); the price at which it was effected; and the name of the broker-dealer or bank with or through whom the transaction was effected. Such record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that the investment adviser or advisory representative has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.
(E) with respect to records stored on photographic film, at all times have available for the Director’s examination of its records pursuant to Section 73-303(e) of the Act, facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements.
(a) Investment advisers and investment adviser representatives who use the internet to distribute information on available products and services through communications made on the internet directed generally to anyone having access to the internet, and transmitted through postings on "Bulletin Boards", displays on webpages, the placement of internet advertisements, postings on or through applications or social media websites or otherwise (an "Internet Communication") shall not be deemed to be "transacting business" in Delaware for purposes of Section 73-301 of the Act based solely on the Internet Communication if the following conditions are met:
(a) Safekeeping required. It is unlawful and deemed to be a fraudulent, deceptive, or manipulative act, practice, or course of business for an investment adviser, registered or required to be registered, to have custody of client funds or securities unless:
(1) Notice to Director. The investment adviser notifies the Director promptly in writing that the investment adviser has or may have custody. Such notification is required to be given on Form ADV;
(2) Qualified Custodian. A qualified custodian maintains those funds and securities:
(A) in a separate account for each client under that client’s name; or
(B) in 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) Notice to clients. If an 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 must notify the client in writing of the qualified custodian’s name, address, and the manner in which the funds or securities are maintained, promptly when the account is opened and following any changes to this information. If the investment adviser sends account statements to a client to which the investment adviser is required to provide this notice, the investment adviser must 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) Account Statements. 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, identifying the amount of funds and of each security in the account at the end of the period and setting forth all transactions in the account during that period.
(5) Special rule for limited partnerships and limited liability companies. 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 (a)(4) of this Rule must be sent to each limited partner (or member or other beneficial owner).
(6) Independent Verification. 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, pursuant to 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 prior notice or announcement to the investment adviser and that is irregular from year to year. The written agreement must provide for the first examination to occur within six months of becoming subject to this paragraph, except that, if the investment adviser maintains client funds or securities pursuant to this rule as a qualified custodian, the agreement must provide for the first examination to occur no later than six months after obtaining the internal control report. The written agreement must require the independent certified public accountant to:
(7) Investment advisers acting as qualified custodians. If the investment adviser maintains, or if the investment adviser has custody because a related person maintains, client funds or securities pursuant to this Rule as a qualified custodian in connection with advisory services the investment adviser provides to clients:
(8) Independent representatives. A client may designate an independent representative to receive, on his behalf, notices and account statements as required under paragraphs (a)(3) and (a)(4) of this rule.
(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 (“mutual fund”), the investment adviser may use the mutual fund’s transfer agent in lieu of a qualified custodian for purposes of complying with paragraph (a) of this Rule;
(2) Certain privately offered securities.
(i) acquired from the issuer in a transaction or chain of transactions not involving any public offering;
(ii) uncertificated and ownership thereof is recorded only on the books of the issuer or its transfer agent in the name of the client; and
(iii) transferable only with prior consent of the issuer or holders of the outstanding securities of the issuer.
(3) Fee Deduction. Notwithstanding paragraph (a)(6) of this Rule, an investment adviser is not required to obtain an independent verification of client funds and securities maintained by a qualified custodian if all of the following are met:
(4) Limited partnerships subject to annual audit. An investment adviser is not required to comply with paragraphs (a)(3) and (a)(4) and shall be deemed to have complied with paragraph (a)(6) of this Rule with respect to the account of a limited partnership (or limited liability company, or another type of pooled investment vehicle) if each of the following conditions are met:
(A) the adviser sends to all limited partners (or members or other beneficial owners) at least quarterly, a statement showing:
(i) the total amount of all additions to and withdrawals from the fund as a whole as well as the opening and closing value of the fund at the end of the quarter based on the custodian’s records,
(ii) a listing of all long and short positions on the closing date of the statement in accordance with FASB Rule ASC 946-210-50, and
(iii) the total amount of additions to and withdrawals from the fund by the investor as well as the total value of the investor’s interest in the fund at the end of the quarter; and
(B) at least annually the fund is subject to an audit and distributes its audited financial statements prepared in accordance with generally accepted accounting principles to all limited partners (or members or other beneficial owners) within 120 days of the end of its fiscal year;
(C) the audit is performed by an independent certified public accountant that is registered with, and subject to regular inspection as of the commencement of the professional engagement period, and as of each calendar year-end, by, the Public Company Accounting Oversight Board in accordance with its rules;
(i) the date of such resignation, dismissal, removal, or other termination, and the name, address, and contact information of the independent certified public accountant, and
(F) the investment adviser notifies the Director in writing that the investment adviser intends to employ the use of the statement delivery and audit safeguards described above. Such notification is required to be given on Form ADV.
(5) Registered Investment Companies. The investment adviser is not required to comply with this Rule with respect to the account of an investment company registered under the Investment Company Act of 1940.
(c) Delivery to Related Persons. Sending an account statement under paragraph (a)(5) of this Rule or distributing audited financial statements under paragraph (b)(4) of this Rule shall not satisfy the requirements of this Rule if such 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) Definitions. For purposes of Part G of these Rules (Rule 700 through Rule 712):
(1) “Control” means the power, directly or indirectly, to direct the management or policies of a person whether through ownership of securities, by contract, or otherwise. Control includes, but is not limited to:
(A) Each of the investment adviser’s officers, partners, or directors exercising executive responsibility (or persons having similar status or functions) is presumed to control the investment adviser;
(i) directly or indirectly has the right to vote 25 percent or more of a class of the corporation’s voting securities; or
(C) A person is presumed to control a partnership if the person has the right to receive upon dissolution, or has contributed, 25 percent or more of the capital of the partnership;
(D) A person is presumed to control a limited liability company if the person:
(E) A person is presumed to control a trust if the person is a trustee or managing agent of the trust.
(2) “Custody” means holding directly or indirectly, client funds or securities, or having any authority to obtain possession of them (or has the ability to appropriate them). The investment adviser has custody if a related person holds, directly or indirectly, client funds or securities, or has any authority to obtain possession of them, in connection with advisory services the investment adviser provides to clients.
(A) Custody includes, but is not limited to:
(i) possession of client funds or securities unless the investment adviser receives them inadvertently and returns them to the sender promptly but in any case within three business days of receiving them;
(ii) any arrangement (including a general partner of attorney) under which the investment adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian upon the investment adviser’s instruction to the custodian; and
(iii) any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives the investment adviser or its supervised person legal ownership of or access to client funds or securities.
(B) Receipt of checks drawn by clients and made payable to third parties will not meet the definition of custody if forwarded to the third party within 3 business days of receipt and the investment adviser maintains the records required under these rules.
(3) “Independent certified public accountant” means a certified public accountant that meets the standards of independence described in rule 2-01(b) and (c) of Regulation S-X (17 CFR 210.2-01(b) and (c)).
(4) “Independent representative” means a person who:
(A) acts as agent for an advisory client, including in the case of a pooled investment vehicle, for limited partners or a limited partnership, members of a limited liability company, or other beneficial owners of another type of pooled investment vehicle and by law or contract is obliged to act in the best interest of the advisory client or the limited partners, members, or other beneficial owners;
(B) does not control, is not controlled by, and is not under common control with investment adviser; and
(C) does not have, and has not had within the past two years, a material business relationship with the investment adviser.
(5) “Qualified custodian” means the following:
(A) a bank or savings association that has deposits insured by the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act;
(B) a broker-dealer registered in Delaware and with the SEC holding the client assets in customer accounts;
(C) a registered futures commission merchant registered under Section 4f(a) of the Commodity Exchange Act, holding the client assets in customer accounts, but only with respect to clients’ funds and security futures, or other securities incidental to transactions in contracts for the purchase or sale of a commodity for future delivery and options thereon; and
(D A foreign financial institution that customarily holds financial assets for its customers, provided that the foreign financial institution keeps the advisory clients’ assets in customer accounts segregated from its proprietary assets.
(6) “Related person” means any person, directly or indirectly, controlling or controlled by the investment adviser, and any person that is under common control with the investment adviser.
(a) Examination Requirements. An individual applying to be registered as an investment adviser or investment adviser representative under the Act shall provide the Director with proof of obtaining a passing score on one of the following examinations:
(b) Waivers. The examination shall not apply to an individual who currently holds one of the following professional designations:
(a) Definitions. For purposes of the exemption set forth in this Rule:
(b) Exemption for Private Fund Advisers. A Private Fund Adviser shall be exempt from the registration requirements of Section 73-301 of the Act if the adviser satisfies each of the following conditions:
(d) Federal covered investment advisers. If a Private Fund Adviser is registered with the SEC, the adviser shall not be eligible for this exemption and shall comply with the state notice filing requirements applicable to federal covered adviser in Sections 73-301(f) and 73-302(g) through (k) of the Act.
(e) Investment adviser representatives. A person is exempt from the investment adviser representative registration requirements of Section 73-301 of the Act if he or she is employed by or associated with an investment adviser that is exempt from registration in Delaware pursuant to this Rule and he or she does not otherwise act as an investment adviser representative.
Last Updated: December 31 1969 19:00:00.
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