S.D. Admin. R. 20:08:03:07

Current through Register Vol. 51, page 67, December 16, 2024

Section 20:08:03:07 - Fraudulent practices of broker-dealers, broker-dealer agents, and agents of the issuer

The purpose of this section is to identify practices in the securities business which are generally associated with schemes to manipulate. A broker-dealer, broker-dealer agent or agent of the issuer who engages in one or more of the following practices shall be deemed to have engaged in an "act, practice, or course of business that operates or would operate as a fraud or deceit" as used in SDCL 47-31B-501. This rule is not intended to be all-inclusive, and thus, acts or practices not enumerated herein may also be deemed fraudulent.

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

(2) Contradicting or negating the importance of any information contained in a prospectus or other offering materials with intent to deceive or mislead or using any advertising or sales presentation in a deceptive or misleading manner.

(3) In connection with the offer, sale, or purchase of a security, falsely leading a customer to believe that the broker-dealer or agent is in possessions of material, non-public information which would impact on the value of the security.

(4) In connection with the solicitation of a sale or purchase of a security, engaging in a pattern or practice of making contradictory recommendations to different investors of similar investment objective for some to sell and others to purchase the same security, at or about the same time, when not justified by the particular circumstance of each investor.

(5) Failing to make a bona fide public offering of all the securities allotted to a broker-dealer for distribution by, among other things, (1) transferring securities to a customer, another broker-dealer or a fictitious account with the understanding that those securities will be returned to the broker-dealer or its nominees or (2) parking or withholding securities.

(6) Although nothing in this section precludes application of the general anti-fraud provisions against anyone for practices similar in nature to the practices discussed below, the following subsections specifically apply only in connection with the solicitation of a purchase or sale of OTC unlisted non-NASDAQ equity securities:

(a) Failing to advise the customer, both at the time of solicitation and on the confirmation, of any and all compensation related to a specific securities transaction to be paid to the agent including commissions, sales charges, or concessions.

(b) In connection with a principal transaction, failing to disclose, both at the time of solicitation and on the confirmation, a short inventory position in the firm's account of more than 3 percent of the issued and outstanding shares of that class of securities of the issuer provided that this subsection shall apply only if the firm is a market maker at the time of the solicitation.

(c) Conducting sales contests in a particular security.

(d) After a solicited purchase by a customer, failing or refusing, in connection with a principal transaction, to promptly execute sell orders.

(e) Soliciting a secondary market transaction when there has not been a bona fide distribution in the primary market.

(f) Engaging in a pattern of compensating an agent in different amounts for effecting sales and purchases in the same security.

(g) Effecting any transaction in, or inducing the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance including but not limited to the use of boiler room tactics or use of fictitious or nominee accounts.

(h) Failure to comply with any prospectus delivery requirement promulgated under federal law.

(i) Effect any transaction in, or to induce or attempt to induce the purchase or sale of, any penny stock by any customer except in accordance with the requirements as set forth in the 1934 Securities Exchange Act Sec. 15(g) and the rules and regulations prescribed thereunder.

S.D. Admin. R. 20:08:03:07

27 SDR 5, effective 7/31/2000; 30 SDR 211, effective 7/1/2004.

General Authority: SDCL 47-31B-605(a)(1).

Law Implemented: SDCL 47-31B-103, 47-31B-501.