14 Ill. Adm. Code 130.847
Financial and Disciplinary Information That Investment Advisers Must Disclose to Clients
Section 130
Section 130.847 Financial
and Disciplinary Information That Investment Advisers Must Disclose to Clients
a) It shall constitute a fraudulent, deceptive or manipulative
act, practice or course of business within the meaning of Section 12(J)(3) of
the Act for any investment adviser to fail to disclose to any client or
prospective client all material facts with respect to:
1) A financial condition of the investment adviser such as
insolvency or embezzlement, that impairs the ability of the investment adviser
to meet contractual commitments to clients, if the investment adviser has
discretionary authority (express or implied) or custody over such client's
funds or securities, or requires prepayment of advisory fees of more than
$500.00 from such client and six (6) months or more in advance; or
2) A legal or disciplinary event that is material to an
evaluation of the investment adviser's integrity or ability to meet contractual
commitments to clients.
b) It shall constitute a rebuttable presumption that the
following legal or disciplinary events involving the investment adviser or a
management person of the investment adviser (any of the foregoing being
referred to hereafter in this Section as "person") that were not
resolved in the person's favor or subsequently reversed, suspended or vacated
are material within the meaning of subsection (a)(2) of this Section for a
period of ten (10) years from the time of the event:
1) A criminal or civil action in a court of competent
jurisdiction in which the person:
A) was convicted, pleaded guilty or nolo contendere ("no
contest") to a felony or misdemeanor, or is the named subject of a pending
criminal proceeding (any of the foregoing referred to hereafter in this Section
as "action"), and such action involved an investment related
business; or fraud, false statements, or omissions; or wrongful taking of property;
or bribery, forgery, counterfeiting or extortion;
B) was found to have violated or caused the violation of an
investment related statute or regulation; or
C) was the subject of any order, judgment or decree permanently or
temporarily enjoining the person from, or otherwise limiting the person from,
engaging in any investment related activity.
2) Administrative proceedings before the SEC, any other federal
regulatory agency or any state agency (any of the foregoing being referred to
hereafter in this Section as "agency") in which the person:
A) was found to have caused an investment related business to lose
its authorization to do business; or
B) was found to have violated or caused the violation of an
investment related statute or regulation and was the subject of an order by the
agency denying, suspending or revoking the authorization of the person to act
in, or barring or suspending the person's association with, an investment
related business.
3) Self Regulatory Organization (SRO) proceedings in which the
person:
A) was found to have caused an investment related business to lose
its authorization to do business; or
B) was found to have violated or caused the violation of the SRO's
rules and was the subject of an order by the SRO barring or suspending the
person from membership or from association with other members, or expelling the
person from membership, fining the person more than $2,500.00.
c) The information required to be disclosed by subsection (a) of
this Section shall be disclosed to clients promptly, and to prospective clients
not less than 48 hours prior to entering into any written or oral investment
advisory contract, or no later than the time of entering into such contract if
the client has the right to terminate the contract without penalty within five
(5) business days after entering into the contract.
d) For purposes of this Section:
1) "Management person" means a person with power to
exercise, directly or indirectly, a controlling influence over the management
or policies of an investment adviser which is a company or to determine the
general investment advise given to clients.
2) "Found" means determined or ascertained by
adjudication or consent in a final SRO proceeding, administrative proceeding or
court action.
3) "Investment related" means pertaining to securities,
commodities, banking, insurance or real estate (including, but not limited to,
acting as of being associated with a broker, dealer, investment company,
investment adviser, government securities broker or dealer, municipal
securities dealer, bank, savings and loan association, entity or person
required to be registered under the Federal 1974 Act, as defined in Section
130.200 of this Part, or fiduciary).
4) "Involved" means acting or aiding, abetting,
causing, counseling, commanding, inducing, conspiring with or failing
reasonably to supervise another in doing an act.
5) "Self Regulatory Organization" or "SRO"
means any national securities or commodities exchange, registered association
or registered clearing agency.
e) For purposes of calculating the ten (10) year period during
which events are presumed to be material under subsection (b) of this Section,
the date of a reportable event shall be the date on which the final order,
judgment or decree was entered, or the date on which any rights of appeal from
preliminary orders, judgments or decrees lapsed.
f) Compliance with subsection (b) of this Section shall not
relieve any investment adviser from the disclosure obligations of subsection
(a) of this Section; compliance with subsection (a) of this Section shall not
relieve any investment adviser from any other disclosure requirement under this
Part or the Act, or under any other federal or state law.
g) Registered investment advisers may disclose the information
required by this Section to clients and prospective clients with the
information required by Section 130.846 of this Part; provided that the
delivery of the information satisfies the timing of disclosure requirements
described in subsection (c) of this Section.