Page:United States Statutes at Large Volume 54 Part 1.djvu/886

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PUBLIC LAWS-CH. 686-AUG. 22, 1940 Filing of reports. Restriction on use of mails, etc., by in- vestment advisers. "Investment advi- sory contract" defined. Prohibited transac- tions. Fraud, etc. Acting as principal or broker for client without consent. tion, or who has pending an application for registration filed under this section, is no longer in business or is not engaged in business as an investment adviser, the Commission shall by order cancel the registration of such person. ANNUAL AND OTHER REPORTS SEC. 204. Every investment adviser registered under section 203 of this title shall file with the Commission such annual and special reports, in such form as the Commission by rules and regulations may prescribe for the purpose of keeping reasonably current the information contained in the registration application. INVESTMENT ADVISORY CONTRACTS SEC. 205. No investment adviser registered under section 203 shall make use of the mails or any means or instrumentality of interstate commerce, directly or indirectly, to enter into, extend, or renew any investment advisory contract, or in any way to perform any invest- ment advisory contract entered into, extended, or renewed on or after the effective date of this title, if such contract- (1) provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client; (2) fails to provide, in substance, that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract; or (3) fails to provide, in substance, that the investment adviser, if a partnership, will notify the other party to the contract of any change in the membership of such partnership within a reasonable time after such change. As used in this section, "investment advisory contract" means any contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account for a person other than an investment company. Paragraph (1) of this section shall not be construed to prohibit an investment advisory contract which provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates, or taken as of a definite date. PROHIBITED TRANSACTIONS BY REGISTERED INVESTMENT ADVISERS SEC. 206. It shall be unlawful for any investment adviser registered under section 203, by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly- (1) to employ any device, scheme, or artifice to defraud any client or prospective client; (2) to engage in any transaction, practice, or course of busi- ness which operates as a fraud or deceit upon any client or pros- pective client; (3) acting as principal for his own account, knowingly to sell any security to or purchase any security from a client, or acting as broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the client to such transaction. The prohibitions of this paragraph (3) shall not apply to any trans- action with a customer of a broker or dealer if such broker or dealer is not acting as an investment adviser in relation to such transaction. [54 STAT.