Missouri Secretary of State Files Proposed Amendment and Rule Identifying Fraudulent Practices
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December 11, 2024
TO: ICI MembersBroker/Dealer Advisory Committee
ESG Advisory Group
Investment Advisers Committee SUBJECTS: State Issues RE: Missouri Secretary of State Files Proposed Amendment and Rule Identifying Fraudulent Practices
The Missouri Secretary of State filed a proposed amendment and a proposed rule identifying practices in the brokerage industry and investment adviser industry that are generally associated with acts that deceive and defraud.[1] The amendment applies to broker-dealers and agents, and the rule applies to investment advisers and investment adviser representatives. After its previously promulgated rules seeking to impose certain conditions on financial professionals were enjoined, the Missouri Secretary of State filed an emergency amendment and an emergency rule covering the same material.[2]
These actions make "[e]ffecting any transaction with an investment objective that the [customer/client] has not authorized at or prior to the time such transaction is effected" a fraudulent practice. They define "effecting any transaction" to mean "having effected a discretionary purchase or sale of a security for a retail [customer/client]'s account; solicited or recommended, or otherwise provided advice, to a retail [customer/client] to buy or sell a security; or solicited, recommended, or otherwise advised, a retail [customer/client] regarding the selection of a third-party manager or subadviser to manage the investments in such [customer/client]'s account." Additionally, "retail [customer/client]" is defined as "any person other than an institutional investor, regardless of whether the person has an account with the [broker-dealer/ investment adviser]."
The proposals were published in the December 2, 2024 issue of the Missouri Register and comments must be received within thirty (30) days of publication
Joshua Weinberg
Associate General Counsel, Securities Regulation
Notes
[1] 15 CSR 30-51.169 Fraudulent Practices of Broker-Dealers and Agents and 15 CSR 30-51.174 Fraudulent Practices of Investment Advisers and Investment Adviser Representatives are available at https://www.sos.mo.gov/CMSImages/AdRules/moreg/2024/v49n23Dec2/v49n23.pdf Each rule set is substantially similar, but for the provision in the amendment that "[n]othing in this subsection (I) shall require broker-dealers or their agents to create or retain any record memorializing the required customer authorization," which appears only in the amendment and not in the rule.
[2] ICI's summary of the Missouri Secretary of State emergency amendment and emergency rule identifying fraudulent practices can be viewed at https://www.ici.org/memo35913. ICI's memorandum regarding the dismissal of Missouri's appeal can be viewed at https://www.ici.org/memo35879. ICI's summary of the Court's order in the matter of Securities Industry and Financial Markets Association vs. John R. Ashcroft and Douglas M. Jacoby, Case No. 23-cv-04154-SRB (Aug. 14, 2024) can be viewed at https://www.ici.org/memo35806. ICI's summary of the complaint in the matter of Securities Industry and Financial Markets Association vs. John R. Ashcroft and Douglas M. Jacoby, Civil Action NO. 2:23-cv-4154 (Aug. 10, 2023) can be viewed at https://www.ici.org/memo35414.