A.R.S. tit. 44 ch. 13 — Arizona Revised Statutes Title 44 Chapter 13 — Investment Management

44-3101. Definitions In this chapter, unless the context otherwise requires: 1. "Closed-end company" means any management company other than an open-end company or unit investment trust. 2. "Depository institution" means a bank, savings and loan association or trust company whose business is supervised and regulated by an agency of this state or the United States, or an employee, as defined in title 10, chapter 1, of any such bank, savings and loan association or trust company while acting within the scope of the employee's employment. 3. "Federal covered adviser" means an investment adviser registered under the investment advisers act of 1940. 4. "IARD" means the investment adviser registration depository operated by the national association of securities dealers. 5. "Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. Investment adviser includes financial planners and other persons who, as an integral component of other financially related services, provide the foregoing investment advisory services to others for compensation and as part of a business or who hold themselves out as providing the foregoing investment advisory services to others for compensation. Investment adviser does not include: (a) An investment adviser representative. (b) A depository institution. (c) A lawyer, law firm, certified public accountant or accounting firm whose performance of the investment advisory services is solely incidental to the practice of the person's profession or who does not do any of the following: (i) Exercise investment discretion with respect to the assets of clients or maintain custody of the assets of clients for the purpose of investing the assets, except if the person is acting in a bona fide fiduciary capacity such as an executor, trustee, personal representative, estate or trust agent, guardian or conservator. (ii) Accept or receive directly or indirectly any commission, fee or other remuneration contingent on the purchase or sale of any specific security by a client of the person. (iii) Give advice on the purchase or sale of specific securities other than advice about specific securities that is based on financial statement analysis or tax considerations that are reasonably related to and in connection with the person's profession. (d) A publisher, employee or columnist of any newspaper, news column, newsletter, news magazine or business or financial publication or service, whether communicated in hard copy form, by electronic means or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client. (e) An insurance company or insurance producer that is licensed or authorized by the department of insurance and financial institutions to transact the business of insurance, including the sale of annuities, whose performance of the investment advisory services is solely incidental to the conduct of business as an insurance company or insurance producer and that receives no special compensation for providing investment advisory services. (f) A real estate salesperson or real estate broker who is licensed or authorized by the state real estate department to transact the business of real estate, whose performance as an investment adviser is solely incidental to the conduct of the individual's business as a broker or salesman and who receives no special compensation for providing investment advisory services. (g) Any officer, director, partner or employee of an entity engaged in selling interest in entities that invest in real property, including partnerships, corporations or sole proprietorships, if such transactions are otherwise subject to the securities laws of the United States or this state. (h) Mortgage brokers or mortgage bankers who are licensed by the department of insurance and financial institutions to transact the business of a mortgage broker or mortgage banker, and their employees, whose performance of any investment advisory service is solely incidental to the conduct of the business of a mortgage broker or mortgage banker and who receives no special compensation for providing investment advisory services. 6. "Investment adviser representative" means any partner, officer or director of an investment adviser, any individual who occupies a status or performs functions similar to a partner, officer or director of an investment adviser or any other individual who is employed by or associated with an investment adviser, except clerical or ministerial personnel, and who does any of the following: (a) Makes any recommendations or otherwise renders advice regarding securities. (b) Manages accounts or portfolios of clients. (c) Determines which recommendation or advice regarding securities should be given to a client if the individual is a member of the investment adviser's investment committee that determines general investment advice to be given to clients or the individual determines general client advice if the investment adviser has no investment committee, except that if an investment adviser has more than five individuals who make recommendations or give advice, only the supervisors of those individuals are investment adviser representatives. (d) Solicits, offers or negotiates for the sale of or sells investment advisory services. (e) Directly supervises employees who perform any of the acts described in this paragraph. 7. "Investment advisers act of 1940" means the act of Congress known as the investment advisers act of 1940 (15 United States Code section 80b). 8. "Investment company" means any company that is registered under the investment company act of 1940. 9. "Investment company act of 1940" means the act of Congress known as the investment company act of 1940 (15 United States Code section 80a). 10. "Licensed investment adviser" means an investment adviser licensed under this chapter. 11. "Licensed investment adviser representative" means an investment adviser representative licensed under this chapter. 12. "Open-end company" means a management company that is offering for sale or has outstanding any redeemable security of which it is the issuer. 13. "Solely incidental to the practice of the person's profession" and "solely incidental to the conduct of the person's business" means that the person does not hold itself out to the public as a provider of investment advisory services, the investment advisory services are rendered in connection with and reasonably related to the professional services or business transactions being provided or consummated and the fee charged for the investment advisory services is based on the same factors used by the person to determine the fees for the person's professional or business services. 14. "Unit investment trust" means an investment company that is organized under a trust indenture, contract of custodianship or agency or similar instrument, that does not have a board of directors and that issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities, but does not include a voting trust. 44-3102. Interpretations by commission In interpreting the definitions prescribed in section 44-3101 and other terms and phrases used in this chapter, the commission may refer to identical terms or phrases in the investment advisers act of 1940 and investment company act of 1940 including regulations or interpretive releases promulgated under those acts and chapter 12 of this title and any rules adopted under that chapter. 44-3111. Director of securities The director of securities appointed pursuant to section 44-1811 shall administer this chapter. 44-3112. Assistant director of securities The assistant director of securities appointed pursuant to section 44-1812 shall assist in administering this chapter. 44-3113. Employment of personnel The director may employ personnel for the administration of this chapter as prescribed in section 44-1813. 44-3114. Travel and other necessary expenses of employees The director and any person under the director's supervision shall be paid travel and other necessary expenses as provided in section 44-1814. 44-3115. Cooperation with other agencies The director shall cooperate with the administrators of investment adviser, investment company and management and similar laws of other states and of the United States and with the national association of securities dealers, inc. with a view to achieving maximum uniformity in the interpretation and enforcement of like provisions of the laws administered by them. 44-3131. General rule making power of commission; delegation of authority; limitation A. The commission may adopt rules pursuant to title 41, chapter 6 that are reasonably necessary to carry out the purposes of this chapter. B. The commission may delegate such authority to the director of securities as is convenient or necessary for the efficient administration of this chapter, except that the commission may not delegate authority to adopt rules or to enter any final order of denial or revocation of licenses of investment advisers or investment adviser representatives. 44-3132. Investigations The commission, the director or any other agent or agents designated by the commission may: 1. Make private or public investigations within or outside this state that the commission deems necessary to determine whether any person has violated or is about to violate this chapter or any rule or order adopted or issued under this chapter, to aid in the enforcement of this chapter or to aid in adopting rules and forms under this chapter. 2. At any time either before or after the licensure of any investment adviser or investment adviser representative, investigate and examine the affairs of any person engaged in the provision of investment advisory services or the affairs of any person if the commission believes that the person is or may be engaged in the provision of investment advisory services. 44-3133. Power to require testimony and production of records; order of nondisclosure A. For the purpose of investigations or hearings that, in the opinion of the commission, are necessary and proper for the enforcement of this chapter, any member of the commission, the director or any officer or officers designated by the commission may administer oaths and affirmations, subpoena witnesses, take evidence and require by subpoena duces tecum or by citation the production of books, papers, contracts, agreements or other documents, records or information, whether filed or kept in original form or electronically stored or recorded, that the commission deems relevant or material to the inquiry. B. The commission may issue and apply to enforce a subpoena in this state at the request of a securities agency or administrator of another state if the activities constituting an alleged violation for which the information is sought would be a violation of this chapter if the activities had occurred in this state. C. In connection with the power to enforce the production of evidence by subpoena vested in the commission by article XV of the Constitution of Arizona and the commission's power to conduct private investigations pursuant to section 44-3132, the commission has the authority to order a financial institution not to disclose the existence or content of the subpoena to persons not affiliated with the financial institution other than to the financial institution's legal counsel. The commission shall exercise such power if the commission finds it necessary or appropriate in the public interest or for the protection of investors. 44-3134. Contempt; penalty A. If a person refuses to obey a subpoena or citation issued by the commission, any member of the commission, the director or any officer designated by the commission, the superior court in Maricopa county, on application by the commission, shall issue to the person an order requiring that person to appear before the commission, the director or the officer designated by the commission to produce documentary evidence if so ordered and to give evidence concerning the matter under investigation or in question. The court may punish failure to obey the order of the court as contempt. B. In the case of wilful noncompliance with a nondisclosure order included in a subpoena issued pursuant to section 44-3133, on application by the commission, the superior court in Maricopa county may exercise its contempt powers. For the purposes of this subsection, "wilful" has the same meaning as that prescribed to wilfully in section 1-215. C. The court shall award reasonable expenses, including attorney fees, to the commission if the refusal to obey a subpoena or citation issued by the commission was not substantially justified, unless other circumstances make an award of expenses unjust. D. Process in any proceeding pursuant to this section may be served on the defendant in any county of this state in which the defendant transacts business or is found. E. Any expenses, including attorney fees, collected pursuant to this section shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund. 44-3135. No-action letters The director may formally respond to written requests from interested persons for interpretative no-action letters as provided in section 44-1826. 44-3151. Licensure required; exclusion; violation; classification A. A person shall not transact business in this state as an investment adviser or investment adviser representative unless any of the following applies: 1. The person is licensed under this article. 2. The person is a federal covered adviser and has made a notice filing under this article. 3. The person is exempt from licensure. 4. The person is a federal covered adviser and is not subject to the notice filing requirements prescribed in section 44-3153. B. The licensure requirements of this article do not apply to any federal covered adviser or a person that is excluded from the definition of an investment adviser under section 202(a)(11) of the investment advisers act of 1940. C. An investment adviser that is required to be licensed shall not employ an investment adviser representative unless the investment adviser representative is licensed under this article. The licensure of an investment adviser representative is not effective during any period of time that the investment adviser representative is not employed by a licensed investment adviser or by a federal covered adviser that has made a notice filing pursuant to section 44-3153, subsection E. A licensed investment adviser shall promptly notify the commission when an investment adviser representative begins or terminates employment with the investment adviser by filing a completed form U-4 or form U-5 or any other form as the director may designate. D. An investment adviser representative shall not conduct business on behalf of a federal covered adviser unless that investment adviser representative is licensed under this article. A federal covered adviser shall notify the commission if any investment adviser representative begins or terminates employment with that federal covered adviser by filing a completed form U-4, form U-5 or any other form the director designates for that purpose. E. A person who knowingly violates this section is guilty of a class 1 misdemeanor. 44-3152. Exemption of certain investment advisers and investment adviser representatives; private fund adviser exemption; definitions A. An investment adviser is not required to be licensed or make a notice filing under this chapter if that investment adviser does not have a place of business in this state and either: 1. Its only clients in this state are investment companies, other investment advisers, dealers, depository institutions, insurance companies, employee benefit plans with assets of not less than $1,000,000 and governmental agencies or instrumentalities, whether acting for themselves or as trustees with investment control. 2. During the preceding twelve months it had fewer than six clients who are residents of this state other than those clients specified in paragraph 1 of this subsection. B. An investment adviser is not required to be licensed or make a notice filing under this chapter if that investment adviser is a private fund adviser that: 1. Satisfies each of the following conditions: (a) The private fund adviser or any of its advisory affiliates are not subject to an event that would disqualify an issuer under SEC rule 262 of regulation A (17 Code of Federal Regulations section 230.262). (b) The private fund adviser to a qualifying private fund that is not a venture capital company files with the commission each report and each report amendment that the investment adviser is required to file with the SEC pursuant to SEC rule 204-4 (17 Code of Federal Regulations section 275.204-4). The private fund adviser shall electronically file the reports with the commission through the IARD. A report is deemed filed when the report and the fee required by subdivision (c) of this paragraph are accepted by the IARD on this state's behalf. (c) The private fund adviser to a qualifying private fund that is not a venture capital company has paid a fee of $125 to the commission for each calendar year in which it relies on the exemption provided by this subsection. 2. Except as provided in subsection H of this section, advises at least one retail buyer fund and that complies with paragraph 1 of this subsection and all of the following requirements with respect to each retail buyer fund advised by the private fund adviser: (a) The private fund adviser only advises those retail buyer funds whose outstanding securities, other than short-term paper, are beneficially owned entirely by either: (i) Any person that, at the time that the securities are sold, the private fund adviser reasonably believes to be an accredited investor as defined in SEC rule 501(a) of regulation D (17 Code of Federal Regulations section 230.501(a)) or that is a manager, director, officer or employee of the private fund adviser. (ii) Any person that obtains the security through a transfer not involving a sale of that security. (b) At or before the time of purchase of any security of a retail buyer fund, the private fund adviser discloses in writing to the purchaser of the security both of the following: (i) All services, if any, to be provided by the investment adviser to a purchaser of securities of the retail buyer fund and to the retail buyer fund itself. (ii) All duties, if any, that the investment adviser owes to a purchaser of securities of the retail buyer fund and to the retail buyer fund itself. (c) The private fund adviser obtains on an annual basis audited financial statements of each retail buyer fund that is advised by the private fund adviser and delivers a copy of the audited financial statements to each purchaser of securities of the retail buyer fund. This subdivision does not apply to a limited retail buyer fund with respect to any annual period for which each owner of outstanding securities of the limited retail buyer fund has waived the application of this subdivision after the beginning of the annual period to which the waiver applies. C. If a private fund adviser is registered with the SEC, the private fund adviser is not eligible for the exemption provided by subsection B of this section. D. A person is not required to be licensed or to make a notice filing under this chapter if the person is employed by or associated with an investment adviser that is not required to be licensed or make a notice filing under this chapter pursuant to subsection B of this section and the person does not otherwise act as an investment adviser representative. E. An investment adviser that becomes ineligible for the exemption provided by subsection B of this section must comply with all applicable laws and rules requiring licensing or notice filing within ninety days after the date that the investment adviser's eligibility for the exemption ceases. F. Subsection B, paragraph 1, subdivision (a) of this section does not apply on a showing of good cause and without prejudice to any other commission action if the commission determines that it is not necessary under the circumstances that an exemption be denied. G. Compliance with subsection B, paragraph 2, subdivision (b) of this section does not relieve a private fund adviser of any disclosure obligation under any other state or federal law. H. An investment adviser to a retail buyer fund that existed before September 1, 2016 and that does not satisfy the conditions prescribed by subsection B, paragraph 2, subdivision (a) of this section on September 1, 2016 may be eligible for the exemption prescribed by subsection B, paragraph 1 of this section if all of the following conditions are satisfied: 1. Beginning on September 1, 2016, the retail buyer fund ceases to sell securities to persons other than the persons described in subsection B, paragraph 2, subdivision (a), item (i) of this section. 2. The investment adviser discloses in writing the information described in subsection B, paragraph 2, subdivision (b) of this section to each purchaser of securities of the retail buyer fund by December 1, 2016. 3. For every fiscal year ending after August 31, 2016, the investment adviser delivers audited financial statements to each owner of securities of the retail buyer fund as required by subsection B, paragraph 2, subdivision (c) of this section. I. If the commission determines that it is not necessary for any investment adviser or class of investment advisers or investment adviser representative or class of investment adviser representatives to be licensed to protect the public interest because of the special characteristics of the securities or transactions in which the investment adviser or investment adviser representative may be involved, the commission may by rule or order provide limited licensure requirements or exempt these persons from licensure under this article. J. A dealer or salesman that is registered with the commission pursuant to chapter 12, article 9 of this title is not required to be licensed, make a notice filing or comply with reporting requirements under this article. K. The authorized use of the designation "chartered financial consultant" by an insurance producer licensed by the department of insurance and financial institutions does not in and of itself constitute holding oneself out to the public as an investment adviser or require a license under this article. L. Subsection B of this section does not exempt an investment adviser that has custody of any securities or funds of any client from complying with commission rules relating to the custody of client funds or securities by investment advisers. M. For the purposes of this section: 1. "Advisory affiliate" has the same meaning prescribed in the glossary of terms to form ADV, which is the uniform application for investment adviser registration (17 Code of Federal Regulations section 279.1) or its successor form. 2. "Affiliated person" means a person that controls, is controlled by or is under common control with the other specified persons. 3. "Control" means possessing, directly or indirectly, the power to direct or cause the direction of management and policies. 4. "Derivative investment" means an acquisition of securities by a venture capital company in the ordinary course of its business in exchange for an existing venture capital investment, either on the exercise or conversion of the existing venture capital investment or in connection with a public offering of securities or the merger or reorganization of the operating company to which the existing venture capital investment relates. 5. "Entity" means a partnership, corporation, trust, limited liability company, limited liability partnership, sole proprietorship or other organization. 6. "Family member": (a) Means a lineal descendant, including a child related by adoption or blood and an individual who was a minor when another family member became the individual's legal guardian, of a common ancestor who is living or deceased if the common ancestor is not more than ten generations removed from the youngest generation of family members. (b) Includes: (i) A spouse of the lineal descendant described in subdivision (a) of this paragraph. (ii) A stepchild and the stepchild's spouse. (iii) A foster child and the foster child's spouse. 7. "Former family member" means a spouse or stepchild who was a family member but who is no longer a family member. 8. "Limited retail buyer fund" means a retail buyer fund that satisfies all of the following conditions: (a) Has no more than, or the private fund adviser reasonably believes that the fund has no more than, fifteen purchasers of securities, individually or collectively with all other limited retail buyer funds, that are advised by the private fund adviser or an affiliated person. For the purposes of calculating the number of purchasers under this subdivision, a purchaser that is an entity shall be counted as the number of individuals who are directly or indirectly beneficial owners in the entity, except that all individuals who are family members or former family members shall be counted as a single purchaser. (b) When the securities are sold the private fund adviser reasonably believes that each purchaser of securities from the limited retail buyer fund that is not a qualified purchaser, as defined in section 2(a)(51) of the investment company act of 1940, is a qualified client as defined in 17 Code of Federal Regulations section 275.205-3. (c) The private fund adviser and any affiliated person do not hold themselves out to the public as an investment adviser and the private fund adviser and any affiliated person do not act as an investment adviser to any investment company registered under the investment company act of 1940. (d) The private fund adviser and any affiliated person have not offered or sold any securities of the limited retail buyer fund by any form of general solicitation or general advertising. 9. "Management rights" means the right, obtained contractually or through ownership of securities, either through one person alone or in conjunction with one or more persons acting together or through an affiliated person, to substantially participate in, substantially influence the conduct of or provide or offer to provide significant guidance and counsel concerning the management, operations or business objectives of the operating company in which the venture capital investment is made. 10. "Operating company": (a) Means an entity that is primarily engaged, directly or through a majority-owned subsidiary, in the production or sale, including any research or development, of a product or service other than the management or investment of capital. (b) Does not include an individual or sole proprietorship. 11. "Person" means an individual or an entity. 12. "Private fund adviser" means an investment adviser that provides advice solely to one or more qualifying private funds. 13. "Qualifying private fund" means an issuer that qualifies for the exclusion from the definition of an investment company under section 3(c)(1), 3(c)(5) or 3(c)(7) of the investment company act of 1940. 14. "Retail buyer fund" means a qualifying private fund that is neither a venture capital company nor a qualifying private fund that qualifies for the exclusion from the definition of an investment company under section 3(c)(7) of the investment company act of 1940. 15. "Venture capital company" means an entity that satisfies at least one of the following conditions: (a) The entity is a venture capital fund as defined in SEC rule 203(l)-1 (17 Code of Federal Regulations section 275.203(l)-1). (b) The entity is a venture capital operating company as defined in SEC rule 2510.3-101(d) (29 Code of Federal Regulations section 2510.3-101(d)). (c) On at least one occasion during the annual period commencing with the date of its initial capitalization, and on at least one occasion during each annual period thereafter, at least fifty percent of its assets other than short-term investments pending long-term commitment or distribution to investors, valued at cost, are venture capital investments or derivative investments. 16. "Venture capital investment" means an acquisition of securities of an operating company as to which the investment adviser, the entity advised by the investment adviser or an affiliated person of either has or obtains management rights. 44-3153. Application for licensure as investment adviser; notice filings by federal covered advisers A. Any person may apply for licensure as an investment adviser. The applicant shall sign an application for licensure. B. An application for licensure as an investment adviser shall be filed with the commission through the IARD. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other method that is reasonably acceptable to the commission. C. An application for licensure shall contain the following, together with other information the commission prescribes: 1. A completed uniform application for investment adviser registration under the investment advisers act of 1940 together with other forms designated by the director. 2. Proof of compliance with written examination requirements. 3. Financial reports as required by the commission. 4. A notarized affidavit of any officer, director, partner, member, trustee or manager of the applicant that states: (a) That a review of the records of the investment adviser has been conducted. (b) Whether any investment adviser activity has been conducted with residents of this state before licensure as an investment adviser. 5. If the applicant intends to have a branch office in this state, the address and name of a contact individual at that branch office. 6. If the applicant is an individual and the applicant's fingerprints are not on file with the division, the CRD system or the IARD, a full set of fingerprints. The commission shall submit the fingerprints to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation. D. An application for licensure as an investment adviser shall be accompanied by payment of the licensure fee prescribed in section 44-3181. E. A federal covered adviser may transact business in this state as an investment adviser if the federal covered adviser makes a notice filing with the commission through the IARD. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other method that is reasonably acceptable to the commission. F. The notice filing shall consist of all of the following: 1. Copies of those documents that are filed with the SEC and that the commission requires to be filed. 2. A consent to service of process. 3. A notice filing fee as prescribed in section 44-3181. G. A notice filing is effective on compliance with the requirements of subsection E of this section and remains effective until December 31 unless it is renewed before that time by filing with the commission any renewal documents prescribed by the commission along with the notice filing fee prescribed in section 44-3181. H. A federal covered adviser may terminate a notice filing by notifying the commission of that termination through the IARD. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other method that is reasonably acceptable to the commission. 44-3154. Licensure application; additional information The commission or the director may require submission of additional information regarding an applicant's previous history, record or business experience as the commission or director deems necessary to determine whether an applicant should be licensed as an investment adviser or investment adviser representative in this state. 44-3155. Investment adviser license; notification A. If an applicant for licensure as an investment adviser fully complies with this article and commission rules adopted under this article, the director shall license the applicant as an investment adviser, unless the commission finds cause for denial as provided in article 6 of this chapter. B. After the director has licensed an applicant as an investment adviser or has received a complete notice filing from a federal covered adviser, the director shall promptly notify the applicant or the federal covered adviser through the IARD, by mail or by any other method that is reasonably acceptable to the commission. 44-3156. Application for licensure as investment adviser representative A. Any individual may apply for licensure as an investment adviser representative. An application for licensure as an investment adviser representative shall be signed by the applicant and by the licensed or federal covered adviser employing or intending to employ the applicant. B. An application for licensure as an investment adviser representative shall be filed with the commission through the IARD. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other reasonable method that is acceptable to the commission. C. An application for licensure shall include the following, together with other information the commission prescribes: 1. A completed form U-4 or any other form as the director may designate. An applicant that has a current form U-4 filed with this state may submit a brief written request for licensure with the commission. 2. Proof of compliance with written examination requirements. 3. If the applicant's fingerprints are not on file with the division, the CRD system or the IARD, a full set of fingerprints. The commission shall submit the fingerprints to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation. D. An application for licensure as an investment adviser representative shall be accompanied by payment of the licensure fee prescribed in section 44-3181. 44-3157. Investment adviser representative license; notification A. If an applicant for licensure as an investment adviser representative fully complies with this article and commission rules adopted under this article, the director shall license the applicant as an investment adviser representative, unless the commission finds cause for denial as provided in article 6 of this chapter. B. After the director has licensed an applicant as an investment adviser representative, the director shall promptly notify the applicant of the licensure by mail, through the IARD or by any other method that is reasonably acceptable to the commission. 44-3158. Expiration, renewal or transfer of licensure; automatic suspension A. All licenses expire on December 31 of each year unless renewed before expiration by payment through the IARD of the fees prescribed by section 44-3181. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other reasonable method that is acceptable to the commission. B. An investment adviser representative may transfer that investment adviser representative's license to an investment adviser that is either licensed by the commission or that has made a notice filing with the commission by filing a completed application for licensure and remitting a transfer fee to the commission through the IARD. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other reasonable method that is acceptable to the commission. The license of an investment adviser representative will automatically be suspended from the time of termination of employment with an investment adviser until the investment adviser representative is employed by another licensed or federal covered adviser, the director is notified of the employment by the investment adviser in writing and the investment adviser is notified of approval of the licensure by the director by mail, through the IARD or by any other reasonable method established by the commission or the investment adviser representative has complied with all requirements in accordance with a temporary investment adviser representative transfer program. The commission may adopt rules providing for temporary transfer of licensure of investment adviser representatives. 44-3159. Reporting requirements A. In order to retain licensure, licensed investment advisers and investment adviser representatives shall file the following with the commission through the IARD: 1. A supplemental statement showing any material changes in the facts contained in the original application for licensure as supplemented or amended as the changes occur or within thirty days after the change. 2. If a licensed investment adviser requires payment of advisory fees six months or more in advance and in excess of five hundred dollars for each client, an audited balance sheet as of the end of the investment adviser's fiscal year. Each balance sheet shall be: (a) Prepared in conformity with generally accepted accounting principles and examined in accordance with generally accepted auditing standards. (b) Audited by an independent certified public accountant. (c) Accompanied by an opinion of the independent certified public accountant as to the report of financial position, and by a note stating the principles used to prepare the report, the basis of included securities and any other explanations required for clarity. B. If the IARD does not provide for receipt of a filing, the filing may be made with the commission by mail or any other reasonable method that is acceptable to the commission. C. The financial statements prescribed in subsection A shall be filed with the commission within ninety days after the end of the investment adviser's fiscal year. D. Any licensed investment adviser that has its principal place of business in another state is exempt from the requirements prescribed in subsection A if all of the following apply: 1. The investment adviser is registered as an investment adviser with the state in which it maintains its principal place of business. 2. The investment adviser has complied with the financial reporting requirements, if any, of the state in which it maintains its principal place of business. 3. If prescribed by the commission, the investment adviser files with the commission a copy of the financial reports it files with the state in which it maintains its principal place of business. 44-3181. Fees; penalties; abandonment A. The annual nonrefundable license fee for each licensed investment adviser and investment adviser representative and the annual nonrefundable notice filing fee for each federal covered adviser shall be paid to the commission on or before the last working day of December. The annual nonrefundable license fee for each investment adviser and the annual nonrefundable notice filing fee prescribed in section 44-3153, subsection F are two hundred fifty dollars and the annual nonrefundable license fee for each investment adviser representative is forty dollars. B. An investment adviser that fails to timely renew an annual investment adviser or investment adviser representative license or notice filing shall pay a penalty of twenty-five dollars per business day until the appropriate documents and fee are filed, up to a maximum of forty business days. Failure to timely renew is not a violation of section 44-3151 if the license or notice filing fee and penalty are paid within forty business days. Failure to renew within forty business days may result in additional sanctions as provided in this chapter. C. The transfer fee for an investment adviser representative transferring that investment adviser representative's license from one investment adviser to another investment adviser is forty dollars. D. All applications, withdrawals, terminations, transfers, renewals or other filings with the IARD shall be on the forms required by the IARD and shall be accompanied by any reasonable costs charged by the IARD for processing the filings. Any person who is required to pay a fee pursuant to this section may transmit the fee to the commission through the IARD. E. The commission shall retain any notice filing or licensure fees that are collected in connection with abandoned applications or notice filings. A notice filing or an application for licensure is deemed abandoned if both: 1. The notice filing or application has been on file with the commission for at least six months or the applicant or notice filer has failed to respond to a request for information for at least two months after the date of the request. 2. The applicant or notice filer has failed to respond to the commission's notice of warning of abandonment within sixty calendar days after the date of the warning. F. The fee for submitting fingerprints is the fee that is required by the federal government and the department of public safety. 44-3201. Grounds for denial, revocation or suspension of license; administrative remedies A. After a hearing or notice and an opportunity for a hearing as provided in article 7 of this chapter, the commission may enter an order suspending for a period of not more than one year, denying or revoking the license of an investment adviser or investment adviser representative if the commission finds that it is in the public interest and any one or a combination of the following: 1. The application for licensure of the investment adviser or investment adviser representative, any financial statement, document or other exhibit filed with an application or any supplement or amendment to an application is incomplete, inaccurate or misleading. 2. The investment adviser is insolvent or is in an unsound financial condition. 3. The investment adviser or investment adviser representative violates this chapter or any rule or order of the commission adopted or issued under this chapter. 4. The investment adviser or investment adviser representative fails to file with the commission any record, report, financial statement or other information required under this chapter or any rule or order of the commission adopted or issued under this chapter or refuses to permit an examination pursuant to section 44-3132. 5. The investment adviser knowingly retains an unlicensed investment adviser representative who is required to be licensed under this chapter. 6. The investment adviser permits any person to render investment advice in violation of this chapter. 7. The investment adviser representative is not employed by a licensed or federal covered adviser. 8. The investment adviser or investment adviser representative has been convicted within ten years preceding the date of filing an application for licensure as an investment adviser or investment adviser representative, or at any time after the date of filing an application, of a felony or misdemeanor involving a transaction in securities, of which fraud is an essential element or arising out of the conduct of any business involving securities or any aspect of the securities business. 9. The investment adviser or investment adviser representative is permanently or temporarily enjoined by order, judgment or decree of an administrative tribunal or a court of competent jurisdiction from engaging in or continuing any conduct or practice involving a violation of any federal or state securities laws or a violation of any other regulatory licensing requirements. 10. The investment adviser or investment adviser representative is subject to an order of an administrative tribunal, an SRO or the SEC denying, revoking or suspending membership, licensure or registration as a broker or dealer in securities or as an investment adviser or investment adviser representative for at least six months. 11. The investment adviser or investment adviser representative has been found civilly or criminally liable, by any court of competent jurisdiction or other governmental authority in a civil or criminal action not subsequently reversed, suspended or vacated, for any fraudulent act or practice in connection with any aspect of the securities business. 12. The investment adviser fails to reasonably supervise its investment adviser representatives or employees to assure their compliance with this chapter. 13. The investment adviser or investment adviser representative engages in dishonest or unethical practices in the securities industry. 14. The investment adviser or investment adviser representative engages in dishonest or unethical practices in business or financial matters. B. In addition to denying, revoking or suspending the license, if the commission finds that an investment adviser or investment adviser representative has engaged in an act, practice or transaction described in subsection A, paragraph 6, 12 or 13, the commission may do one or more of the following: 1. Assess administrative penalties. 2. Order the investment adviser or investment adviser representative to cease and desist from engaging in the act, practice or transaction or doing any other act in furtherance of the act, practice or transaction. 3. Take appropriate affirmative action, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction, including a requirement to provide restitution. C. If the investment adviser is a partnership, corporation, unincorporated association, limited liability company or trust, it is sufficient cause for denial of licensure if a member of the partnership, an officer or director of the corporation or unincorporated association, a manager of a limited liability company, a trustee or any other fiduciary of a trust or a person controlling, controlled by or under common control with the investment adviser has been found civilly or criminally liable, by any court of competent jurisdiction or other governmental authority in a civil or criminal action not subsequently reversed, suspended or vacated, for any act or omission that would be sufficient grounds for denying the licensure of an individual investment adviser. D. If the license of an investment adviser or investment adviser representative is revoked or denied, that investment adviser or investment adviser representative may not file with the commission for licensure under this chapter or for registration under chapter 12 of this title for at least one year from the date of the revocation or denial. 44-3202. Entry of order of denial, suspension or revocation A. If, after a hearing or notice and an opportunity for a hearing as provided in article 7 of this chapter, the commission finds grounds to deny, suspend or revoke the license of an investment adviser or investment adviser representative, the director shall enter an order denying, suspending or revoking the license of the investment adviser or investment adviser representative. The order shall state specifically the grounds for its issuance and shall be filed with docket control of the commission. B. A copy of the order shall be sent by certified mail to the investment adviser or investment adviser representative whose license is denied, suspended or revoked, and if the denial, suspension or revocation of the license is of an investment adviser representative, to the licensed investment adviser who employs the investment adviser representative. C. Denial, suspension or revocation of the license of an investment adviser also suspends or revokes the license of all of the investment adviser's investment adviser representatives, but suspension or revocation of the license of an investment adviser representative solely because the investment adviser representative was employed by an investment adviser whose license was denied, suspended or revoked does not prejudice subsequent applications for licensure by the investment adviser representative. D. An investment adviser or investment adviser representative that has voluntarily terminated or allowed the adviser's or representative's license to lapse shall continue to be subject to actions by the commission under this article in connection with conduct that began before the termination or lapse of the license. Any action by the commission under this article against an investment adviser or investment adviser representative shall begin within two years after termination or lapse of the license. 44-3211. Initiation of hearing; purpose of hearing The commission may order a hearing on its own initiative or at the written request of any interested person, either before or after licensure of an investment adviser or investment adviser representative: 1. For the purpose of administering or obtaining information necessary in the enforcement of this chapter or the rules or orders of the commission adopted or issued under this chapter. 2. To enable the commission to take appropriate action in connection with any pending application for licensure of any investment adviser or investment adviser representative. 3. To modify the terms and conditions of any license, order or notice filing. 4. To determine whether the license of any investment adviser or investment adviser representative should be denied, suspended or revoked. 44-3212. Notice of an opportunity for a hearing; time of hearing A. Before entering an order denying, suspending or revoking the license of an investment adviser or investment adviser representative pursuant to article 6 of this chapter, the commission shall send to the investment adviser or investment adviser representative, and, if an investment adviser representative, to the investment adviser who employs or intends to employ the investment adviser representative, a notice of a hearing or notice of an opportunity for a hearing. B. Before entering an order to cease and desist or an order for rescission, restitution or penalties, the commission shall serve on each respondent a notice of a hearing or a notice of an opportunity for a hearing. The commission by rule may provide for temporary cease and desist orders if the public welfare requires immediate action. C. Notice of a hearing or notice of an opportunity for a hearing shall be served as prescribed by rules adopted by the commission for service of subpoenas and cease and desist orders. The notice shall contain a statement of the matters to be considered. A notice of an opportunity for a hearing shall state that the person to whom the notice is sent will be afforded a hearing on request to the commission if the request is made in writing within ten days after receipt of the notice. D. If a person requests a hearing in accordance with this article, the commission shall set a date, time and place for the hearing and shall immediately notify the person requesting the hearing of the date, time and place for the hearing. The date set for the hearing shall be within sixty days, but not earlier than twenty days after the request for a hearing has been made, unless otherwise agreed to by both the commission and the person requesting the hearing. E. If the hearing is initiated by the commission the notice of the hearing shall specify the date, time and place of the hearing and the date of the hearing shall be within twenty days of the date of the notice of the hearing. 44-3213. Conduct of hearing A. Any hearing under this article may be held before the commission, a member of the commission, the director or any other authorized officer of the commission as the commission directs. B. Conduct of the hearing is governed by this section and by the rules of practice and procedure adopted by the commission. The commission, a member of the commission, the director and any other authorized officers of the commission are not bound by the technical rules of evidence in the conduct of hearings under this article, and no informality in any proceeding, as in the manner of taking testimony, invalidates any order, decision or rule made, approved or confirmed by the commission. C. The commission shall appoint a shorthand reporter to make a stenographic record of all proceedings and testimony of each hearing, and the record shall be reduced to writing and filed with the commission. 44-3214. Rehearings The commission may institute or grant rehearings on application made within twenty calendar days after entry of an order or decision. Unless otherwise ordered, filing an application for rehearing does not stay the commission’s decision or order. If the commission does not grant a rehearing within twenty calendar days, the application is considered to be denied. Rehearings are subject to this article. 44-3231. Judicial review Decisions of the commission pursuant to this chapter are subject to judicial review in superior court in Maricopa county pursuant to title 12, chapter 7, article 6. 44-3241. Fraud in provision of investment advisory services; liability; violation; classification A. It is a fraudulent practice and unlawful for a person, in connection with a transaction or transactions within or from this state involving the provision of investment advisory services, directly or indirectly, to do any of the following: 1. Employ any device, scheme or artifice to defraud. 2. Make any untrue statement of material fact, or fail to state any material fact necessary in order to make the statement made, in the light of the circumstances under which it was made, not misleading. 3. Misrepresent any professional qualifications with the intent that the client rely on the misrepresentation. 4. Engage in any transaction, practice or course of business that operates or would operate as a fraud or deceit. B. A person who violates this section is liable to any person for all losses incurred by that person as a result of the violation, together with interest on losses incurred, court costs and reasonable attorney fees. A civil action under this section is barred unless it is brought within three years after the violation or within two years after discovery of the facts constituting the violation, whichever occurs first. C. A person who violates this section is guilty of a class 4 felony. 44-3271. Petition for appointment of conservators and receivers If an act, practice or transaction that constitutes a violation of section 44-3151 or article 9 of this chapter is alleged in a complaint filed by this state or an agency of this state, the commission may petition the superior court in Maricopa county for the appointment of a conservator to reorganize the affairs of, or a receiver to wind up the affairs of, the violator. The commission may transmit any evidence it has available concerning the act, practice or transaction to the attorney general. On receipt of the evidence, the attorney general may petition the superior court in Maricopa county for the appointment of a conservator to reorganize the affairs of, or a receiver to wind up the affairs of, the violator. Process in these actions may be served on the defendant in any county in this state in which the defendant transacts business or is found. 44-3272. Conservators and receivers Sections 44-2012 through 44-2017 apply to this chapter. 44-3291. Jurisdiction and venue of offenses and actions; joinder of spouse A. The superior court has jurisdiction over violations of this chapter, the rules and orders of the commission adopted or issued under this chapter and all actions brought to enforce any liability or duty created under this chapter, except actions or proceedings brought under section 44-3292, paragraph 2, 3 or 4 or appeals filed under article 8 of this chapter, over which the superior court in Maricopa county has exclusive jurisdiction. B. Any action authorized by this chapter may be brought in the county in which the defendant is found, is an inhabitant or transacts business or in the county in which the transaction took place. Process may be served on any defendant in any county of this state in which the defendant is an inhabitant or in which the defendant is found. C. The commission may join the spouse in any action authorized by this chapter to determine the liability of the marital community. This subsection does not authorize the commission to join any individual who is divorced from the defendant at the time an action authorized by this chapter is filed. 44-3292. Cease and desist orders; injunctions; civil restitution; prosecutions for violations If it appears to the commission, either on complaint or otherwise, that any person has engaged in, is engaging in or is about to engage in any act, practice or transaction that constitutes a violation of this chapter or any rule or order of the commission adopted or issued under this chapter, the commission may: 1. Issue an order directing the person to cease and desist from engaging in the act, practice or transaction, or doing any act in furtherance of the act, practice or transaction, and to take appropriate affirmative action within a reasonable period of time, as prescribed by the commission, to correct the conditions resulting from the act, practice or transaction including a requirement to provide restitution as prescribed by rules of the commission. If a person fails to comply with an order issued under this paragraph, the superior court in Maricopa county, on application by the commission, shall: (a) Issue an order to show cause why the person has not complied with the commission’s order. On a showing that the person has violated the commission’s order, the court may exercise its contempt powers and impose a civil penalty of not more than twenty thousand dollars for each violation as the court considers to be just and proper. (b) Award reasonable costs, including attorney fees, to the commission unless other circumstances make an award of costs unjust. Any costs, including attorney fees, collected pursuant to this paragraph shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund. 2. Apply to the superior court in Maricopa county or any federal court for an injunction restraining the person from any violation, and on a showing by the commission that the person has engaged in, is engaging in or is about to engage in an act, practice or transaction in violation of this chapter or any rule or order of the commission, a temporary restraining order, preliminary injunction or permanent injunction shall be granted without bond. Process in these actions may be served on the defendant in any county of this state in which the defendant transacts business or is found. 3. Apply to the superior court in Maricopa county or any federal court for an order restoring to any person in interest any monies or property, real or personal, that may have been acquired or transferred in violation of this chapter. 4. Petition the superior court in Maricopa county or transmit any evidence available concerning the act, practice or transaction to