With the core prohibitions established, let's look at the broader standards that apply to all advertising and correspondence: the NASAA dishonest-practices rules and the USA's misleading-filings provision.
NASAA Dishonest Practices - Deceptive Advertising
Under the NASAA Statement of Policy (1983, as amended), it is a dishonest or unethical practice for a broker-dealer to:
- Use any advertising or sales presentation in a fashion that is deceptive or misleading
- Distribute nonfactual data, material, or presentations based on conjecture, unfounded or unrealistic claims in any brochure, flyer, or display
- Use words, pictures, graphs, or other means designed to supplement, detract from, supersede, or defeat the purpose or effect of any prospectus or disclosure
- Publish or circulate any notice, circular, advertisement, or communication purporting to report a transaction as a purchase or sale unless the broker-dealer believes it was a bona fide transaction
- Quote bid or asked prices unless the broker-dealer believes they represent bona fide bids or offers
Exam Tip: Gotchas
The NASAA deceptive advertising prohibition covers more than just ads. It includes sales presentations, brochures, flyers, displays, and any communication that undermines a prospectus or disclosure document. If it could mislead an investor, it is prohibited.
Misleading Filings
It is unlawful for any person to make or cause to be made, in any document filed with the Administrator or in any proceeding under the Act, any statement that is false or misleading in any material respect at the time and under the circumstances in which it is made.
This applies to all filings:
- Registration applications
- Financial statements
- Sales literature filed with the Administrator
- Any other document submitted to the Administrator
Exam Tip: Gotchas
- The misleading-filings prohibition applies to all documents filed with the Administrator, not just advertising
- NASAA prohibits using graphics or charts that undermine the purpose of a prospectus; even a truthful chart can be deceptive if it distracts from required disclosures
- Quoting prices that are not bona fide is a dishonest practice, even if the broker-dealer did not originate the quote