Conflicts of Interest, Impermissible Activities, and Ethics

This is the largest topic in the ethics unit, covering 13 categories of prohibited conduct, conflicts of interest, and ethical obligations for investment advisers, broker-dealers, and their representatives.

When Can Advisers Borrow From or Lend to Clients?

Affiliate: a person or entity that controls, is controlled by, or is under common control with the investment adviser, whether directly or through one or more intermediaries. In practice, this means a corporate parent, a subsidiary, or a sister company under common ownership with the adviser, not an individual client who merely happens to have wealth, industry ties, or a personal relationship with the adviser.

When Can Advisers and IARs Borrow From Clients?

Investment advisers and IARs may not borrow from clients unless the client is:

• A broker-dealer
• An affiliate of the investment adviser
• A financial institution in the business of loaning funds (e.g., a bank)

Agents (registered representatives of broker-dealers) face a stricter rule: they may never borrow from any client under any circumstances. There are no exceptions. The financial institution carve-out exists only in the IA rules, not in the BD/agent rules.

When Can Advisers Loan to Clients?

Loaning to clients is prohibited unless the adviser is:

• A financial institution in the business of loaning funds
• The client is an affiliate of the adviser

Exam Tip: Gotchas

• An investment adviser (IA) cannot borrow $50,000 from a wealthy client to cover a personal expense, even if the client willingly offers the loan. The prohibition is absolute unless the client is a broker-dealer (BD), affiliate, or bank.
• The financial institution exception requires the client to be the institution itself, not merely an employee of one. A client who works at a bank (a loan officer, for example) is still an individual; the loan comes from that person, not the bank, so the exception does not apply.
• The affiliate exception hinges on a control relationship between entities, not on how close or trusted the client is. A wealthy individual investor, even one who sits on the adviser's advisory board or has known the adviser for years, is not an affiliate. A parent company, subsidiary, or sister entity under common ownership with the adviser is.
• An agent may never borrow from any client, full stop. The three exceptions above apply only to IAs and IARs. If a question asks whether an agent can borrow from a client who is a bank, the answer is no.

When Can Advisers Share in Client Profits and Losses?

Agents (broker-dealer representatives) may share in a customer's profits or losses only with:

• Prior written authorization from the customer, AND
• Prior written authorization from the employing broker-dealer

That is the entire test under the NASAA rule governing agents. The rule does not require the sharing to be proportional to the agent's own financial contribution, and it carries no carve-out for the agent's immediate family. Without both written authorizations, sharing in a customer's account profits or losses is prohibited, regardless of the customer's relationship to the agent.

Investment advisers and IARs have no comparable profit-sharing provision at all under the NASAA rule governing unethical practices of investment advisers. That rule prohibits IAs and IARs from borrowing from or lending to clients (covered above), but nowhere in its list of prohibited practices does it address sharing in a client's account profits or losses.

The only performance-linked compensation the exam tests for IAs is a performance-based fee, a completely different arrangement: a fee tied to investment performance, not a share of the client's account.

This fee is permitted only when the client is a qualified client (at least $1.4M under the adviser's management, more than $2.7M net worth, a qualified purchaser, or a knowledgeable employee of the adviser). See the compensation section for the qualified-client thresholds.

Who Can an Agent Split a Commission With?

The NASAA rule on dishonest or unethical practices of broker-dealers and agents sits this prohibition directly beside the profit-sharing rule above. An agent may not divide or split commissions, profits, or other compensation from a securities purchase or sale with any person who is not also registered as an agent for one of only two employers:

Two points decide most questions. The test is registration status plus employer, not licensing in some other field and not the size of the referrer's contribution. And disclosure does not cure it. Unlike many conflict rules, this one has no consent or disclosure exception. Telling the customer about the payment, or getting the customer's written agreement, does not make a prohibited split lawful.

The prohibition also reaches past commissions. It covers profits or other compensation from the purchase or sale of securities, so renaming the payment a referral fee or a thank-you does not move it outside the rule.

Exam Tip: Gotchas

• Common control is the exception students forget. A split with an agent at a different broker-dealer is permitted when the two firms sit under direct or indirect common control. A split with an agent at an unaffiliated firm is not.
• "Registered" means registered now. A colleague who has passed the qualifying exam but whose registration is not yet effective is an unregistered person for this rule.
• Do not import the profit-sharing test. Sharing in a customer's account needs written authorization from both the customer and the broker-dealer. Commission splitting has no authorization path at all; either the recipient qualifies or the split is prohibited.

What Are the Client Confidentiality Rules?

Advisers must not disclose the identity, affairs, or investments of any client unless either of the following applies:

• Required by law (court order, subpoena, regulatory investigation)
• Client consents to the disclosure

Confidentiality continues after the advisory relationship ends.

Exam Tip: Gotchas

• The protection points outward: the rule prohibits sharing client information with third parties, not withholding it from the client. A client may always request information about their own accounts, even after the advisory relationship ends. Citing "client confidentiality" to refuse a client's own request for their own portfolio data is an improper application of the rule.
• The "unless consented to by the client" exception confirms the direction. Consent is only needed when sharing with someone other than the client; the client does not need to consent to receive their own information.

What Are the Insider Trading Rules?

Investment advisers must establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information (Investment Advisers Act insider-trading-policies requirement).

What Do Material and Nonpublic Mean?

• Material: information a reasonable investor would consider important in making an investment decision
• Nonpublic: information not yet broadly disseminated to the investing public

What Are the Key Rules?

• Trading on or tipping others to trade on material nonpublic information violates the Securities Exchange Act of 1934 antifraud provisions, including the general antifraud rule prohibiting any manipulative or deceptive device in connection with the purchase or sale of a security
• Information barriers ("Chinese walls") are common compliance tools to prevent material nonpublic information (MNPI) from flowing between departments

What Triggers Insider Trading Liability?

Simply possessing MNPI does not, by itself, create insider trading liability. Liability requires a duty of trust or confidence:

• Classical theory: a company insider (officer, director, employee) owes a fiduciary duty to that company's own shareholders. Trading on MNPI, or tipping someone else who trades on it, breaches that duty.
• Misappropriation theory: an outsider who owes a duty of trust or confidence to the source of the information (an employer, a client, a person who confided in them) breaches that duty by trading on MNPI obtained from that source, even though the outsider owes nothing to the company whose stock is traded.
• Tipper/tippee liability: someone who receives a tip is liable only if the tipper breached a duty (typically for a personal benefit, which can be monetary, reputational, or a relationship-based gift to a friend or relative) and the tippee knew or should have known about that breach.

Merely overhearing MNPI, with no relationship of trust or confidence to the source and no indication the information was intentionally tipped for a personal benefit, does not by itself create insider trading liability. The duty element, not mere possession of the information, is what triggers the violation.

Once that duty does exist, the person holding MNPI has only two lawful choices, and the exam names them together as the disclose-or-abstain rule: make the information public, or do not trade. There is no third option that permits trading on the information while it stays private, and an insider who lacks the authority to release the news is left with abstaining as the only path.

Exam Tip: Gotchas

• An adviser who learns that a publicly traded company is about to be acquired (material, nonpublic) cannot trade on that information for personal accounts OR client accounts. Using insider information to benefit clients is still illegal.
• Overhearing confidential information from strangers in a public place (a restaurant, an airport) does not by itself create a duty of trust or confidence. Without that duty, trading on what was overheard is not automatically insider trading, even though the information is material and nonpublic.
• If the same information were deliberately passed to someone by a person who breached a duty for a personal benefit, and that person knew or should have known about the breach, tippee liability could still apply. The distinction is the duty and the intent behind the disclosure, not just what was overheard.

What Are the Penalties for Insider Trading?

Insider trading carries two separate penalty regimes: civil penalties the SEC pursues, and criminal penalties the Department of Justice pursues after a conviction. A single violation can trigger both.

Civil penalties (SEC):

• The trader who committed the violation faces disgorgement of the profit gained or loss avoided, plus a civil penalty of up to three times that amount (treble damages)
• A controlling person (a supervisor or firm that knew of the risk and failed to take reasonable steps to prevent it) faces a separate civil penalty of up to the greater of $1 million or three times the controlled person's profit gained or loss avoided, even though the controlling person did not personally trade

Criminal penalties (DOJ), upon conviction for a willful violation:

• An individual: up to 20 years in prison and a fine of up to $5 million
• An entity (a person other than a natural person): a fine of up to $25 million, with no prison term

Exam Tip: Gotchas

• The criminal maximums were raised by the Sarbanes-Oxley Act of 2002. Before that, the individual maximums were 10 years and $1 million; some wrong answers use those older figures.
• The $1 million figure belongs to the controlling person's civil penalty floor. It is not the individual criminal fine, which is $5 million. These are two different penalties under two different provisions, and questions frequently swap one figure into the other's answer choice.
• The $25 million criminal fine applies to an entity, not to an individual acting alone.

What Are Principal Transactions?

A principal transaction occurs when an adviser acting as principal for its own account buys a security from a client or sells one to a client out of its own inventory. Before the transaction is completed, the adviser must disclose that capacity to the client in writing and obtain the client's consent.

This is broader than the agency cross transaction covered in the Client Communication unit: an agency cross involves the adviser acting as broker for both sides, while a principal transaction is the adviser trading directly against the client's own account.

Exam Tip: Gotchas

Failing to make the written disclosure and obtain consent before completion of a principal transaction is a violation of the Investment Advisers Act's antifraud provisions. Consent given after the trade closes does not cure the violation.

What Is Selling Away?

For advisers and IARs, this means engaging in securities transactions outside the scope of the adviser's normal business activities without proper disclosure and authorization.

Exam Tip: Gotchas

Selling away involves a client or third party: the adviser or IAR sells securities to a client (or arranges a client's transaction) outside the firm's normal, disclosed business, off the firm's books. It is not about the representative trading in their own personal account.

An adviser or IAR trading their own account is governed by a separate set of rules covered elsewhere in this unit:

• The Personal Securities Transactions (Code of Ethics) section below requires pre-clearance before an access person buys into an IPO or limited offering, plus initial, annual, and quarterly holdings/transaction reports.
• The Outside Securities Accounts section below requires access persons to have duplicate confirmations and statements sent to the adviser for any personal brokerage account held elsewhere.

Both regimes require disclosure to the firm before or shortly after the trade; neither one is "selling away."

For broker-dealer agents, NASAA's Dishonest or Unethical Business Practices rule defines selling away more broadly: effecting any securities transaction that is not recorded on the broker-dealer's regular books or records, unless the broker-dealer authorizes the transaction in writing before it is executed.

Unlike the adviser-side version above, this covers the agent's own personal transactions as well as transactions involving a client or third party; the rule text carves out no personal-account exception for agents.

Exam Tip: Gotchas

• Selling away for agents requires written authorization from the broker-dealer before execution. Oral or verbal approval, even from a branch manager or other supervisor, does not satisfy the rule. An agent who gets a verbal go-ahead and executes the trade has sold away, even though the firm was informally aware of it.
• Keeping a personal log of the transaction is not a substitute for having it recorded on the firm's own books; a private record does not cure the missing written approval.

What Counts as Market Manipulation?

Any conduct designed to artificially influence the price of a security is prohibited. This includes:

• Wash trades: the same person is the true buyer and seller, often routed through different accounts they control, so beneficial ownership never actually changes hands. This can happen in one pair of trades or across many; what defines a wash trade is that no real ownership change occurs, not how many transactions it takes
• Matched orders: two or more separate parties secretly prearrange offsetting buy and sell orders so it looks like ownership changed hands when it did not
• Painting the tape: one person or a group effects a series of transactions to create the appearance of active trading or move the price, specifically to induce other investors to buy or sell. Unlike a wash trade, the trader does not have to be both sides of the trade
• Front-running: executing personal trades before a large client order that will move the price
• Scalping: buying or holding a security, recommending it to clients so demand pushes the price up, then selling the adviser's position for a profit
• Pump and dump: promoting a security with false, exaggerated, or misleading statements to inflate its price, then selling into the artificial demand that deception created

Exam Tip: Gotchas

• The number of transactions never distinguishes these three. A wash trade requires the same person as buyer and seller, even across many trades in different accounts. A matched order requires a second, separate party. Painting the tape can be one person or several; the defining element is the intent to induce other investors to trade, not who is on each side.
• Scalping and pump and dump are easy to mix up: both involve holding a position, driving demand, then selling for a profit. The dividing line is deception. Scalping is a conflict-of-interest violation: the recommendation can be a genuinely held, accurate opinion, but the adviser fails to disclose a personal stake in the outcome. Pump and dump requires false or misleading statements to manufacture the demand in the first place; the promotion itself is the fraud, independent of whether the promoter discloses a position.

What Does the Code of Ethics Require for Personal Trading?

Every registered investment adviser must adopt a code of ethics under the IA code-of-ethics rule. The code must address personal securities transactions of access persons.

Why this exists: access persons see client trades before the market does. Without oversight, an access person could front-run a client order in their own account, or trade ahead of a recommendation the firm is about to make to clients.

The holdings and transaction reports below let the adviser's compliance staff compare an access person's personal trading against what clients were doing at the same time, so conflicts like that surface instead of staying hidden.

Who Is an Access Person?

Access persons: supervised persons who:

• Have access to nonpublic information about client trades or portfolio holdings
• Are involved in making securities recommendations
• If providing investment advice is the adviser's primary business, all directors, officers, and partners are presumed to be access persons

What Are the Reporting Requirements?

Reportable securities covers almost everything an access person could hold or trade, including stocks, bonds, options, and most mutual funds the adviser itself doesn't manage. A short list is carved out because it presents little opportunity for the kind of trading these reports are meant to catch:

• Direct obligations of the U.S. government (e.g., Treasury securities)
• Bank CDs, commercial paper, repurchase agreements, and other high-quality short-term debt instruments
• Shares of an open-end mutual fund, unless the adviser (or an affiliate) acts as that fund's investment adviser or principal underwriter

When Is Pre-Clearance Required?

Pre-clearance required before access persons acquire beneficial ownership in:

• Initial public offerings (IPOs)
• Limited offerings (private placements)

What Is the Sole Proprietor Exception?

If the adviser has only one access person (the adviser itself), it does not need to submit reports to itself, but must maintain records of all holdings and transactions.

Exam Tip: Gotchas

• The initial holdings report must be filed within 10 days of becoming an access person, but the holdings information must be current as of no more than 45 days prior. The exam may test these specific time frames.

What Are the Rules for Outside Securities Accounts?

Two separate rules govern outside accounts, and the exam tests them differently.

What Must Agents Disclose About Outside Accounts?

Agents must disclose brokerage accounts held at other firms to their employing broker-dealer under the outside-account disclosure requirement.

• New accounts (opened after joining): the agent must obtain prior written consent from the employer before opening the account. No grace period.
• Pre-existing accounts (opened before joining): the agent must notify the employer and the executing firm within 30 calendar days of becoming associated.

The employing firm may then request duplicate confirmations and statements from the executing firm to monitor the account.

What Must IA Access Persons Disclose About Outside Accounts?

Access persons at investment adviser firms must report outside brokerage accounts as part of the holdings-reporting regime. Advisers must receive duplicate confirmations and/or statements for access persons' outside accounts.

The initial holdings report (which covers outside accounts along with all reportable securities) must be filed within 10 days of becoming an access person.

Exam Tip: Gotchas

• The 10-day deadline and the 30-day deadline apply to different registrant types under different rules. The 10-day figure comes from the IA Code of Ethics access-person reporting requirement. The 30-day figure applies to agents disclosing pre-existing outside brokerage accounts to their new employing BD.
• New accounts always require prior consent from the employer. The 30-day grace period exists only for accounts that predated the agent's current employment.

What Is Churning?

Churning: inducing trading in a client's account that is excessive in size or frequency in view of the client's financial resources, investment objectives, and account character. The adviser can directly benefit from excessive transactions, creating a conflict of interest.

Three required elements (all three must be established to prove churning):

1. Control over the account by the agent or adviser. This is the threshold element: without it, the client (not the agent or adviser) is directing the trading, so there is no basis for a churning claim. Control can be actual (formal discretionary authority) or de facto (the client routinely follows every recommendation without independently evaluating it, even with no signed discretionary agreement).
2. Excessive trading, evaluated at the account level (the aggregate pattern), not trade by trade. A recommendation can be individually suitable and still be part of a churning pattern.
3. Scienter (intent): intent to defraud, or reckless disregard for the client's interests. Ordinary negligence does not satisfy this element.

Indicators used as evidence of the excessive-trading element (none is conclusive on its own, and none substitutes for proving control or intent):

• High turnover ratio (annualized value of purchases divided by average account value)
• High cost-to-equity ratio (total costs divided by average equity)
• Frequent short-term trades inconsistent with stated objectives

Churning is both an unethical business practice and a violation of antifraud provisions.

Exam Tip: Gotchas

• A high turnover ratio or cost-to-equity ratio is evidence toward the excessive-trading element only. It never conclusively establishes churning by itself, and it does not substitute for proving control or intent. If a question asks for the "threshold" or "required" element and lists a ratio alongside control, the ratio is a trap.
• Control does not require a signed discretionary agreement. De facto control (the client rubber-stamps every recommendation without independent judgment) satisfies the control element the same as formal discretionary authority does.
• A client authorizing every individual trade is not a complete defense. If the agent has de facto control and the pattern is excessive, churning can still be found even though the client technically approved each order.

How Are Vulnerable Adults Protected From Exploitation?

The Model Act to Protect Vulnerable Adults from Financial Exploitation addresses financial exploitation of eligible adults.

Who Is an Eligible Adult or Qualified Individual?

• Eligible adult: a person age 65 or older, OR an adult with a mental or physical impairment that affects the ability to protect their own financial interests
• Qualified individual: a broker-dealer agent, investment adviser representative, OR any associated person of a broker-dealer or investment adviser who serves in a supervisory, compliance, or legal capacity. Independent contractors fulfilling any of these roles also qualify. Qualified individuals carry the mandatory reporting obligations described below

What Are the Key Provisions?

Exam Tip: Gotchas

• The disbursement delay is up to 15 business days, not calendar days. The firm must conduct an internal review during the delay period.
• Immunity is not automatic. It requires both good-faith compliance and reasonable care. A reckless or bad-faith disclosure or delay loses the safe harbor.
• Reporting to APS and the Administrator is mandatory (shall), while notifying the trusted contact is only permissive (may). Many exam stems hinge on this distinction.
• The suspected exploiter is never notified. This applies in both directions: a suspected-exploiter trusted contact must not be notified of suspected exploitation, and a suspected-exploiter authorized party must not be notified that a disbursement has been delayed.
• A "qualified individual" is defined by role at the firm (supervisory, compliance, or legal capacity), not by job title. Legal counsel for the firm qualifies; a back-office clerk does not.

What Other Activities Are Prohibited?

Additional unethical business practices for advisers and IARs:

• Misrepresentation of qualifications, services, or fees; omitting material facts
• Using others' work without disclosure (presenting third-party reports as your own)
• Guaranteeing results: promising a specific gain or no-loss outcome
• Advertising violations: ads containing untrue statements, implying Administrator approval, or false "free" offers
• Advisory contract failures: contracts must be in writing and disclose services, term, fees, formula, refund policy, discretionary power, and assignment restrictions
• Assignment without consent: cannot assign an advisory contract without client consent
• Accessing client accounts using the client's own unique identifying information (e.g., username and password)

Source: NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers

Additional unethical business practices for broker-dealers and agents:

• Exercising discretion without prior written authorization: a broker-dealer or agent cannot exercise any discretionary power in a customer's account (choosing the security, the amount, or the action) without first obtaining written discretionary authority from the customer, unless the discretion is limited to the time and/or price of execution. Unlike investment advisers and IARs, who may act on oral discretionary authority for the first trade and have 10 business days to reduce it to writing (see the Client Funds and Securities section), agents get no such grace period: the written authorization must exist before the first discretionary trade
• Trading on margin without a written agreement: executing a transaction in a margin account without securing a properly executed written margin agreement from the customer, promptly after the initial transaction in the account
• Hypothecation without a lien or consent: hypothecating (pledging as loan collateral) a customer's securities without having a lien on them, unless the broker-dealer secures a properly executed written consent from the customer promptly after the initial transaction, except as permitted by SEC rules
• False transaction reports and non-bona-fide quotations: one prohibition with two halves. A BD may not publish or circulate any communication reporting a securities transaction it does not believe was a bona fide purchase or sale, and it may not quote a bid or asked price it does not believe represents a bona fide bid or offer. The first half protects the public trade record; the second, usually labeled publishing false quotations, protects the public quote. A firm that posts a $15 bid and a $15.50 ask for a stock it knows nobody wants to trade at those prices is publishing false quotations, and it violates the rule even though no trade ever occurred. This is a specific, named NASAA prohibition, not just a use case of the general antifraud rule. The same conduct could also be framed as a general false-or-misleading-statement violation, but when a fact pattern matches this named rule exactly, the exam treats this as the more precise answer
• Backing away, meaning failing to honor quoted prices: offering to buy from or sell to any person at a stated price without being prepared to trade at that price, on the conditions stated at the time of the offer. A firm that publicly offers to buy 1,000 shares at $20 and states no conditions must honor that quoted price for an acceptance of 500 shares. "The market moved" is not a condition it stated
• False "at the market" representations: telling a customer a security is offered "at the market," or at a price relevant to the market price, without reasonable grounds to believe a market exists other than one the firm makes, creates, or controls. The test is whether an independent market exists, not whether the price the firm named was accurate
• Unfair pricing: entering into a transaction with or for a customer at a price not reasonably related to the current market price, or receiving an unreasonable commission or profit. Excessive markups and excessive markdowns both land here
• Fictitious accounts: establishing or maintaining an account containing fictitious information in order to execute transactions that would otherwise be prohibited. The false account is an independent violation, separate from whatever prohibited transaction it is then used to carry out
• Failing to satisfy arbitration awards or final judgments from client-initiated proceedings
• Failing to pay regulatory fines or penalties imposed by the SEC, state regulators, or self-regulatory organizations (SROs)

Source: NASAA Model Rule on Dishonest or Unethical Business Practices of Broker-Dealers and Agents (April 2025)

The lists above are not exhaustive. Each rule closes with a catch-all naming further conduct that is also grounds for denial, suspension, or revocation of registration:

• Forgery
• Embezzlement
• Nondisclosure, incomplete disclosure, or misstatement of material facts
• Manipulative or deceptive practices

Forgery and embezzlement need no separate rule of their own. They reach the same result through this catch-all, and the consequence is registration action, not merely a label of "unethical."

Exam Tip: Gotchas

• An IA cannot state in advertisements that the state Administrator has "approved" the advertisement. Registration does not imply approval or endorsement of qualifications or business practices.
• An IA cannot include a waiver of compliance with securities laws in an advisory contract.
• A broker-dealer agent cannot borrow the investment adviser's 10-business-day window for reducing oral discretionary authority to writing. That grace period applies only to advisers and IARs; an agent needs written authorization before the very first discretionary trade.
• Forgery and embezzlement are named in the catch-all, not in the numbered lists. A question that asks whether either one is a ground for denial, suspension, or revocation is testing that the enumerated conduct is expressly "not inclusive." The answer is yes for both.
• A fictitious account is a distinct violation from unauthorized trading, selling away, or improper hypothecation. The defining feature is the false account information used to get around a prohibition, not an unapproved trade in the customer's real account (unauthorized trading), an off-book transaction (selling away), or pledging securities as collateral (hypothecation).
• The written margin agreement and the written hypothecation consent do not have to exist before the first trade. Both may be secured promptly after the initial transaction in the account. The exam sometimes flips this to "before the first transaction" as a wrong answer.
• The quotation half of the false-reports rule needs no executed trade. A firm that never traded still violates the rule by publishing a bid or offer it does not believe is bona fide. Do not require a completed transaction before calling it a violation, and do not mistake the conduct for a wash trade or a matched order, both of which require actual executions.
• "At the market" turns on an independent market, not on price accuracy. A firm controlling the only market for a thinly traded security cannot make the representation, even when the price it names is one it would genuinely trade at.
• Unfair pricing has two triggers, and a question needs only one. Either the transaction price is not reasonably related to the current market price, or the commission or profit the firm takes is unreasonable.

What Should You Check on Exam Day?

• IAs/IARs cannot borrow from clients except a BD, affiliate, or bank; agents can never borrow from any client, no exceptions
• IAs and IARs have no profit-sharing exception at all; the only performance-linked arrangement is the qualified-client performance fee, a separate compensation arrangement, not a share of the account. Agents may share in a customer's account only with written authorization from both the customer and the employing broker-dealer; there is no proportionality-to-contribution requirement and no immediate-family carve-out
• An agent may split commissions, profits, or other compensation only with a person registered as an agent for the same broker-dealer or for one under direct or indirect common control; disclosure to the customer never cures a prohibited split, and a colleague who passed the exam but is not yet registered does not qualify
• Client confidentiality continues after the relationship ends; the rule restricts disclosure to third parties, not to the client's own request for their own data
• Insider trading liability requires a duty of trust or confidence (to the company's shareholders, or to the source of the information), not just possession of MNPI; merely overhearing MNPI from strangers does not create that duty, though a deliberate tip from someone who breached a duty for a personal benefit can still create tippee liability
• Insider trading penalties: civil is up to 3x profit/loss for the trader, or the greater of $1 million or 3x for a controlling person; criminal (individual) is up to 20 years and $5 million (raised from 10 years/$1 million by Sarbanes-Oxley), and up to $25 million for an entity
• A principal transaction (adviser trading against its own inventory) requires written disclosure and client consent before the trade completes; consent after the fact does not cure it
• Churning requires all three of control, excessive trading (account-level), and scienter; a high turnover or cost-to-equity ratio alone never proves churning
• A broker-dealer or agent needs written discretionary authorization before the first discretionary trade, with no oral option or grace period; the 10-business-day oral-to-written cure applies only to investment advisers and IARs
• The written margin agreement and the written hypothecation consent are the opposite case: both can be secured promptly after the initial transaction, not before it
• Access persons: initial holdings report within 10 days (data current within 45 days), annual holdings report every 12 months, quarterly transaction report within 30 days; pre-clearance required for IPOs and limited offerings
• Vulnerable-adult disbursement delay: up to 15 business days, extendable to 25 business days at APS's or the Administrator's request (measured from the original delay); notice of the delay to authorized parties and to APS/the Administrator within 2 business days, investigation results due to APS/the Administrator within 7 business days; immunity requires both good-faith compliance and reasonable care
• The suspected exploiter must never be notified, whether as a trusted contact or an authorized party on a delayed disbursement
• The 10-day IA access-person deadline and the 30-day agent pre-existing-outside-account deadline apply to different registrants under different rules
• The false-reports prohibition covers both a transaction report and a quotation; a bid or offer the firm does not believe is bona fide violates it with no trade ever executed
• Backing away (not honoring a stated price on the stated conditions), a false "at the market" representation (no independent market beyond the one the firm controls), and unfair pricing (a price not reasonably related to the current market, or an unreasonable commission or profit) are each separately named BD prohibitions