(a)General fraud. It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly, to:
(1)employ a device, scheme, or artifice to defraud;
(2)make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statement made, in the light of the circumstances under which they were made, not misleading; or
(3)engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.
(b)Supplemental provisions.
(1)Suitability of recommendation; reasonable grounds required.
(A)In recommending to a customer the purchase, sale, or exchange of a security, a broker-dealer or broker-dealer agent must have reasonable grounds for believing that the reco
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(a) General fraud. It is unlawful for a person, in connection with the offer, sale, or purchase of a security, directly or indirectly, to:
(1) employ a device, scheme, or artifice to defraud;
(2) make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statement made, in the light of the circumstances under which they were made, not misleading; or
(3) engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.
(b) Supplemental provisions.
(1) Suitability of recommendation; reasonable grounds required.
(A) In recommending to a customer the purchase, sale, or exchange of a security, a broker-dealer or broker-dealer agent must have reasonable grounds for believing that the recommendation is suitable for the customer upon the basis of the facts, if any, disclosed by the customer after reasonable inquiry as to the customer's other security holdings and as to the customer's financial situation and needs.
(B) Before the execution of a transaction recommended to a noninstitutional customer, other than transactions with customers where investments are limited to money market mutual funds, a broker-dealer, salesperson, investment adviser, or investment adviser representative shall make reasonable efforts to obtain information concerning:
(i) The customer's financial status;
(ii) The customer's tax status;
(iii) The customer's investment objectives; and
(iv) Such other information used or considered to be reasonable by the broker-dealer, salesperson, investment adviser, or investment adviser representative in making recommendations to the customer.
(2) Guarantees and excessive trading practices. It shall constitute a device, scheme or artifice to defraud within the meaning of this section for any person to:
(A) Represent in the offer or sale of securities, either directly or by implication, in writing or orally, that there is a guarantee against risk or loss;
(B) Induce excessive trading in a customer's account, or induce trading beyond that customer's known financial resources; or
(C) Effect transactions in the account of a customer without his knowledge or maintain discretionary accounts without written authorization.
(3) Recordkeeping and customer statements. Any act of any broker-dealer designed to effect with or for any customer's account, in respect to which such broker-dealer or his or her agent or employee is vested with any discretionary power, any transaction for the purchase or sale of a security shall constitute a "device, scheme or artifice to defraud" within the meaning of this section unless:
(A) immediately after effecting such transaction such broker-dealer make a record of such transaction, which record includes:
(i) the name of such customer;
(ii) the name, amount and price of the security; and
(iii) the date and time when such transaction took place; and
(B) the broker-dealer sends each month to each customer in whose account such broker-dealer exercises any discretionary authority, an itemized statement showing the funds and securities in the custody or possession of the broker-dealer at the end of such period, and all debits, credits, and transactions in such client's account during such period.
(4) Deceptive representations and actions. Without implied limitation, the following shall be deemed schemes or artifices to defraud:
(A) creating an atmosphere of false supply or demand or engaging in market manipulations.
(B) creating unreasonable delays in delivering securities.
(C) representing that securities will be listed on a national exchange or that application for listing will be made, without any basis in fact for such representation.
(D) selling or soliciting the purchase of one security conditioned upon the customer's agreement to purchase another security.