N.D. Cent. Code § 10-04-10.1

10-04-10.1. Advisory activities

1. It is unlawful for any person who receives, directly or indirectly, any consideration from

another person for advising the other person as to the value of securities or their

purchase or sale, whether through the issuance of analyses or reports or otherwise:

a. To employ any device, scheme, or artifice to defraud the other person; or

b. To engage in any act, practice, or course of business which operates or would

operate as a fraud or deceit upon the other person.

2. It is unlawful for any person, in the solicitation of a client for investment advisory

services, to make any false or misleading statement of material fact, or to fail to

disclose a material fact.

3. It is unlawful for any person who provides investment advisory services subject to the

provisions of this chapter to knowingly sell any security to or purchase any security

from a client while acting for the person's own account or as a broker for another client

unless the person first makes a written disclosure to the client of the capacity in which

the person is acting and obtains the client's written consent to the transaction.

4. It is unlawful for any person who provides investment advisory services subject to the

provisions of this chapter to engage in dishonest or unethical practices as the

commissioner may define by rule.

5. It is unlawful for any investment adviser to enter, extend, or renew any investment

advisory contract unless the investment advisory contract provides in writing that:

a. The investment adviser may not be compensated on the basis of a share of

capital gains, earnings, or capital appreciation of the funds or any portion of the

funds of the client. This subdivision does not prohibit an investment advisory

contract that provides for compensation based on the total value of a fund

determined as of a definite date or averaged as of definite dates or over a definite

period. This subdivision does not prohibit an investment advisory contract that

provides for performance fees permitted and determined in accordance with

section 205 of the Investment Advisers Act of 1940 [Pub. L. 768; 54 Stat. 852;

15 U.S.C. 80b-5] and the rules adopted thereunder.

b. An assignment of the investment advisory contract may not be made by the

investment adviser unless the investment adviser notifies the client of the

intended assignment and obtains the prior written consent of the client.

c. The investment adviser shall provide written notice to the client within fifteen days

of any change of ownership in excess of five percent.

d. The investment adviser shall provide written notice to the client within fifteen days

of a change of controlling interest of the investment adviser. The client may

terminate the investment advisory contract without penalty by providing a written

notice to the investment adviser within thirty days after the client's receipt of the

notice of change of controlling interest.

6. Client securities or funds must be maintained by a qualified custodian. It is unlawful for

any investment adviser to take or have custody of any securities or funds of any client

unless the investment adviser acts as a fiduciary pursuant to duties as an executor,

guardian, conservator, receiver, or trustee.

7. "Custody" means holding directly or indirectly, client funds or securities, or having any

authority to obtain possession or having the ability to appropriate funds or securities.

The investment adviser has custody if a related person holds, directly or indirectly,

client funds or securities, or has any authority to obtain possession of funds or

securities, in connection with advisory services the investment adviser provides to

clients.

a. Custody includes:
curities, or having any

authority to obtain possession or having the ability to appropriate funds or securities.

The investment adviser has custody if a related person holds, directly or indirectly,

client funds or securities, or has any authority to obtain possession of funds or

securities, in connection with advisory services the investment adviser provides to

clients.

a. Custody includes:

(1) Possession of client funds or securities unless the investment adviser

receives the funds or securities inadvertently and returns the funds or

securities to the sender within three business days of receiving the funds or

securities and the investment adviser maintains the records required under

section 10-04-10.3.

(2) Any arrangement, including a general power of attorney, under which the

investment adviser is authorized or permitted to withdraw client funds or

securities maintained with a custodian upon the investment adviser's

instruction to the custodian; and

(3) Any capacity, such as general partner of a limited partnership, managing

member of a limited liability company or a comparable position or another

type of pooled investment vehicle, or trustee of a trust, that gives the

investment adviser or its supervised person legal ownership of or access to

client funds or securities.

b. Receipt of checks drawn by clients and made payable to third parties does not

meet the definition of custody if forwarded to the third party within three business

days of receipt and the investment adviser maintains the records required under

section 10-04-10.3.

8. "Qualified custodian" means the following:

a. A depository institution;

b. A broker-dealer registered in this jurisdiction and with the securities and

exchange commission holding the client assets in customer accounts;

c. A registered futures commission merchant registered under section 4f(a) of the

Commodity Exchange Act [7 U.S.C. 1 et seq.], holding the client assets in

customer accounts, but only with respect to client funds and security futures, or

other securities incidental to transactions in contracts for the purchase or sale of

a commodity for future delivery and options; and

d. A foreign financial institution that customarily holds financial assets for its

customers, provided that the foreign financial institution keeps the advisory

clients' assets in customer accounts segregated from its proprietary assets.