NASAA Series 66 Uniform Combined State Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesHard
An Investment Adviser (IA) has been granted registration by the State Administrator. Six months later, the IA's principal owner is charged with a felony related to financial fraud in a separate jurisdiction. What is the IA's immediate obligation to the State Administrator under the Uniform Securities Act?
- AThe IA must notify the Administrator within 30 days of the charge being filed.
- BThe IA has no obligation to notify the Administrator until its next annual renewal.
- CThe IA must wait for a conviction before notifying the Administrator.
- DThe IA must amend its Form ADV promptly to disclose the charge.
Show answer & explanationAnswer & explanation
Correct answer: D. The IA must amend its Form ADV promptly to disclose the charge.
A felony charge (not just a conviction) against a principal owner is a material event that must be promptly disclosed by amending Form ADV. Failure to do so is a violation and can lead to suspension or revocation of registration.
Why the other options are wrong
- A. While prompt notification is required, 'promptly' for material changes in Form ADV is generally immediate, not a fixed 30-day period. The 30-day rule applies to some specific post-registration filings, but not typically initial disclosure of material disciplinary events.
- B. Waiting for annual renewal is incorrect; material changes require prompt amendment to Form ADV.
- C. Waiting for a conviction is incorrect; the charge itself is a material event requiring disclosure.
Prompt Form ADV Amendments
Investment advisers must promptly amend their Form ADV to disclose material changes, including disciplinary events, charges, and changes to ownership or business practices.
- Applies to charges, not just convictions.
- Prompt means as soon as reasonably possible.
- Failure to amend can result in disciplinary action.
Memory trick: When big trouble or change happens, the IA's book (Form ADV) needs an instant update.