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In its prohibition against fraud, deceit and
206 of the Investment Advisers Act is strict. There is no requirement of
intent. You can argue that you didn't mean to mean to commit fraud. That may
affect whether you get referred to enforcement instead of merely getting hit
with a deficiency letter or an injunction.
Under common law there us generally some requirement of
intent. That is not so true under securities laws.
In SEC v.
Capital Gains Research, Inc. 375 U.S. 180 (1963) (.pdf 16 pages), the
Supreme Court allowed an injunction without a finding of intent to commit
The foregoing analysis of the judicial treatment of
common-law fraud reinforces our conclusion that Congress, in empowering the
courts to enjoin any practice which operates "as a fraud or deceit" upon a
client, did not intend to require proof of intent to injure and actual injury
to the client. Congress intended the Investment Advisers Act of 1940 to be
construed like other securities legislation "enacted for the purpose of
avoiding frauds," not technically and restrictively, but flexibly to effectuate
its remedial purposes.
The limitations in Rule 206(4)-1 on
investment adviser advertising approach the communication from the view of a
client or prospective client, not the adviser. The limitations are designed to
prevent an adviser from doing things that could be perceived as fraudulent even
if the adviser is acting with good intent.
The use of testimonials and ratings are an example of
this. More on that subject later.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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