SEC. 15. Section 217 of the Investment Advisers Act of 1940, as amended, is amended to read as follows:

"SEC. 217. Any person who willfully violates any provision of this title, or any rule, regulation, or order promulgated by the Commission under authority thereof, shall, upon conviction, be fined not more than $10,000, imprisoned for not more than two years, or both."

SEC. 16. The Investment Advisers Act of 1940, as amended, is amended by adding the following new section:

"STATE CONTROL OF INVESTMENT ADVISERS

"SEC. 222. Nothing in this title shall affect the jurisdiction of the securities commissioner (or any agency or officer performing like functions), of any State over any security or any person insofar as it does not conflict with the provisions of this title or the rules and regulations thereunder."

SECURITIES AND EXCHANGE COMMISSION-COMPARATIVE PRINT OF PROPOSED AMENDMENTS TO THE INVESTMENT ADVISERS ACT OF 1940

[Deletions in brackets; additions in italics]

Section 1 would amend paragraph (18) of section 202(a) of the Investment Advisers Act of 1940, as amended, as follows:

(18)

"(a) When used in this title, unless the context otherwise requires-* "State" means any State of the United States, the District of Columbia, [Alaska.] Hawaii, Puerto Rico, [the Philippine Island.] the Canal Zone, the Virgin Islands, or any other possession of the United States."

Section 2 would amend clause (F) of paragraph (1) of section 203 (c) of the Investment Advisers Act of 1940, as amended, as follows:

"(c) Any investment adviser, or any person who presently contemplates becoming an investment adviser, may register under this section by filing with the Commission an application for registration. Such application shall contain such of the following information, in such form and detail, as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors:

“(1) information in respect of—*** (F) [whether such an investment adviser or any partner, officer, director, person performing similar function or controlling person thereof (i) within ten years of the filing of such application has been convicted of any felony or misdemeanor of the character described in paragraph (1) of subsection (d), or (ii) is permanently or temporarily enjoined by an order, judgment or decree of the character described in paragraph (2) of subsection (d) and in each case the facts relating to such conviction or injunction; and] whether such investment adviser; any partner, officer, director, or person performing similar functions, or any person directly or indirectly controlling or controlled by such investment adviser, is subject to any disqualification which would be a basis for denial, suspension or revocation of registration of such investment adviser under the provisions of subsection (d), and”

Section 3 would amend subsection (d) of section 203 of the Investment Advisers Act of 1940, as amended, as follows:

"(d) [The Commission after hearing may by order deny registration to or revoke or suspend the registration of an applicant under this section, if the Commission finds that such denial, revocation, or suspension is in the public interest and that such investment adviser or any partner, officer, director, person performing similar function, or controlling person thereof—

"[(1) within ten years of the issuance of such order, has been convicted of any felony or misdemeanor involving the purchase or sale of any security or arising out of any conduct or practice of such investment adviser or affiliated person as an investment adviser, underwriter, broker, or dealer or as an affiliated person or employee of any investment company, bank, or insurance company;

[(2) at the time of the issuance of such order, is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker, or dealer, or as an affiliated person or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct

or practice in connection with any such activity or in connection with the purchase or sale of any security; or

"[(3) has violated the provisions of section 207 of this title.]

The Commission shall, after appropriate notice and opportunity for hearing, by order deny registration or suspend for a period not exceeding 12 months or revoke the registration of an investment adviser, if it finds that such denial, suspension or revocation is in the public interest and that (1) such investment adviser, whether prior or subsequent to becoming such, or (2) any partner, officer, or director (or any person performing similar functions), or any person directly or indirectly controlling or controlled by such investment adviser, whether prior or subsequent to becoming such (A) has willfully made or caused to be made in any application for registration or report filed with the Commission under this title, or in any proceeding before the Commission with respect to registration, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or who has omitted to state in any such application or report any material fact which is required to be stated therein; or (B) has been convicted within 10 years preceding the filing of the application or at any time thereafter of any felony or misdemeanor which the Commission finds (i) involves the purchase or sale of any security, (ii) arises out of the conduct of the business of a broker, dealer or investment adviser, (iii) involves embezzlement, fraudulent conversion or misappropriation of funds or securities, or (iv) involves the violation of section 1341, 1342, or 1343 of title 18, United States Code, as heretofore or hereafter amended; or (C) is permanently or temporarily enjoined by order, judgment or decree of any court of competent jurisdiction from acting as an investment adviser, underwriter, broker or dealer, or as an affiliated person or employee of any investment company, bank or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security; or (D) has willfully violated any provision of the Securities Act of 1933, or of the Securities Exchange Act of 1934, or of this title, as any of such statutes heretofore have been or hereafter may be amended, or of any rule or regulation under any of such statutes."

Section 4 would amend subsection (e) of section 203 of the Investment Advisers Act of 1940, as amended, as follows:

"(e) The commencement of a proceeding to deny registration under this section shall [not] operate to postpone the effective date of registration [unless the Commission shall find that such postponement is necessary in the public interest and shall so order, but no such order shall operate to postpone such effective date for more than three months] for a period of ninety days, or until final determination whether such registration shall be denied if that determination is made within such ninety-day period; but if, after appropriate notice and opportunity for hearing, it shall appear to the Commission to be necessary or appropriate in the public interest or for the protection of investors to postpone the effective date of such registration beyond such ninety-day period and until final determination of whether such registration shall be denied, the Commission shall so order."

Section 5 would amend subsection (g) of section 203 of the Investment Advisers Act of 1940, as amended, as follows:

"(g) Any person registered under this section may, upon such terms and conditions as the Commission finds necessary in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the Commission. An application for registration under this section may be withdrawn only with the consent of the Commission if the request to withdraw such application is received by the Commission after it has commenced a proceeding to deny registration. If the Commission finds that any person registered under this section, or who has pending an application for registration filed under this section, is no longer in [business] existence or is not engaged in business as an investment adviser, the Commission shall by order cancel the registration of such person."

Section 6 would amend section 204 of the Investment Advisers Act of 1940, as amended, as follows:

"SEC. 204 [Every investment adviser registered under section 203 of this title shall file with the Commission such annual and special reports, in such form as the Commission by rules and regulations may prescribe for the purpose of keeping reasonably current the information contained in the registration applica

tion.] Every investment adviser who makes use of the mails or of any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser (other than one specifically exempted from registration pursuant to section 203 (b)), shall make, keep and preserve for such periods, such accounts, correspondence, memoranda, papers, books and other records, and make such reports, as the Commission by its rules and regulations may prescribe as necessary or appropriate in the public interest or for the protection of investors. Such accounts, correspondence, memoranda, papers, books and other records shall be subject at any time or from time to time to such reasonable periodic, special or other examinations by examiners or other representatives of the Commission as the Commission may deem necessary or appropriate in the public interest or for the protection of investors."

Section 7 would amend the introductory paragraph of section 205 of the Investment Advisers Act of 1940, as amended, as follows:

"SEC. 205. No investment adviser [registered under section 203], unless exempt from registration pursuant to Section 203 (b), shall make use of the mails or any means or instrumentality of interstate commerce, directly or indirectly, to enter into, extend, or renew any investment advisory contract, or in any way to perform any investment advisory contract entered into, extended, or renewed on or after the effective date of this title if such contract—”

Section 8 would amend the introductory paragraph of section 206 of the Investment Advisers Act of 1940, as amended, as follows:

"SEC. 206. It shall be unlawful for any investment adviser [registered under section 203], by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly—"

Section 9 would amend section 206 of the Investment Advisers Act of 1940, as amended, by adding a new clause to be designated as clause (4), as follows:

"(4) to engage in any act, practice, or course of business which is fraudulent, deceptive or manipulative. The Commission shall, for the purposes of this paragraph (4) by rules and regulations define, and prescribe means reasonably designed to prevent, such acts, practices and courses of business as are fraudulent, deceptive, or manipulative."

Section 10 would amend the caption of section 208 of the Investment Advisers Act of 1940, as amended, as follows:

"[UNLAWFUL REPRESENTATIONS] GENERAL PROHIBITIONS"

Section 11 would amend section 208 of the Investment Advisers Act of 1940, as amended, by adding a new subsection to be designated as subsection (d), as follows:

"(d) It shall be unlawful for any person indirectly, or through or by any other person, to do any act or thing which it would be unlawful for such person to do directly under the provisions of this title or any rule or regulation thereunder. It shall be unlawful for any person to aid, abet, counsel, command, induce or procure the violation of any provision of this title or any rule or regulation thereunder by any other person. These provisions shall not constitute a limitation with respect to the applicability of this title of section 2 of title 18, United States Code."

Section 12 would amend subsection (e) of section 209 of the Investment Advisers Act of 1940, as amended, as follows:

"(e) Whenever it shall appear to the Commission that any person has engaged, is engaged or is about to engage in any act or practice constituting a violation of any provision of this title, or of any rule, regulation, or order hereunder, it may in its discretion bring an action in the proper district court of the United States, or the proper United States court of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices and to enforce compliance with this title or any rule, regulation, or order hereunder. Upon a showing that such person has engaged, is engaged, or is about to engage in any such act or practice, a permanent or temporary injunction or decree or restraining order shall be granted without bond. The Commission may transmit such evidence as may be available concerning any violation of the provisions of this title, or of any rule, regulation, or order thereunder, to the Attorney General, who, in his discretion, may institute the appropriate criminal proceedings under this title."

Section 13 would amend subsection (b) of section 210 of the Investment Advisers Act of 1940, as amended, as follows:

"(b) Subject to the provisions of subsection (c) and (e), of section 209, the Commission, or any member, officer or employee thereof, shall not make public the fact that any examination or investigation under this title is being conducted, [nor shall it make public the results of any such investigation, or any facts ascertained during any such investigation, except that the provisions of this subsection shall not apply-] or the results of or any facts ascertained during any such examination or investigation; and no member, officer or employee of the Commission shall disclose to any person other than a member, officer or employee of the Commission any information obtained as a result of any such examination or investigation except with the approval of the Commission. The provisions of this subsection shall not apply—

"(1) in the case of any hearing which is public under the provisions of Section 212; or

"(2) in the case of a resolution or request from either House of Congress." Section 14 would amend subsection (a) of section 211 of the Investment Advisers Act of 1940, as amended, as follows:

"(a) The Commission shall have authority from time to time to make, issue, amend, and rescind such rules and regulations and such orders as are necessary or appropriate to the exercise of the functions and powers conferred upon the Commission elsewhere in this title. For the purpose of its rules or regulations the Commission may classify persons and matters within its jurisdiction and prescribe different requirements for different classes of persons or matters."

Section 15 would amend section 217 of the Investment Advisers Act of 1940, as amended, as follows:

"SEC. 217. Any person who willfully violates any provision of this title, or any rule, regulation or order promulgated by the Commission under authority thereof, shall, upon conviction, be fined not more than $10,000, imprisoned for not more than two years, or both."

Section 16 would amend the Investment Advisers Act of 1940, as amended by adding a new section to be designated as section 222, as follows:

"STATE CONTROL OF INVESTMENT ADVISORS

"SEC. 222. Nothing in this title shall affect the jurisdiction of the securities commissioner (or any agency or officer performing like functions) of any State over any security or any person insofar as it does not conflict with the provisions of this title or the rules and regulations thereunder.”

INVESTMENT ADVISERS ACT OF 1940

AS AMENDED AUGUST 10, 1954

[PUBLIC-No. 768-76TH CONGRESS]

[H. R. 10065]

AN ACT

To provide for the registration and regulation of investment companies and investment advisers, and
for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in
Congress assembled,

TITLE II-INVESTMENT ADVISERS'