DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS  
CORPORATIONS, SECURITIES, AND COMMERCIAL LICENSING  
BUREAU  
SECURITIES  
(By authority conferred on the director of the department of licensing and  
regulatory affairs by sections 201, 202, 202a, 203, 304, 306, 401, 403, 405, 406, 410,  
411, 412, 502, 504, and 605 of the uniform securities act (2002), 2008 PA 551, MCL  
451.2201, 451.2202, 451.2202a, 451.2203, 451.2304, 451.2306, 451.2401, 451.2403,  
451.2405, 451.2406, 451.2410, 451.2411, 451.2412, 451.2502, 451.2504, and 451.2605,  
and Executive Reorganization Order No. 2012-6, MCL 445.2034)  
PART 1. DEFINITIONS  
R 451.1.1 Definitions.  
Rule 1.1. As used in these rules and in the act, if applicable:  
(a) “3(c)(1) fund” means a qualifying private fund that is eligible for the exclusion from  
the definition of an investment company under section 3(c)(1) of the investment company  
act of 1940, 15 U.S.C. §80a-3(c)(1).  
(b) “Act” means the uniform securities act of 2002, 2008 PA 551, MCL 451.2101 to  
451.2703.  
(c) “Agency cross transaction for an advisory client” means a transaction in which a  
person acts as an investment adviser in relation to a transaction in which the investment  
adviser, or any person controlling, controlled by, or under common control with such  
investment adviser, including an investment adviser representative, acts as a broker-  
dealer for both the advisory client and another person on the other side of the transaction.  
(d) “Impersonal advisory services” means any contract relating solely to the provision of  
investment advisory services under any of the following:  
(i) By means of written material or oral statements which do not purport to meet the  
objectives or needs of specific individuals or accounts.  
(ii) Through the issuance of statistical information containing no expression of opinion  
as to the investment merits of a particular security.  
(iii) Any combination of the services in subdivision (d)(i) and (ii) of this rule.  
(e) "Control" means the power to exercise a controlling influence over the management  
or policies of a company, unless such power is solely the result of an official position  
with such company. Any person who owns beneficially, either directly or through 1 or  
more controlled companies, more than 25% of the voting securities of a company is  
presumed to control that company.  
(f) “CRD” means the central registration depository operated by FINRA.  
(g) "Discretionary authority" does not include discretion as to the price at which or the  
time when a transaction is or is to be effected, if, before the order is given by the  
investment adviser, the client has directed or approved the purchase or sale of a definite  
amount of the particular security.  
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(h) “EDGAR” means the electronic data gathering, analysis, and retrieval system  
operated by the SEC.  
(i) “EFD” means the electronic filing depository operated by the North American  
Securities Administrators Association, Inc.  
(j) “Entering into”, in reference to an investment advisory contract, does not include an  
extension or renewal without material change of any contract that is in effect immediately  
prior to an extension or renewal.  
(k) “ESIGN” means the electronic signatures in global and national commerce act, and  
more specifically, chapter 96, subchapters I and II, 15 U.S.C. §§7001 to 7031.  
(l) “FINRA” means the financial industry regulatory authority.  
(m) “Form ADV” means the uniform application for investment adviser registration.  
(n) “Form ADV-W” means the notice of withdrawal from registration as investment  
adviser.  
(o) “Form BD” means the uniform application for broker-dealer registration.  
(p) “Form BDW” means the uniform request for broker-dealer withdrawal.  
(q) “Form U4” means the uniform application for securities industry registration or  
transfer.  
(r) “Form U5” means the uniform termination notice for securities industry registration.  
(s) “Form U-7” means the small company offering registration form.  
(t) “IARD” means the Investment Adviser Registration Depository operated by FINRA.  
(u) "Investment supervisory services" means giving of continuous advice about the  
investment of funds on the basis of the individual needs of each client.  
(v) “NASAA” means the North American Securities Administrators Association, Inc.  
(w) “NASDAQ” means the NASDAQ Stock Market, LLC (formerly an acronym for the  
national association of securities dealers automated quotations system).  
(x) “Private fund adviser” means an investment adviser who provides advice solely to 1  
or more qualifying private funds.  
(y) “Qualifying private fund” means a private fund that meets the definition of a  
qualifying private fund in SEC rule 203(m)-1, 17 C.F.R. §275.203(m)-1.  
(z) “SCOR” means a small corporate offering registration.  
(aa) “SEC” means the United States Securities and Exchange Commission.  
History: 2019 AACS.  
R 451.1.2 Broker-dealer definition exclusion.  
Rule 1.2. As used in these rules and in the act, if applicable, “broker-dealer” does not  
include any of the following:  
(a) A “finder” as that term is defined by section 102(i) of the act, MCL 451.2102(i).  
(b) A person whose participation in an offer or sale of securities, for direct or indirect  
compensation, is limited to introducing 1 or more accredited investors, as that term is  
defined in SEC rule 501, 17 C.F.R. § 230.501, who are residents of this state to an issuer  
incorporated or organized in this state, or introduces an issuer incorporated or organized  
in this state to 1 or more accredited investors who are residents of this state, solely for the  
purpose of a potential offer or sale of the issuer’s securities in an issuer transaction in this  
state, and who complies with all of the following:  
(i) The person shall not engage in any of the following activities:  
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(A) Provide introductions to an issuer for a transaction or a series of related transactions  
in connection with the offer or sale of the issuer’s securities that exceeds a purchase price  
of $15,000,000.00 in the aggregate.  
(B) Participate in negotiating any of the terms of the offer or sale of the securities.  
(C) Advise any party to the transaction regarding the value of the securities or the  
advisability of investing in, purchasing, or selling the securities.  
(D) Participate in the preparation, delivery, or execution of the issuer’s disclosure  
documents, offering circulars, contracts, or other documents related to the transaction  
except as provided for in subrule (b)(iii) of this rule.  
(E) Conduct any due diligence on behalf of an issuer or on behalf of a potential  
purchaser of an issuer’s securities.  
(F) Sell or offer to sell in connection with the issuer transaction any securities of the  
issuer that are owned, directly or indirectly, by the person.  
(G) Receive, directly or indirectly, possession or custody of any funds or securities in  
connection with an issuer transaction for which the person is engaged.  
(H) Receive compensation in connection with any introduction that results in the offer  
or sale of securities without reasonable grounds to believe the offer or sale complies with  
section 301 of the act, MCL 451.2301.  
(I) Receive transaction-based compensation.  
(ii) The person and the issuer shall enter into a written agreement before any  
introduction facilitated by the person in connection with the potential offer or sale of the  
issuer’s securities. The agreement must include the following:  
(A) The type and amount of compensation that has been or will be paid to the person in  
connection with the introduction and the conditions for payments of that compensation.  
(B) That the person is not providing advice to the issuer or any person introduced by the  
person to the issuer as to the value of the securities or the advisability of investing in,  
purchasing, or selling the securities.  
(C) Whether the person, a related person, or a member of the person’s immediate  
family, has any beneficial interest in the securities being offered or sold by the issuer.  
(D) Any actual or potential conflict of interest in connection with the person’s  
participation in the potential securities transaction.  
(iii) The person shall provide a copy of the written agreement required by subdivision  
(b)(ii) of this rule to any potential purchaser of securities before making any introductions  
in reliance on this rule, and receive written acknowledgement from the potential  
purchaser of delivery of the written agreement.  
(iv) Copies of all written agreements and acknowledgements required by subdivision  
(b)(ii) and (iii) of this rule entered into by the person must be maintained by the person  
for a period of 5 years from the date the agreement or acknowledgement is signed by all  
parties, and must be provided to the administrator upon the administrator’s request.  
History: 2019 AACS.  
PART 2. EXEMPTIONS FROM REGISTRATION OF SECURITIES  
R 451.2.1 Not-for-profit securities.  
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Rule 2.1. (1) The offer or sale of a note, bond, debenture, or other evidence of  
indebtedness by a person described in section 201(g) of the act, MCL 451.2201(g),  
qualifies for the self-executing exemption set forth in section 201(g), MCL 451.2201(g)  
only if the aggregate sales price of the issuance of the securities is $500,000.00 or less,  
and sold to a bona fide member of the issuing organization without payment of a  
commission or consulting fee.  
(2) The offer or sale of a note, bond, debenture, or other evidence of indebtedness that  
does not qualify for the self-executing exemption described in subrule (1) of this rule  
shall file with the administrator a request for exemption pursuant to section 201(g) of the  
act, MCL 451.2201(g), and shall comply with subrules (6) to (10) of this rule.  
(3) The administrator shall apply the applicable statement of policy adopted by NASAA  
as listed in subrule (2) of this rule when reviewing requests for exemption authorization  
pursuant to section 201(g) of the act, MCL 451.2201(g).  
(4) The following statements of policy are adopted by reference:  
(a) “Church Bonds” as adopted by NASAA on April 14, 2002. A copy of this policy can  
be obtained from NASAA, 750 First Street, NE, Suite 1140, Washington, DC 20002, and  
is available for free online at http://www.nasaa.org, or from the Michigan department of  
licensing and regulatory affairs, corporations, securities, and commercial licensing  
bureau, P.O. Box 30018, Lansing, MI 48909 for a cost as prescribed in R 451.6.2.  
(b) “Church Extension Fund Securities” as amended and published by NASAA on April  
18, 2004. A copy of this policy can be obtained from NASAA, 750 First Street, NE,  
Suite 1140, Washington, DC 20002, and is available for free online at  
http://www.nasaa.org, or from the Michigan department of licensing and regulatory  
affairs, corporations, securities, and commercial licensing bureau, P.O. Box 30018,  
Lansing, MI 48909 for a cost as prescribed in R 451.6.2.  
(5) The administrator may require a cross-reference table be included in a request for  
exemption authorization to indicate compliance with, or deviation from, the various  
sections of the applicable NASAA statement of policy.  
(6) The request for exemption authorization for an offering of church bonds shall  
include the documents listed in section II.A.3. of the NASAA statement of policy  
“Church Bonds”.  
(7) All sales and advertising literature must be filed with the administrator prior to use  
and must comply with the applicable NASAA statement of policy.  
(8) Each request for exemption under section 201(g) of the act, MCL 451.2201(g), must  
include a nonrefundable filing fee of $250.00.  
(9) The securities that qualify for an exemption under subrule (2) of this rule are exempt  
when ordered by the administrator, and the exemption is effective for 1 year from the  
date that the securities were ordered exempt.  
(10) If the securities offering is not completed during the effective period, an issuer may  
renew the exemption by submitting to the administrator a written request for renewal that  
includes any amendments to the documents filed with the initial request for exemption  
and a nonrefundable filing fee of $250.00. The issuer shall file the written request for  
renewal with the administrator within 30 days before the end of the 1 year effective date.  
With each renewal, the administrator may require a cross-reference sheet to demonstrate  
compliance with the applicable NASAA statement of policy.  
History: 2019 AACS.  
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R 451.2.2 Recognized securities manuals.  
Rule 2.2. The administrator recognizes the following securities manuals under section  
202(1)(b)(iv) of the act, MCL 451.2202(1)(b)(iv):  
(a) Standard & poor’s standard corporation descriptions.  
(b) Mergent’s industrial manual and news reports.  
(c) Mergent’s transportation manual and news reports.  
(d) Mergent’s public utility manual and news reports.  
(e) Mergent’s bank and finance manual and news reports.  
(f) Mergent’s municipal and government manual and news reports.  
(g) Mergent’s international manual and news reports.  
(h) Fitch’s individual stock bulletin.  
(i) Best’s insurance reports life-health.  
(j) Moody’s OTC industrial manual.  
(k) OTC Markets Group, Inc.’s OTCQX market.  
(l) OTC Markets Group, Inc.’s OTCQB market.  
(m) Any other securities manual determined by the administrator to be a nationally  
recognized securities manual that requires the continuous disclosure by any issuer relying  
on the manual for the registration exemption.  
History: 2019 AACS.  
R 451.2.3 Bad actor disqualification.  
Rule 2.3. (1) Exemptions available at section 201(g), MCL 451.2201(g), section  
202(1)(k), MCL 451.2202(1)(k), section 202(1)(n), MCL 451. 2202(1)(n), section  
202(1)(t), MCL 451.2202(1)(t), and section 202a, MCL 451.2202a, are not available for  
an offer or sale of securities if the issuer; any predecessor of the issuer; any affiliated  
issuer; any director, executive officer, other officer participating in the offering, general  
partner or managing member of the issuer; any beneficial owner of 20% or more of the  
issuer’s outstanding voting equity securities, calculated on the basis of voting power; any  
promoter connected with the issuer in any capacity at the time of such sale; any  
investment manager of an issuer that is a pooled investment fund; any person that has  
been or will be paid, directly or indirectly, remuneration for solicitation of purchasers in  
connection with such sale of securities; any general partner or managing member of any  
such investment manager or solicitor; or any director, executive officer or other officer  
participating in the offering of any such investment manager or solicitor or general  
partner or managing member of such investment manager or solicitor is subject to either  
of the following:  
(a) Disqualification as described in SEC rule 506(d) of SEC regulation D, 17 C.F.R.  
§230.506(d).  
(b) Disqualification as described in SEC rule 262 of Regulation A, 17 C.F.R. §230.262.  
(2) Subrule (1) of this rule does not apply under any of the following conditions:  
(a) With respect to any conviction, order, judgment, decree, suspension, expulsion, or  
bar that occurred or was issued before September 23, 2013. Issuers relying on this  
subrule shall furnish to each offeree and purchaser, a reasonable time prior to sale, a  
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description in writing of any matters that would cause a disqualification under subrule (1)  
of this rule, but which occurred before September 23, 2013.  
(b) Upon a showing of good cause and without prejudice to any other action by the  
administrator, if the administrator determines that it is not necessary under the  
circumstances that an exemption be denied. Requests for a determination by the  
administrator under this subsection must be made in writing.  
(c) If, before the relevant sale, the court or regulatory authority that entered the relevant  
order, judgment, or decree advises in writing, whether contained in the relevant order,  
judgment, or decree, or separately to the administrator or its staff, that disqualification  
under subrule (1) of this rule should not arise as a consequence of such order, judgment,  
or decree.  
(d) If the issuer establishes that it did not know and, in the exercise of reasonable care,  
could not have known, that a disqualification existed under subrule (1) of this rule. For  
purposes of this subrule, an issuer shall not be able to establish that it has exercised  
reasonable care unless it has made, in light of the circumstances, factual inquiry into  
whether any disqualifications exist. The nature and scope of the factual inquiry shall vary  
based on the facts and circumstances concerning, among other things, the issuer and the  
other offering participants.  
History: 2019 AACS.  
R 451.2.4 Intra-industry exemption for persons engaged in oil, gas, and mineral  
business.  
Rule 2.4. (1) Pursuant to section 203 of the act, MCL 451.2203, sales of certificates of  
interest; participation in oil, gas, or mining titles or leases; payments out of production  
under such titles or leases; or of other securities relating to oil, gas, or mining ventures  
are exempt from registration requirements of section 301 of the act, MCL 451.2301,  
when the offers or sales are made to any of the following:  
(a) Persons who are engaged on a full-time basis in the business of exploring for, or the  
producing, transporting, or refining of, oil, gas, or other minerals; buying, selling, and  
trading of oil, gas, or mining titles or leases; payments out of production under such titles  
or leases; or in any combination of the foregoing businesses and who have at least 3 years  
of experience in any such business or combination thereof.  
(b) Corporations or any subsidiaries of such corporations, any of the stock of which is  
listed on the New York stock exchange or the American stock exchange, that are engaged  
in any business specified in subdivision (a) of this subrule, or combination thereof, as a  
principal line of business.  
(2) As used in this rule, "engaged on a full-time basis," when applied in relation to the  
business of exploring for, or the producing, transporting, or refining of, oil, gas, or other  
minerals; buying, selling, and trading oil, gas, or mining titles or leases; payments out of  
production under such titles or leases; or any combination of the foregoing businesses  
means that the person is engaged in such business as his or her principal business activity  
and, in the case of an individual, that the person is engaged in any such business in a  
management capacity and either maintains an office for the conduct of such business or is  
employed by a person maintaining such office.  
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(3) For the purpose of this rule, a person is deemed to have had 3 years of experience in  
the business of exploring for, or the producing, transporting, or refining of, oil, gas, or  
other minerals; buying, selling, and trading oil, gas, or mining titles or leases; or  
payments out of production under such titles or leases, if such person was engaged in any  
such business, or combination thereof, on a full-time basis during the period in question.  
However, a corporation, partnership, association, or other business entity that was  
engaged in any such business on a fulltime basis during the period in question is  
nonetheless deemed to have had 3 years of experience in any such business or  
combination thereof, if such entity had at least 1 officer or partner, or person of similar  
status, who was engaged in any such business, or combination thereof, on a full-time  
basis during the period in question.  
History: 2019 AACS.  
R 451.2.5 Purchaser.  
Rule 2.5. For purposes of section 202(1)(n) of the act, MCL 451. 2202(1)(n), a natural  
person, spouse, and minor children residing in the same household, together with any  
revocable grantor trusts, individual retirement accounts, health savings accounts, or  
similar accounts for which any of them is the grantor, trustee, or sole beneficiary, is  
considered as 1 purchaser.  
History: 2019 AACS.  
PART 3. REGISTRATION OF SECURITIES AND NOTICE FILINGS OF  
FEDERAL COVERED SECURITIES  
R 451.3.1 Notice filing.  
Rule 3.1. A notice filing for a security issued by an investment company that is a  
federal covered security as defined in section 18(b)(2) of the securities act of 1933, 15  
U.S.C. §77r, that is not otherwise exempt under sections 201 to 203 of the act, MCL  
451.2201 to 451.2203, includes the following, as applicable:  
(a) Before the initial offer of a federal covered security in this state all of the following:  
(i) All records that are part of a federal registration statement filed with the SEC under  
the securities act of 1933, 15 U.S.C. § 77a et seq.  
(ii) NASAA form U-2 consent to service of process signed by the issuer.  
(iii) NASAA form NF uniform investment company notice filing form.  
(iv) A nonrefundable filing fee of $500.00.  
(b) After the initial offer of sale, if the issuer files an amendment to its registration  
statement with the SEC, the issuer shall file a copy of the amendment with the  
administrator.  
History: 2019 AACS.  
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R 451.3.2 State securities registrations and notice filings.  
Rule 3.2. (1) Pursuant to section 302 of the act, MCL 451.2302, the administrator  
designates the EFD to be authorized pursuant to subrule (2) of this rule to receive and  
store securities registrations, exemptions, notice filings, and amendments and collect  
related fees on behalf of the administrator.  
(2) Unless otherwise provided, upon notice under subrule (3) of this rule, filings and  
related fees shall be filed electronically with and transmitted to the EFD. This  
requirement may be waived by the administrator.  
(3) Notwithstanding subrule (2) of this rule, the electronic filing of documents and the  
collection of related processing fees is not required until such time as the EFD provides  
for receipt of such filings and fees and 30 days’ notice is provided by the administrator.  
Any documents or fees required to be filed with the administrator that are not permitted  
to be filed with, or cannot be accepted by, the EFD system must be filed directly with the  
administrator, or the administrator’s designee.  
(4) A duly authorized person of the issuer shall affix his or her electronic signature to  
the filing by typing his or her name in the appropriate fields and submitting the filing to  
EDGAR. Submission of a filing in this manner shall constitute irrefutable evidence of  
legal signature by any individual whose name is typed on the filing.  
History: 2019 AACS.  
R 451.3.3 Small corporate offering registration, SCOR.  
Rule 3.3. (1) This rule offers issuers an optional method of registration pursuant to the  
provisions of section 304 of the act, MCL 451.2304, for corporations or manager-  
managed limited liability companies issuing securities that are exempt from registration  
under the federal exemption, regulation D, 17 C.F.R. §230.504, or pursuant to the  
provisions of section 3(a)(11) of the securities act of 1933, 15 U.S.C. §77c(a)(11). Issuers  
eligible for this method of registration shall use Form U-7 as the disclosure document for  
the offering. This method of registration is known as SCOR, as defined in R 451.1.1(z).  
(2) Both of the following provisions apply to SCOR applications:  
(a) Applications must be in compliance with the provisions of this rule; however, the  
provisions of this rule may be modified or waived by the administrator.  
(b) Where individual characteristics of specific offerings warrant modification from the  
provisions of this rule, they must be accommodated, insofar as possible, while still being  
consistent with the intent of this rule.  
(3) All of the following provisions apply to the availability of SCOR:  
(a) SCOR is intended to allow small corporations or manger-managed limited liability  
companies to conduct limited offerings of securities. SCOR uses a simplified offering  
format designed to provide adequate disclosure to investors concerning the issuer, the  
securities offered, and the offering itself. Certain issuers may not be able to make  
adequate disclosure using the SCOR format and shall, therefore, be unable to utilize  
SCOR. SCOR shall not be utilized by the following issuers and programs unless written  
permission is obtained from the administrator based upon a showing that adequate  
disclosure can be made to investors using the SCOR format:  
(i) Holding companies, companies that have a principal purpose of owning stock in, or  
supervising the management of, other companies.  
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(ii) Portfolio companies, such as real estate investment trusts.  
(iii) Issuers with complex capital structures.  
(iv) Commodity pools.  
(v) Equipment leasing programs.  
(vi) Real estate programs.  
(b) SCOR is available only to the issuer of the securities and not to any affiliate of that  
issuer or to any other person for resale of the issuer's securities. In addition, all of the  
following requirements must be met:  
(i) The issuer is a corporation or manager-managed limited liability company that is  
organized under the laws of the United States or Canada, or any state, province, or  
territory or possession thereof, or the District of Columbia.  
(ii) The issuer does not engage in petroleum exploration or production or mining or  
other extractive industries.  
(iii) The offering is not a blind pool or other offering for which the specific business to  
be engaged in or property to be acquired by the issuer cannot be specified.  
(iv) The offering price for common stock or common ownership interests, collectively  
referred to as “common stock”; the exercise price if the securities offered are options,  
warrants, or rights for common stock; and the conversion price if the securities are  
convertible into common stock is equal to or more than $5.00 per share.  
(v) The aggregate offering price of the securities offered, within or outside this state, is  
not more than $5,000,000.00, less the aggregate offering price of all securities sold within  
the 12 months before the start of and during the offering of the securities under federal  
exemption, regulation D, 17 C.F.R. §230.504, in reliance on any exemption pursuant to  
the provisions of section 3(a)(11) and (b) of the securities act of 1933, 15 U.S.C.  
§77c(a)(11) and (b) or in violation of section 5(a) of the securities act of 1933, 15 U.S.C.  
§77e(a).  
(c) SCOR is not available to investment companies that are subject to the investment  
company act of 1940, 15 U.S.C. §80(a) et seq., or to issuers that are subject to the  
reporting requirements of section 13 or section 15(d) of the securities exchange act of  
1934, 15 U.S.C. §78m and §78o(d).  
(d) SCOR is available for registration of debt offerings only if the issuer can  
demonstrate a reasonable ability to service its debt.  
(4) SCOR is not available for the securities of any issuer if any of the following  
provisions applies to that issuer or any of its officers, directors, 10% stockholders,  
unitholders, promoters, or any selling agents of the securities to be offered or any officer,  
director, or partner of such selling agent:  
(a) The individual has filed a registration statement that is the subject of a current  
registration stop order entered pursuant to any federal or state securities law within 5  
years before the filing of the SCOR application.  
(b) The individual has been convicted, within 5 years before the filing of the SCOR  
application, of any felony or misdemeanor in connection with the offer, purchase, or sale  
of any security or any felony involving fraud or deceit, including any of the following:  
(i) Forgery.  
(ii) Embezzlement.  
(iii) Obtaining money under false pretenses.  
(iv) Larceny.  
Page 9  
(v) Conspiracy to defraud.  
(c) The individual is currently subject to any state administrative enforcement order or  
judgment entered by any state securities administrator or the SEC within 5 years before  
the filing of the SCOR application or is subject to any federal or state administrative  
enforcement order or judgment in which fraud or deceit, including making untrue  
statements of material facts or omitting to state material facts, was found and the order or  
judgment was entered within 5 years before the filing of the SCOR registration  
application.  
(d) The individual is subject to any federal or state administrative enforcement order or  
judgment that prohibits, denies, or revokes the use of any exemption for registration in  
connection with the offer, purchase, or sale of securities.  
(e) The individual is currently subject to any order, judgment, or decree of any court of  
competent jurisdiction temporarily or preliminarily, or permanently restraining or  
enjoining such party from engaging in or continuing any conduct or practice in  
connection with the purchase or sale of any security or involving the making of any false  
filing with any state or with the SEC entered within 5 years before the filing of the SCOR  
application. However, the prohibition of this subdivision and subdivisions (a), (b), and (c)  
of this subrule do not apply if the person who is subject to the disqualification is duly  
licensed or registered to conduct securities-related business in the state in which the  
administrative order or judgment was entered against the person or if the broker-dealer  
who employs the person is licensed or registered in this state and the form BD that is  
filed in this state discloses the order, conviction, judgment, or decree relating to the  
person. A person who is disqualified pursuant to the provisions of this subdivision shall  
not act in any capacity other than that for which the person is licensed or registered. Any  
disqualification pursuant to the provisions of this subdivision is automatically waived if  
the state securities administrator or other state or federal agency that created the basis for  
disqualification determines, upon a showing of good cause, that it is not necessary under  
the circumstances that the exemption be denied.  
(5) By filing for SCOR in this state, the registrant agrees with the administrator that the  
registrant shall not split its common stock or declare a stock dividend for 2 years after the  
effectiveness of the registration without the prior written approval of the administrator.  
(6) In addition to filing a properly completed form and filing fee required pursuant to  
the provisions of section 305(2) of the act, MCL 451.2305(2), an applicant for SCOR  
shall file all of the following exhibits with the administrator:  
(a) The form of selling agency agreement.  
(b) The issuer's articles of incorporation or other charter documents and all amendments  
to those documents.  
(c) The issuer's bylaws or operating agreement, as amended to date.  
(d) Copies of any resolutions by directors setting forth terms and provisions of capital  
stock or units to be issued.  
(e) Any indenture, form of note, or other contractual provision containing terms of notes  
or other debt or of options, warrants, or rights to be offered.  
(f) A specimen of the security to be offered, including any legend restricting resale.  
(g) Consent to service of process accompanied by an appropriate corporate resolution.  
(h) Copies of all advertising or other material that is directed, or to be furnished, to  
investors in the offering.  
Page 10  
(i) The form of escrow agreement for escrow of proceeds.  
(j) Consent to inclusion in disclosure document of accountant's report.  
(k) Consent to inclusion in disclosure document of tax advisor's opinion or description  
of tax consequences.  
(l) Consent to inclusion in disclosure document of any evaluation of litigation or  
administrative action by counsel.  
(m) The form of any subscription agreement for the purchase of securities in the  
offering.  
(n) An opinion of an attorney who is licensed to practice in a state or territory of the  
United States that the securities to be sold in the offering have been duly authorized and,  
when issued upon payment of the offering price, shall be legally and validly issued, fully  
paid and nonassessable, and binding on the issuer pursuant to their terms.  
(o) A schedule of residential street addresses of officers, directors, and principal  
stockholders.  
(p) Additional information as the administrator requires by rule or order.  
History: 2019 AACS.  
R 451.3.4 Registration by qualification; prospectus.  
Rule 3.4. (1) As a condition of registration by qualification, a prospectus containing the  
information and records specified in section 304(2) of the act, MCL 451.2304(2), must be  
sent or given by the issuer to each person to whom an offer is made, before or  
concurrently, with the earliest of any of the following:  
(a) The first offer made in a record to the person other than by means of a public  
advertisement, by or for the account of the issuer or another person on whose behalf the  
offering is being made, or by an underwriter or broker-dealer that is offering part of an  
unsold allotment or subscription taken by the person as a participant in the distribution.  
(b) The confirmation of a sale made by or for the account of the person.  
(c) Payment pursuant to the sale.  
(d) Delivery of the security pursuant to the sale.  
(2) If the prospectus, or any part of it, becomes misleading as to any material fact, or  
facts, or omits to state a material fact necessary in order to make the statements made, in  
the light of the circumstances under which they are made, not misleading, it must be  
revised or supplemented, and the revision or supplementation must be submitted to the  
administrator prior to use. A prospectus must not be used if the administrator has  
informed the registrant of an objection to the prospectus.  
(3) An issuer shall not use a prospectus without revision or supplementation for more  
than 13 months from its first use.  
(4) Every submitted prospectus must carry the following legend displayed in a  
prominent manner: “THESE SECURITIES ARE OFFERED PURSUANT TO A  
REGISTRATION ORDER ISSUED BY THE STATE OF MICHIGAN. THE STATE  
OF MICHIGAN DOES NOT RECOMMEND OR ENDORSE THE PURCHASE OF  
ANY SECURITIES, NOR DOES IT PASS UPON THE TRUTH, MERITS, OR  
COMPLETENESS OF ANY PROSPECTUS OR ANY OTHER INFORMATION  
FILED WITH THIS STATE. ANY REPRESENTATION TO THE CONTRARY IS A  
CRIMINAL OFFENSE.”  
Page 11  
History: 2019 AACS.  
R 451.3.5 Registration by qualification; reports and investigations.  
Rule 3.5. (1) As a condition of registration by qualification, the administrator may  
require that a report by an accountant, engineer, appraiser or other professional person be  
filed, and may require that the estimated cost of such report be deposited in advance by  
the registrant in an escrow account.  
(2) The administrator may designate 1 or more employees to investigate the books,  
records, and affairs of any applicant for registration by qualification and may require the  
estimated cost of the investigation to be deposited in advance by the applicant in an  
escrow account.  
(3) Unless waived by the administrator in writing, a registrant by qualification shall  
submit a complete audit report of the issuer covering the last fiscal year that is certified  
by an independent or certified public accountants.  
History: 2019 AACS.  
R 451.3.6 Adoption by reference; statements of policy.  
Rule 3.6. (1) Unless waived by the administrator, the administrator shall apply the  
applicable statement of policy adopted by NASAA when conducting a merit review to  
determine whether an offering is fair, just, and equitable.  
(a) The following statements of policy are incorporated by reference in these rules and  
made a part of this rule as published by NASAA, 750 First Street, NE, Suite 1140,  
the Michigan department of licensing and regulatory affairs, corporations, securities, and  
commercial licensing bureau, P.O. Box 30018, Lansing, MI 48909 for a cost as  
prescribed in R 451.6.2:  
(i) “Corporate Securities Definitions”, as amended by NASAA on March 31, 2008.  
(ii) “Loans and Other Material Affiliated Transactions”, as amended by NASAA on  
March 31, 2008.  
(iii) “Options and Warrants”, as amended by NASAA on March 31, 2008.  
(iv) “Preferred Stock”, as amended by NASAA on March 31, 2008.  
(v) “Promoter’s Equity Investment”, as amended by NASAA on March 31, 2008.  
(vi) “Promotional Shares”, as amended by NASAA on March 31, 2008.  
(vii) “Risk Disclosure Guidelines”, as adopted by NASAA on September 9, 2001.  
(viii) “Specificity in Use of Proceeds”, as amended by NASAA on March 31, 2008.  
(ix) “Underwriting Expenses, Underwriter’s Warrants, Selling Expenses and Selling  
Security Holders”, as amended by NASAA on March 31, 2008.  
(x) “Unsound Financial Condition”, as amended by NASAA on March 31, 2008.  
(xi) “Unequal Voting Rights”, as amended by NASAA on March 31, 2008.  
(xii) “Registration of Asset-Backed Securities”, as amended by NASAA on May 6,  
2012.  
(xiii) “Mortgage Program Guidelines”, as amended by NASAA on May 7, 2007.  
(xiv) “Real Estate Programs”, as amended by NASAA on May 7, 2007.  
(xv) “Real Estate Investment Trusts”, as amended by NASAA on May 7, 2007.  
Page 12  
(xvi) “Registration of Oil and Gas Programs”, as amended by NASAA on May 6, 2012.  
(xvii) “Equipment Programs”, as amended by NASAA on May 6, 2012.  
(xviii) “Commodity Pool Programs”, as amended by NASAA on May 6, 2012.  
(xix) “Cattle-Feeding Programs”, as adopted by NASAA on September 17, 1980.  
(xx) “Omnibus Guidelines”, as amended by NASAA on May 7, 2007.  
(xxi) “Viatical Investment Guidelines”, as adopted by NASAA on October 1, 2002.  
(b) The “Omnibus Guidelines” shall be applied to limited partnerships programs or  
other entities in which more specific statements of policy have not been adopted by  
NASAA.  
(2) If requested by the administrator, a registration statement to register securities must  
include a cross-reference table to indicate compliance with, or deviation from, the  
applicable statement of policy.  
(3) In establishing standards of fairness and equity, the administrator establishes the  
following investor suitability standards for direct participation programs registered under  
the act:  
(a) A gross income of $70,000.00 and a net worth of $70,000.00, exclusive of home,  
home furnishings, and automobiles, or a net worth of $250,000.00, exclusive of home,  
home furnishings, and automobiles.  
(b) No more than 10% of any 1 Michigan investor’s liquid net worth shall be invested in  
the securities being registered with the administrator.  
(4) The administrator may establish higher or lower suitability standards as a condition  
of registration.  
(5) The suitability standards must be disclosed in the prospectus.  
History: 2019 AACS.  
R 451.3.7 Abandonment of registration statement.  
Rule 3.7. The administrator may begin proceedings to deny effectiveness of a  
registration statement under section 306(1) of the act, MCL 451.2306(1), if the applicant  
fails to complete or withdraw the application within 7 months after the date the  
application for registration is filed.  
History: 2019 AACS.  
PART 4. BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS,  
INVESTMENT ADVISER REPRESENTATIVES, AND FEDERAL COVERED  
INVESTMENT ADVISERS  
R 451.4.1 Broker-dealer; Canadian exemption.  
Rule 4.1. (1) A broker-dealer that is registered as a broker-dealer in 1 or more Canadian  
provinces and that does not have a place of business in this state may effect transactions  
in securities with or for, or attempt to effect the purchase or sale of any securities by, any  
of the following:  
Page 13  
(a) A resident of Canada who is temporarily present in this state and with whom the  
broker-dealer had a bona fide customer relationship before the individual entered the  
United States.  
(b) A resident of Canada who is present in this state and whose transactions are in a self-  
directed, tax-advantaged retirement plan of which the individual is the holder or  
contributor in Canada.  
(c) An individual who is present in this state, with whom the broker-dealer customer  
relationship arose while the individual was temporarily or permanently a resident of  
Canada.  
(2) An agent who represents a broker-dealer that is exempt under subrule (1)(a) of this  
rule, may effect transactions in securities or attempt to effect the purchase or sale of any  
securities in this state as permitted for a broker-dealer described in subrule (1)(a) of this  
rule.  
History: 2019 AACS.  
R 451.4.2 Merger and acquisition broker exemption.  
Rule 4.2. (1) The following definitions apply for purposes of this rule:  
(a) “Control” means the power to directly or indirectly direct the management or  
policies of a company, whether through ownership of securities, by contract, or  
otherwise. There is a presumption of control for a person who meets any of the following:  
(i) Is a director, general partner, member, or manager of a limited liability company, or  
officer exercising executive responsibility, or has similar status or functions.  
(ii) Has the right to vote 20% or more of a class of voting securities or the power to sell  
or direct the sale of 20% or more of a class of voting securities.  
(iii) In the case of a partnership or limited liability company, has the right upon  
dissolution to receive, or has contributed, 20% or more of the capital.  
(b) “Eligible privately held company” means a company meeting both of the following  
conditions:  
(i) The company does not have any class of securities registered or required to be  
registered with the SEC pursuant to section 12 of the securities exchange act of 1934, 15  
U.S.C. 78l; or, with respect to which the company files, or is required to file, periodic  
information, documents, and reports pursuant to section 15(d) of the securities exchange  
act of 1934, 15 U.S.C. 78o(d).  
(ii) In the fiscal year ending immediately before the fiscal year in which the services of  
the merger and acquisition broker are initially engaged with respect to the securities  
transaction, the company meets either or both of the following conditions:  
(A) The earnings of the company before interest, taxes, depreciation, and amortization  
are less than $25,000,000.00.  
(B) The gross revenues of the company are less than $250,000,000.00.  
(c) “Merger and acquisition broker” means a broker and a person associated with a  
broker engaged in the business of effecting securities transactions solely in connection  
with the transfer of ownership of an eligible privately held company, regardless of  
whether the broker acts on behalf of a seller or buyer, through the purchase, sale,  
exchange, issuance, repurchase or redemption of, or, a business combination involving  
Page 14  
securities or assets of the eligible privately held company if both of the following are  
true:  
(i) If the merger and acquisition broker reasonably believes that upon consummation of  
the transaction, all persons acquiring securities or assets of the eligible privately held  
company, acting alone or in concert, will control and be active in the management of the  
eligible privately held company or the business conducted with the assets of the eligible  
privately held company.  
(ii) If a person is offered securities in exchange for securities or assets of the eligible  
privately held company, then before becoming legally bound to consummate the  
transaction, the person will receive or have reasonable access to the most recent fiscal  
year-end financial statements of the issuer of the securities as customarily prepared by its  
management in the normal course of operations and, if the financial statements of the  
issuer are audited, reviewed, or compiled, any related statement by the independent  
accountant; a balance sheet dated not more than 120 days before the date of the exchange  
offer; and, information pertaining to the management, business, results of operations for  
the period covered by the foregoing financial statements, and any material loss  
contingencies of the issuer.  
(d) “Public shell company” is a company that at the time of a transaction with an  
eligible privately held company meets all of the following:  
(i) Has any class of securities registered or required to be registered with the SEC  
pursuant to section 12 of the securities exchange act of 1934, 15 U.S.C. 78l; or, with  
respect to which the company files or is required to file periodic information, documents,  
and reports pursuant to section 15(d) of the securities exchange act of 1934, 15 U.S.C.  
78o(d).  
(ii) Has no or nominal operations.  
(iii) Has no or nominal assets; assets consisting solely of cash and cash equivalents; or,  
assets consisting of any amount of cash and cash equivalents and nominal other assets.  
(2) A merger and acquisition broker is exempt from registration as a broker-dealer  
pursuant to section 401 of the act, MCL 451.2401, except as provided in subrules (3) and  
(4) of this rule.  
(3) A merger and acquisition broker is not exempt from registration pursuant to this rule  
if the merger and acquisition broker does any of the following:  
(a) Directly or indirectly, in connection with the transfer of ownership of an eligible  
privately held company, receives, holds, transmits, or has custody of the funds or  
securities to be exchanged by the parties to the transaction.  
(b) Engages on behalf of an issuer in a public offering of any class of securities that is  
registered or required to be registered with the SEC pursuant to section 12 of the  
securities exchange act of 1934, 15 U.S.C. 78l; or, with respect to which the issuer files  
or is required to file periodic information, documents, and reports pursuant to section  
15(d) of the securities exchange act of 1934, 15 U.S.C. 78o(d).  
(c) Engages on behalf of any party in a transaction involving a public shell company.  
(4) A merger and acquisition broker is not exempt from registration pursuant to this  
paragraph if the merger and acquisition broker is subject to any of the following:  
(a) Suspension or revocation of registration pursuant to section 15(b)(4) of the securities  
exchange act of 1934, 15 U.S.C. 78o(b)(4).  
Page 15  
(b) A statutory disqualification described in section 3(a)(39) of the securities exchange  
act of 1934, 15 U.S.C. 78c(a)(39).  
(c) A disqualification as described in SEC rule 506(d) of SEC regulation D, 17 C.F.R.  
§230.506(d).  
(d) A final order described in paragraph (4)(H) of section 15(b) of the securities  
exchange act of 1934, 15 U.S.C. 78o(b)(4)(H).  
(5) Nothing in this rule shall be construed to limit the authority of the administrator to  
exempt a person or class of persons from the provisions of the act or rules or orders  
promulgated pursuant to the act.  
(6) On the date that is 5 years after the date of the enactment of this rule, and every 5  
years after that date, each dollar amount in subrule (1)(b)(ii) may be adjusted pursuant to  
all of the following:  
(a) Dividing the annual value of the Detroit consumer price index for the calendar year  
preceding the calendar year in which the adjustment is being made by the annual value of  
such index for the calendar year ending December 31, 2012. As used in this subrule,  
"Detroit consumer price index" means the most comprehensive index of consumer prices  
available for the Detroit area by the Bureau of Labor Statistics of the United States  
Department of Labor.  
(b) Multiplying such dollar amount by the quotient obtained pursuant to subdivision (a)  
of this subrule.  
(c) Each dollar amount determined pursuant to this subrule shall be rounded to the  
nearest multiple of $100,000.00.  
History: 2019 AACS.  
R 451.4.3 Electronic filing; designated entities.  
Rule 4.3. (1) The administrator designates both of the following:  
(a) The CRD to receive and store filings and collect fees from broker-dealers and agents  
representing broker-dealers on behalf of the administrator.  
(b) The IARD to receive and store filings and collect fees from investment advisers,  
investment adviser representatives, and federal covered investment advisers on behalf of  
the administrator.  
(2) Unless otherwise provided, all applications, amendments, reports, notices, related  
filings, and fees required to be filed with the administrator pursuant to the act or rules  
adopted under the act, shall be filed electronically with and transmitted to 1 of the  
following:  
(a) The CRD, when the filing is required for the registration of a broker-dealer or agent  
representing a broker-dealer.  
(b) The IARD, when the filing is required for the registration or notice filing of a federal  
covered investment adviser, an investment adviser, or investment adviser representative.  
(3) When a signature, or signatures, are required by the particular instructions of any  
filing to be made electronically through the CRD or the IARD, the applicant or a duly  
authorized officer of the applicant, as required, shall affix his or her electronic signature  
to the applicable form by typing his or her name in the appropriate fields and submitting  
the filing electronically to the CRD or the IARD. Submission of a filing in this manner  
Page 16  
constitutes irrefutable evidence of legal signature by any individual whose name is typed  
on the filing.  
(4) Solely for purposes of document submissions made electronically through the CRD  
or the IARD, a document is considered filed with the administrator when all fees are  
received and the filing is accepted by the CRD or the IARD on behalf of the state.  
(5) Any documents or fees required to be filed with the administrator that are not  
permitted to be filed with, or cannot be accepted electronically by the CRD or the IARD,  
must be filed directly with the administrator.  
History: 2019 AACS.  
R 451.4.4 Electronic signatures.  
Rule 4.4. (1) As used in this rule “electronic agent” means a computer program or an  
electronic or other automated means used independently to initiate an action or respond  
to electronic records or performances, in whole or in part, without review or action by an  
individual at the time of the action or response.  
(2) Electronic signatures may be used or accepted, or both, for investment securities if  
the legal effect, validity, or enforceability of contracts or other records are consistent with  
ESIGN.  
(3) This rule does not require a record or signature be created, generated, sent,  
communicated, received, stored, or otherwise processed or used by electronic means or in  
electronic form.  
(4) This rule applies only to transactions between parties each of which has agreed to  
conduct transactions by electronic means. Whether the parties agree to conduct  
transactions by electronic means is determined from the context and surrounding  
circumstances, including the parties' conduct.  
(5) If a party agrees to conduct a transaction by electronic means, this rule does not  
prohibit the party from refusing to conduct other transactions by electronic means. This  
subrule may not be modified by agreement.  
(6) Whether an electronic record or electronic signature has legal effect is determined by  
this rule and other applicable law.  
(7) A signature may not be denied legal effect solely because the record or signature is  
in electronic form.  
(8) A contract may not be denied legal effect solely because an electronic record was  
used in the contract's formation.  
(9) If a law requires a record to be in writing, an electronic record satisfies the law.  
(10) If a law requires a signature, an electronic signature satisfies the law.  
(11) If parties have agreed to conduct transactions by electronic means, and a law  
requires a person to provide, send, or deliver information in writing to another person, the  
requirement is satisfied if the information is provided, sent, or delivered, in an electronic  
record capable of retention by the recipient at the time of receipt. An electronic record is  
not capable of retention by the recipient if the sender, or the sender's information  
processing system, inhibits the ability of the recipient to print or store the electronic  
record.  
Page 17  
(12) If a sender’s information processing system inhibits the ability of a recipient to  
print or store an electronic record, the electronic record is not enforceable against the  
recipient.  
(13) An electronic record, or electronic signature, is attributable to a person if it was the  
act of the person. The act of the person may be shown in any manner, including a  
showing of the efficacy of any security procedure applied to determine the person to  
which the electronic record, or electronic signature, was attributable.  
(14) The effect of an electronic record, or electronic signature, attributed to a person is  
determined from the context and surrounding circumstances at the time of the record's or  
signature's creation, execution, or adoption, including the parties' agreement, if any, and  
otherwise as provided by law.  
(15) If a change or error in an electronic record occurs in a transmission between parties  
to a transaction, both of the following apply:  
(a) If the parties have agreed to use a security procedure to detect changes or errors, and  
1 party has conformed to the procedure, but the other party has not, and the  
nonconforming party would have detected the change or error had that party also  
conformed, the conforming party may avoid the effect of the changed or erroneous  
electronic record.  
(b) In an automated transaction involving an individual, the individual may avoid the  
effect of an electronic record that resulted from an error made by the individual in dealing  
with the electronic agent of another person if the electronic agent did not provide an  
opportunity for the prevention or correction of the error and, at the time the individual  
learns of the error, the individual does all of the following:  
(i) Promptly notifies the other person of the error and that the individual did not intend  
to be bound by the electronic record received by the other person.  
(ii) Takes reasonable steps, including steps that conform to the other person's reasonable  
instructions, to return to the other person or, if instructed by the other person, to destroy  
the consideration received, if any, as a result of the erroneous electronic record.  
(iii) Has not used or received any benefit or value from the consideration, if any,  
received from the other person.  
(16) If a law requires that a record be retained, the requirement is satisfied by retaining  
an electronic record of the information in the record that does both of the following:  
(a) Accurately reflects the information set forth in the record after it was first generated  
in its final form as an electronic record or otherwise.  
(b) Remains accessible for later reference.  
(17) If a law requires a record to be presented or retained in the record's original form,  
or provides consequences if the record is not presented or retained in the record's original  
form, that law is satisfied by an electronic record retained in accordance with subrule (16)  
of this rule.  
(18) In a proceeding, evidence of a record or signature may not be excluded solely  
because it is in electronic form.  
(19) In an automated transaction, all of the following apply:  
(a) A contract may be formed by the interaction of an electronic agent and an individual,  
acting on the individual's own behalf or for another person, including by an interaction in  
which the individual performs actions that the individual is free to refuse to perform and  
Page 18  
which the individual knows, or has reason to know, shall cause the electronic agent to  
complete the transaction or performance.  
(b) The terms of the contract are determined by the substantive law applicable to the  
contract.  
(20) Unless otherwise agreed between the sender and the recipient, an electronic record  
is sent when the record meets all of the following:  
(a) Is addressed properly, or otherwise directed properly, to an information processing  
system that the recipient has designated or uses for the purpose of receiving electronic  
records or information of the type sent, and from which the recipient is able to retrieve  
the electronic record.  
(b) Is in a form capable of being processed by that system.  
(c) Enters an information processing system outside the control of the sender or of a  
person that sent the electronic record on behalf of the sender or enters a region of the  
information processing system designated or used by the recipient which is under the  
control of the recipient.  
(21) Unless otherwise agreed between a sender and the recipient, an electronic record is  
received when both of the following apply:  
(a) The record enters an information processing system that the recipient has designated  
or uses for the purpose of receiving electronic records, or information of the type sent,  
and from which the recipient is able to retrieve the electronic record.  
(b) The record is in a form capable of being processed by that system.  
(22) Unless otherwise expressly provided in the electronic record or agreed between the  
sender and the recipient, an electronic record is deemed to be sent from the sender's place  
of business and to be received at the recipient's place of business.  
(23) If the sender or recipient has more than 1 place of business, the place of business of  
that person is the place having the closest relationship to the underlying transaction. If the  
sender or the recipient does not have a place of business, the place of business is the  
sender's or recipient's residence.  
(24) Receipt of an electronic acknowledgment from an information processing system  
establishes that a record was received but, by itself, does not establish that the content  
sent corresponds to the content received.  
History: 2019 AACS.  
R 451.4.5 Registration exemption for investment advisers to private funds.  
Rule 4.5. (1) This rule takes effect 365 days after the rule set has been filed with the  
secretary of state.  
(2) As used in this rule, “venture capital fund” means a private fund that meets the  
definition of a venture capital fund in SEC rule 203(l)-1, 17 C.F.R. §275.203(l)-1.  
(3) Subject to the additional requirements of subrule (4) of this rule, a private fund  
adviser formed or domiciled in this state, and a private fund adviser not domiciled in this  
state but offering its fund securities to Michigan residents, is exempt from the registration  
requirements of section 403 of the act, MCL 451.2403, if the private fund adviser  
satisfies both of the following conditions:  
Page 19  
(a) Neither the private fund adviser nor any of its advisory affiliates are subject to a  
disqualification as described in SEC rule 506(d)(1) of SEC regulation D, 17 C.F.R.  
§230.506(d)(1).  
(b) The private fund adviser files with the state each report, and amendments to each  
report if applicable, that an exempt reporting adviser is required to file with the SEC  
pursuant to SEC rule 204-4, 17 C.F.R. §275.204-4.  
(4) In order to qualify for the exemption described in subrule (3) of this rule, a private  
fund adviser who advises at least one 3(c)(1) fund that is not a venture capital fund, shall,  
in addition to satisfying each of the conditions specified in subrule (3) of this rule,  
comply with all of the following requirements:  
(a) The private fund adviser shall advise only those 3(c)(1) funds, other than venture  
capital funds, whose outstanding securities, other than short-term paper, are beneficially  
owned entirely by persons who each meet the definition of a qualified client in SEC rule  
205-3, 17 C.F.R. §275.205-3, or an accredited investor in SEC rule 501, 17 C.F.R. §  
230.501, at the time the securities are purchased from the issuer.  
(b) At the time of the purchase, the private fund adviser shall disclose all of the  
following in writing, to each beneficial owner of a 3(c)(1) fund that is not a venture  
capital fund:  
(i) All services, if any, to be provided to individual beneficial owners.  
(ii) All duties, if any, the investment adviser owes to the beneficial owners.  
(iii) Any other material information affecting the rights or responsibilities of the  
beneficial owners.  
(c) The private fund adviser shall obtain, on an annual basis, audited financial  
statements for each 3(c)(1) fund that is not a venture capital fund, and shall deliver a copy  
of such audited financial statements to each beneficial owner of the fund.  
(d) Subrule (4)(c) of this rule does not apply to a 3(c)(1) fund with respect to any annual  
period if both of the following are true:  
(i) Each beneficial owner is a qualified client.  
(ii) The private fund adviser has provided to each beneficial owner a written disclosure  
explaining that the private fund will not provide audited financial statements to investors  
annually, but that other similarly-situated funds may provide audited financial statements  
to their investors.  
(5) If a private fund adviser is registered with the SEC, the investment adviser shall not  
be eligible for the exemption in subrule (3) of this rule, and shall comply with the state  
notice filing requirements applicable to federal covered investment advisers in section  
405 of the act, MCL 451.2405.  
(6) A person is exempt from the registration requirements of section 404 of the act,  
MCL 451.2404, if he or she is employed by, or associated with, an investment adviser  
that is exempt from registration in this state pursuant to this rule and does not otherwise  
act as an investment adviser representative outside of the scope of his or her employment.  
(7) The report filings described in subrule (3)(b) of this rule must be made electronically  
through the IARD. A report is deemed filed when the report is filed and accepted by the  
IARD on the state’s behalf.  
(8) An investment adviser who becomes ineligible for the exemption provided by this  
rule shall comply with all applicable laws and rules requiring registration or notice filing  
Page 20  
within 90 days from the date the investment adviser’s eligibility for this exemption  
ceases.  
(9) An investment adviser to a 3(c)(1) fund, other than a venture capital fund, that has 1  
or more beneficial owners who are not qualified clients or accredited investors as  
described in subrule (4)(a) of this rule is eligible for the exemption contained in subrule  
(3) of this rule, if all of the following conditions are satisfied:  
(a) The subject fund existed prior to the effective date of this regulation.  
(b) As of the effective date of this rule, the subject fund ceases to accept beneficial  
owners who are not qualified clients or accredited investors, as described in subrule (4)(a)  
of this rule.  
(c) The investment adviser discloses, in writing, the information described in subrule  
(4)(b) of this rule to all beneficial owners of the fund.  
(d) As of the effective date of this rule, the investment adviser delivers financial  
statements as required by subrule (4)(c) of this rule, unless subrule (4)(d) applies to the  
private fund adviser.  
(10) Subrule (3)(a) of this rule does not apply upon a showing of good cause and  
without prejudice to any other action of the administrator, if the administrator determines  
that it is not necessary under the circumstances that an exemption be denied.  
History: 2019 AACS.  
R 451.4.6 Notice filing requirements for federal covered investment advisers.  
Rule 4.6. (1) Pursuant to section 405 of the act, MCL 451.2405, the notice filing for a  
federal covered investment adviser must be filed electronically with IARD on an  
executed Form ADV. A notice filing of a federal covered investment adviser is deemed  
filed when the fee required by section 410(5) of the act, MCL 451.2410(5), and the Form  
ADV are filed electronically with and accepted by IARD on behalf of this state.  
(2) Pursuant to section 405 of the act, MCL 451.2405, the annual renewal of the notice  
filing for a federal covered investment adviser must be filed electronically with IARD.  
The renewal of the notice filing for a federal covered investment adviser is deemed filed  
when the fee required by section 410(5) of the act, MCL 451.2410(5), is filed with and  
accepted by IARD on behalf of the state.  
(3) A federal covered investment adviser shall file electronically with IARD, pursuant to  
the instructions in the Form ADV, any amendments to the federal covered investment  
adviser’s Form ADV.  
History: 2019 AACS.  
R 451.4.7 Application for registration by broker-dealers and agents representing  
broker-dealers.  
Rule 4.7. (1) The application for initial registration of a broker-dealer pursuant to  
section 406 of the act, MCL 451.2406, must be made by completing Form BD pursuant  
to the form’s instructions and by filing the form electronically with CRD. The application  
for initial registration must also include both of the following:  
Page 21  
(a) Proof of compliance by the broker-dealer with the examination requirements of R  
451.4.9.  
(b) The fee required by section 410 of the act, MCL 451.2410.  
(2) Pursuant to section 406 of the act, MCL 451.2406, the application for initial  
registration of agents representing a broker-dealer must be made by completing Form U4  
pursuant to the form’s instructions and by filing the form electronically with CRD, except  
that a paper filing may be accepted by the administrator for a broker-dealer that does not  
register with FINRA, for an agent who is associated with a broker-dealer that does not  
register with FINRA, and for an agent who is associated solely with an issuer. The  
application for initial registration must also include both of the following:  
(a) Proof of compliance by the agent representing a broker-dealer with the examination  
requirements of R 451.4.9.  
(b) The fee required by section 410 of the act, MCL 451.2410.  
(3) To renew a registration as a broker-dealer, or an agent representing a broker-dealer,  
the registrant shall submit to CRD the fee required by section 410 of the act, MCL  
451.2410.  
(4) A broker-dealer shall, within 30 days of any event requiring an amendment, file  
electronically with CRD any amendments to the broker-dealer’s Form BD pursuant to the  
form’s instructions.  
(5) An agent representing a broker-dealer shall, within 30 days of any event requiring an  
amendment, file electronically with CRD any amendments to the agent’s Form U-4  
pursuant to the form’s instructions.  
(6) An application for initial or renewal registration is not considered filed for purposes  
of section 406 of the act, MCL 451.2406, until the required fee and all required  
documents have been filed with the administrator.  
History: 2019 AACS  
R 451.4.8 Application for registration of Michigan investment market.  
Rule 4.8. In addition to the requirements of section 455 of the act, MCL 451.2455, an  
application for registration of a Michigan investment market must include all of the  
following:  
(a) The applicant’s primary street address.  
(b) The name, title, and telephone number of a contact employee.  
(c) The name and address of counsel for the applicant.  
(d) The date the applicant’s fiscal year ends.  
(e) The applicant’s form of incorporation or organization, for example, corporation,  
limited liability company, or partnership; and, a certificate of good standing from the  
jurisdiction in which the applicant is incorporated or organized.  
(f) A copy of the constitution, articles of incorporation or organization with all  
subsequent amendments and existing bylaws.  
(g) A copy of the corresponding rules of the Michigan investment market. Rules drafted  
pursuant to this subrule must address, at a minimum, price transparency across all trading  
platforms upon which a security is traded, assurance of best price execution, clearance  
and settlement of transactions, custody of funds and securities, cybersecurity, business  
continuity, and safekeeping of issuer and customer information.  
Page 22  
(h) A copy of all written rulings, settled practices having the effect of rules, and  
interpretations of the governing board or other committee of the applicant in respect of  
any provisions of the constitution, bylaws, rules, or trading practices of the applicant  
which are not included in subdivision (g) of this rule.  
(i) Proof of compliance with sections 5, 6, and 15 of the securities exchange act of 1934,  
15 U.S.C. §78a, et seq., such as an SEC no-action letter.  
(j) For each subsidiary or affiliate of the applicant, and for any entity with whom the  
applicant has contractual or other agreement relating to the operation of an electronic  
trading system to be used to effect transactions on the Michigan investment market, all of  
the following must be submitted:  
(i) Name and address of organization.  
(ii) Form of organization, for example, corporation, limited liability company, or limited  
partnership.  
(iii) Name of the state in which the organization was formed, and the date of formation.  
(iv) Brief description of the nature and extent of the affiliation.  
(v) Brief description of the business or functions. The description should include  
responsibilities with respect to operation of the Michigan investment market, the  
execution, reporting, clearance, or settlement of transactions in connection with operation  
of the Michigan investment market, or both.  
(vi) A copy of the constitution.  
(vii) A copy of the articles of incorporation or organization, including all amendments.  
(viii) A copy of existing bylaws or corresponding rules or instruments.  
(ix) The name and title of the present officers, governors, members of all standing  
committees, or persons performing similar functions.  
(x) An indication of whether such business or organization ceased to be associated with  
the applicant during the previous year, and a brief statement of the reasons for  
termination of the association.  
(k) For each subsidiary or affiliate of the Michigan investment market, provide  
unconsolidated financial statements for the latest fiscal year. Such financial statements  
must consist, at a minimum, of a balance sheet and an income statement of such footnotes  
and other disclosures as are necessary to avoid rendering the financial statements  
misleading. If an affiliate or subsidiary is required by another rule to submit annual  
financial statements, a statement to that effect, with a citation to the other rule, may be  
provided instead of the financial statements required in this subdivision.  
(l) A description of the manner of operation of the Michigan investment market. The  
description must include all of the following:  
(i) The means of access to the Michigan investment market.  
(ii) Procedures governing entry and display of quotations and orders in the Michigan  
investment market.  
(iii) Procedures governing the execution, reporting, clearance, and settlement of  
transactions in connection with the Michigan investment market.  
(iv) Proposed fees.  
(v) Procedures for ensuring compliance with the Michigan investment market usage  
guidelines.  
(vi) The hours of operation of the Michigan investment market, and the date on which  
the applicant intends to commence the operation.  
Page 23  
(vii) A copy of the users’ manual.  
(viii) If the applicant proposes to hold funds or securities on a regular basis, the  
applicant shall provide a description of the controls that will be implemented to ensure  
safety of those funds or securities.  
(m) A complete set of forms pertaining to all of the following:  
(i) Application for membership, participation, or subscription to the entity.  
(ii) Application for approval as a person associated with a user, participant, or  
subscriber of the entity.  
(iii) Any other similar materials.  
(n) A complete set of forms of financial statements, reports, or questionnaires required  
of members, participants, subscribers, or any other users relating to financial  
responsibility or minimum capital requirements for such members, participants, or any  
other users.  
(o) A complete set of documents comprising the applicant’s listing applications,  
including any agreements required to be executed in connection with listing and a  
schedule of listing fees. If the applicant does not list securities, the applicant shall  
provide a brief description of the criteria used to determine what securities may be traded  
on the exchange.  
(p) For the latest fiscal year of the applicant, audited financial statements that are  
prepared pursuant to, or in the case of a foreign applicant, reconciled with, United States  
generally accepted accounting principles, and are covered by a report prepared by an  
independent public accountant. If an applicant has no consolidated subsidiaries, the  
applicant shall file audited financial statements alone and need not file a separate  
unaudited financial statement for the applicant.  
(q) A list of the officers, governors, members of all standing committees, or persons  
performing similar functions, who presently hold or have held their offices or positions  
during the previous year indicating the following for each:  
(i) Name.  
(ii) Title.  
(iii) Dates of commencement and termination of terms of office or position.  
(iv) Type of business in which each is primarily engaged, for example, floor broker,  
specialist, and odd lot dealer.  
(r) A description of the Michigan investment market’s criteria for membership,  
including a description of conditions under which users may be subject to suspension or  
termination with regard to access to the Michigan investment market, and a description of  
any procedures that will be involved in the suspension or termination of a user.  
(s) An alphabetical list of all members, participants, subscribers, or other users,  
including all of the following information:  
(i) Name.  
(ii) Date of election to membership or acceptance as a participant, subscriber, or other  
user.  
(iii) Principal business address and telephone number.  
(iv) If a member, participant, subscriber, or other user is an individual, the name of the  
entity with which such individual is associated and the relationship of such individual to  
the entity, for example, partner, officer, director, and employee.  
Page 24  
(t) A description of the type of activities primarily engaged in by the member,  
participant, subscriber, or other user. A person is “primarily engaged” in an activity or  
function for purposes of this subdivision when that activity or function is the one in  
which that person is engaged for the majority of that person’s time.  
(u) The class of membership, participation, or subscription or other access.  
(v) A schedule for the securities listed in the Michigan investment market, indicating for  
each, the name of the issuer and a description of the security.  
History: 2019 AACS.  
R 451.4.9  
Broker-dealer and agents representing broker-dealers examination  
requirements.  
Rule 4.9. (1) Unless waived by the administrator, a natural person applicant for initial  
registration as a broker-dealer or agent shall take and pass, within 2 years immediately  
preceding the filing date of the application, and as reflected on the records of CRD, both  
of the following:  
(a) Either the uniform securities agent state law examination (S63) or the uniform  
combined state law examination (S66).  
(b) The general securities business examination set forth in paragraph (i) of this  
subdivision, unless the applicant’s proposed securities activities will be restricted, in  
which case the applicant shall be required to take and pass each examination in  
paragraphs (ii) to (viii) of this subdivision that relates to the applicant’s proposed  
securities activities:  
(i) The general securities representative examination (S7).  
(ii) The investment company products/variable contracts representative examination  
(S6).  
(iii) The direct participation programs representative examination (S22).  
(iv) The municipal securities representative examination (S52).  
(v) The corporate securities limited representative examination (S62).  
(vi) The registered options representative examination (S42).  
(vii) The government securities representative examination (S72).  
(viii) The private placement representative examination (S82).  
(ix) Other examinations as may be applicable to an associated person and his or her  
activities according to FINRA rules.  
(2) An applicant for registration as a broker-dealer or agent is not required to take the  
examinations required by subrule (1) of this rule if the applicant was registered or  
licensed as a broker-dealer or agent in Michigan or another state with the same  
examination requirements as those identified in subrule (1) of this rule within the 2 years  
preceding the date the application was filed.  
History: 2019 AACS.  
R 451.4.10 Application for investment adviser registration.  
Rule 4.10. (1) The application for initial registration as an investment adviser pursuant  
to section 406 of the act, MCL 451.2406, must be made by completing Form ADV  
Page 25  
pursuant to the form instructions and by filing the form electronically with IARD. The  
application for initial registration must also include all of the following:  
(a) Proof of compliance by the investment adviser with the examination requirements of  
R 451.4.12.  
(b) A copy of the balance sheet for the last fiscal year, and if such balance sheet is as of  
a date more than 45 days from the date of filing of the application, a balance sheet  
prepared as set forth in R 451.4.18.  
(c) A copy of the surety bond required by R 451.4.14, if applicable and requested by the  
administrator.  
(d) The fee required by section 410 of the act, MCL 451.2410.  
(2) The administrator may accept a copy of part 2 of Form ADV as filed electronically  
with IARD.  
(3) The application for annual renewal registration as an investment adviser must be  
filed electronically with IARD. The application for annual renewal registration must  
include both of the following:  
(a) The fee required by section 410 of the act, MCL 451.2410.  
(b) A copy of the surety bond required by R 451.4.14, if applicable, or if requested by  
the administrator.  
(4) An investment adviser shall, within 30 days of any event requiring an amendment,  
file electronically with IARD, pursuant to the instructions in the Form ADV, any  
amendments to the investment adviser’s Form ADV.  
(5) Within 90 days of the end of the investment adviser’s fiscal year, an investment  
adviser shall file electronically with IARD an annual updating amendment to the Form  
ADV.  
(6) An application for initial or renewal registration is not considered filed for purposes  
of section 406 of the act, MCL 451.2406, until the required fee and all required  
documents have been received by the administrator.  
History: 2019 AACS.  
R 451.4.11 Application for investment adviser representative registration.  
Rule 4.11. (1) Pursuant to section 406 of the act, MCL 451.2406, the application for  
initial registration as an investment adviser representative must be made by completing  
Form U4 pursuant to the form instructions and by filing the Form U4 electronically with  
IARD. The application for initial registration must also include both of the following:  
(a) Proof of compliance by the investment adviser representative with the examination  
requirements of R 451.4.12.  
(b) The fee required by section 410 of the act, MCL 451.2410.  
(2) The application for annual renewal registration as an investment adviser  
representative must be filed electronically with IARD. The application for annual renewal  
registration must include the fee required by section 406 of the act, MCL 451.2406.  
(3) The investment adviser representative is under a continued obligation to update  
information required by Form U4 as changes occur.  
(4) An investment adviser representative and the investment adviser shall, within 30  
days of any event requiring an amendment, file electronically with IARD any  
amendments to the representative’s Form U4.  
Page 26  
(5) An application for initial or renewal registration is not considered filed for purposes  
of section 406 of the act, MCL 451.2406, until the required fee and all required  
documents have been received by the administrator.  
History: 2019 AACS.  
R 451.4.12 Investment adviser and investment adviser representative examination  
requirements.  
Rule 4.12. (1) Unless otherwise waived by the administrator, a natural person  
investment adviser or investment adviser representative shall take and pass within 2 years  
immediately preceding the date of the application, as reflected on the records of IARD,  
either of the following:  
(a) The uniform investment adviser state law examination (S65).  
(b) The uniform combined state law examination (S66) and the general securities  
representative examination (S7).  
(2) Any person who has been registered as an investment adviser or an investment  
adviser representative in any state that requires the licensing, registration, or qualification  
of investment advisers or investment adviser representatives within the 2 years  
immediately preceding the date of filing an application shall not be required to comply  
with the examination requirement in subrule (1) of this rule.  
(3) Compliance with subrules (1) and (2) of this rule is waived if the applicant has been  
awarded any of the following designations and at the time of filing an application the  
designation is current and in good standing:  
(a) Certified financial planner awarded by the certified financial planners board of  
standards.  
(b) Chartered financial consultant or masters of science and financial services awarded  
by the American College, in Bryn Mawr, Pennsylvania.  
(c) Chartered financial analyst awarded by the Institute of Chartered Financial Analysts.  
(d) Personal financial specialists awarded by the American Institute of Certified Public  
Accountants.  
(e) Chartered investment counselor awarded by the Investment Adviser Association.  
(4) An applicant who has taken and passed the uniform investment adviser law  
examination (S65) within 2 years immediately preceding the date the application is filed  
with the administrator, or at any time if the applicant has been registered or licensed as an  
investment adviser or investment adviser representative within the 2 years immediately  
preceding the date the application is filed with the administrator, shall not be required to  
take and pass the uniform investment adviser law examination again.  
(5) An applicant who is an agent for a broker-dealer and an investment adviser and who  
is not required by the agent’s home jurisdiction to make a separate filing on CRD as an  
investment adviser representative, but who has previously met the examination  
requirement in subrule (1) of this rule necessary to provide advisory services on behalf of  
the broker-dealer or the investment adviser, shall not be required to again take and pass  
the exams in subrule (1) of this rule.  
History: 2019 AACS.  
Page 27  
R 451.4.13 Custody prohibitions, limits, and conditions.  
Rule 4.13. (1) For purposes of this rule, the following definitions apply:  
(a) “Custody” means holding, directly or indirectly, client funds or securities, or having  
any authority to obtain possession of them or the ability to appropriate them. “Custody”  
includes, but is not limited to, the following circumstances:  
(i) Possession of client funds or securities unless received inadvertently and returned to  
the sender promptly, but in any case within 3 business days of receiving the funds or  
securities.  
(ii) Any arrangement, including a general power of attorney, under which an 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.  
(iii) Any arrangement that gives an investment adviser or its supervised person legal  
ownership of or access to client funds or securities, which may include an arrangement in  
which the investment adviser or its supervised person is the trustee of a trust, the general  
partner of a limited partnership, the managing member of a limited liability company, or  
a comparable position for a pooled investment vehicle.  
(b) “Custody” does not include the receipt of checks drawn by clients and made payable  
to unrelated third parties and shall not meet the definition of custody if forwarded to the  
third party by close of business on the first business day after the date of receipt by the  
investment adviser.  
(2) It is unlawful and deemed to be a fraudulent, deceptive, or manipulative act,  
practice, or course of business for an investment adviser who is registered or required to  
be registered to have custody of client funds or securities unless both of the following are  
true:  
(a) The investment adviser maintains custody or possession pursuant to the requirements  
set forth in SEC rule 206(4)-2, 17 C.F.R. §275.206(4)-2.  
(b) All items required to be filed with the SEC under SEC rule 206(4)-2, 17 C.F.R.  
§275.206(4)-2, are filed, through the IARD System, with the administrator.  
(3) Investment advisers who are registered, or required to be registered, may have  
custody or possession of securities or funds of a client if the investment adviser is  
otherwise permitted by rule or order of the administrator to maintain custody or  
possession of client funds or securities and complies with such rule or order.  
History: 2019 AACS.  
R 451.4.14 Bonding requirement for certain investment advisers.  
Rule 4.14. (1) For purposes of this rule, “custody” is defined in R 451.4.13(1)(a) and  
(b).  
(2) Any bond required by this rule must be issued by a company qualified to do business  
in this state in the form determined by the administrator and shall be subject to the claims  
of all clients of such investment adviser regardless of the client’s state of residence. Both  
of the following apply:  
(a) Every investment adviser registered or required to be registered under the act having  
custody of or discretionary authority over client funds or securities shall be bonded in an  
Page 28  
amount determined by the administrator based upon the number of clients and the total  
assets under management of the investment adviser.  
(b) Every investment adviser registered or required to be registered under the act who  
has custody or discretion of client funds or securities who does not meet the minimum net  
worth standard in R 451.4.17 shall be bonded in the amount of the net worth deficiency  
rounded up to the nearest $5,000.00.  
(3) An investment adviser that has its principal place of business in a state other than  
this state is exempt from the requirements of subrule (2)(a) of this rule, provided that the  
investment adviser is registered or licensed as an investment adviser in the state where it  
has its principal place of business and is in compliance with such state’s requirements  
relating to bonding.  
History: 2019 AACS.  
R 451.4.15 Minimum financial requirements for broker-dealers.  
Rule 4.15. (1) A broker-dealer registered or required to be registered under the act, shall  
maintain net capital in such minimum amounts as are designated in SEC rule 15c3-1, 17  
C.F.R. §240.15c3-1, promulgated under the securities exchange act of 1934, 15 U.S.C.  
§78o, for the activities the broker-dealer shall engage in this state.  
(2) The aggregate indebtedness of a broker-dealer to all other persons must not exceed  
the levels prescribed under SEC rule 15c3-1, 17 C.F.R. §240.15c3-1, promulgated under  
the securities exchange act of 1934, 15 U.S.C. §78o.  
(3) If a broker-dealer is an individual, the person shall segregate from personal capital  
an amount sufficient to satisfy the net capital requirement. The amount so segregated  
must be utilized solely for the business for which the broker-dealer or Michigan  
investment market is registered.  
History: 2019 AACS.  
R 451.4.16 Minimum financial requirements for Michigan investment markets.  
Rule 4.16. (1) A Michigan investment market, registered or required to be registered  
under the act, shall maintain net capital in such minimum amounts as are designated in  
SEC rule 15c3-1, 17 C.F.R. §240.15c3-1, promulgated under the securities exchange act  
of 1934, 15 U.S.C. §78o, for the activities the Michigan investment market shall engage  
in this state.  
(2) The aggregate indebtedness of a Michigan investment market to all other persons  
must not exceed the levels prescribed under SEC rule 15c3-1, 17 C.F.R. §240.15c3-1,  
promulgated under the securities exchange act of 1934, 15 U.S.C. §78o.  
(3) If a Michigan investment market is an individual, the person shall segregate from  
personal capital, an amount sufficient to satisfy the net capital requirement. The amount  
so segregated must be utilized solely for the business for which the Michigan investment  
market is registered.  
History: 2019 AACS.  
Page 29  
R 451.4.17 Minimum financial requirements for investment advisers.  
Rule 4.17. (1) For purposes of this rule “net worth” means an excess of assets over  
liabilities, as determined by generally accepted accounting principles, but does not  
include as assets any of the following: prepaid expenses, except as to items properly  
classified assets under generally accepted accounting principles; deferred charges;  
goodwill; franchise rights; organizational expenses; patents; copyrights; marketing rights;  
unamortized debt discount and expense; all other assets of intangible nature; home; home  
furnishings; an automobile or automobiles; any other personal items not readily  
marketable in the case of an individual; advances or loans to stockholders and officers in  
the case of a corporation; and, advances or loans to partners in the case of a partnership.  
(2) An investment adviser registered, or required to be registered, under the act who has  
custody of client funds or securities shall maintain at all times a minimum net worth of  
$35,000.00 except for the following circumstances:  
(a) An investment adviser having custody solely due to direct fee deduction and  
complying with the terms described under R 451.4.13 and related books and records, as  
described in R 451.4.24, is not required to comply with the net worth or bonding  
requirements of this rule.  
(b) An investment adviser having custody solely due to advising pooled investment  
vehicles and complying with the terms described under R 451.4.13 and related books and  
records, as described in R 451.4.24 is not required to comply with the net worth or  
bonding requirements of this rule.  
(3) An investment adviser, registered or required to be registered, under the act who has  
discretionary authority over client funds or securities but does not have custody of client  
funds or securities shall maintain at all times a minimum net worth of $10,000.00.  
(4) An investment adviser registered, or required to be registered, under the act who  
accepts prepayment of more than $500.00 per client and 6 or more months in advance  
shall maintain at all times a positive net worth.  
(5) Unless otherwise exempted, as a condition of the right to transact business in this  
state, every investment adviser registered, or required to be registered, under the act shall  
by the close of business on the next business day notify the administrator if such  
investment adviser’s net worth is less than the minimum required. After transmitting such  
notice, each investment adviser shall file by the close of business on the next business  
day a report with the administrator of its financial condition, including all of the  
following:  
(a) A trial balance of all ledger accounts.  
(b) A statement of all client funds or securities that are not segregated.  
(c) A computation of the aggregate amount of client ledger debit balances.  
(d) A statement as to the number of client accounts.  
(6) An investment adviser is not exercising discretion when it places trade orders with a  
broker-dealer pursuant to a third party trading agreement if all of the following have  
occurred:  
(a) The investment adviser has executed with its client a separate investment adviser  
contract that acknowledges that a third party trading agreement must be executed to allow  
the investment adviser to effect securities transactions for the client in the client’s broker-  
dealer account.  
Page 30  
(b) The investment adviser contract specifically states that the client does not grant  
discretionary authority to the investment adviser and the investment adviser, in fact, does  
not exercise discretion with respect to the account.  
(c) A third party trading agreement is executed between the client and a broker-dealer  
that specifically limits the investment adviser’s authority in the client’s broker-dealer  
account to the placement of trade orders and deduction of investment adviser fees.  
(7) The administrator may require that a current appraisal be submitted in order to  
establish the worth of any asset.  
(8) An investment adviser that has its principal place of business in a state other than  
this state shall maintain only such minimum net worth as required by the state in which  
the investment adviser maintains its principal place of business, provided the investment  
adviser is registered or licensed in such state and is in compliance with such state’s  
minimum capital requirements.  
History: 2019 AACS.  
R 451.4.18 Financial statements.  
Rule 4.18. (1) Subject to subrule (4) of this rule, financial statements, when they are  
required to be filed with the administrator pursuant to the act, an administrative rule, or  
order of the administrator, must consist of a balance sheet, a statement of cash flows, an  
income statement, and a statement of all shareholders or members equity.  
(2) Subject to subrule (4) of this rule, any financial statements required to be filed with  
the administrator pursuant to any provision of the act, administrative rule, or order of the  
administrator, must be prepared in accordance with generally accepted accounting  
principles.  
(3) Financial statements must be prepared on a consolidated basis unless otherwise  
required by the administrator or its designee.  
(4) A filer of financial statements may request in writing to be exempt from the  
requirements of subrules (1), (2), and (3) of this rule. The administrator, upon good  
cause shown in a request made pursuant to this subrule, may issue an order exempting a  
filer from the requirements of subrules (1), (2), and (3) of this rule.  
(5) The administrator may in its discretion require a filer of financial statements to  
submit financial statements that have been audited by an independent certified public  
accountant who shall also issue an opinion on the financial statements.  
History: 2019 AACS.  
R 451.4.19 Investment adviser brochure.  
Rule 4.19. (1) Unless otherwise provided in this rule, an investment adviser that is  
registered, or required to be registered, pursuant to section 403 of the act, MCL 451.2403,  
shall, pursuant to the provisions of this subrule, furnish each advisory client and  
prospective advisory client with the following:  
(a) A brochure which may be a copy of part 2A of its Form ADV or written documents  
containing the information required by part 2A of Form ADV; a copy of its part 2B  
brochure supplement for each individual providing investment advice and having direct  
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contact with clients in this state, or exercising discretion over assets of clients in this  
state, even if no direct contact is involved; a copy of its part 2A appendix 1 wrap fee  
brochure if the investment adviser sponsors or participates in a wrap fee account; a  
summary of material changes, which may be included in part 2 of Form ADV or given as  
a separate document; and such other information as the administrator may require. If  
investment advice for a client is provided by more than 5 supervised persons, a part 2B  
brochure supplement for only the 5 supervised persons with the most significant  
responsibility day-to-day advice to the client must be provided.  
(b) The brochure must comply with the language, organizational format, and filing  
requirements specified in the instructions to part 2 of Form ADV.  
(2) An investment adviser, except as provided in subrule (5) of this rule, shall deliver  
the part 2A brochure and any brochure supplements required by this rule to a prospective  
advisory client before or at the time an investment advisory contract with that client is  
formed.  
(3) An investment adviser, except as provided in subrule (5) of this rule, shall do either  
of the following:  
(a) Deliver, within 120 days of the end of its fiscal year, a free, updated brochure and  
related brochure supplements which include or are accompanied by a summary of  
material changes.  
(b) Deliver, within 120 days of the end of its fiscal year, a free summary of material  
changes that includes an offer to provide a copy of the updated brochure and supplements  
and information on how the client may obtain a copy of the brochure and supplements.  
Advisers are not required to deliver a summary of material changes or a brochure to  
clients if no material changes have taken place since the last summary and brochure  
delivery.  
(4) An investment adviser shall, within 30 days of disclosing an event in response to  
item 9 of Part 2A of Form ADV or Item 3 of Part 2B of Form ADV, deliver to clients the  
amended brochure or brochure supplement, as applicable, with a written statement  
describing the material facts relating to the amendment to Part 2A of Form ADV or Item  
3 of Part 2B of Form ADV.  
(5) Delivery of the brochure and related brochure supplements required by subrules (2)-  
(4) of this rule do not need to be made to any of the following:  
(a) Clients who receive only impersonal advice and who pay less than $500.00 in fees  
per year.  
(b) An investment company registered under the investment company act of 1940, 15  
U.S.C. §80(a) et seq.  
(c) A business development company as defined in the investment company act of 1940,  
15 U.S.C. §80(a) et seq., and whose advisory contract meets the requirements of section  
15c of that act, 15 U.S.C. §80(a)-15c.  
(6) Delivery of the brochure and related supplements may be made electronically if the  
investment adviser does all of the following:  
(a) In the case of an initial delivery to a potential client, obtains verification that a  
readable copy of the brochure and supplements were received by the client. The  
verification required by this subrule may be in the client contract required by rule  
451.4.26 or other documents signed by the client.  
Page 32  
(b) In the case of other than initial deliveries, obtains each client’s prior consent to  
provide the brochure and supplements electronically. The consent required by this  
subrule may be in the client contract required by rule 451.4.26 or other documents signed  
by the client.  
(c) Prepares the electronically delivered brochure and supplements in the format  
prescribed in subrule (1) of this rule and instructions to part 2 of Form ADV.  
(d) Delivers the brochure and supplements in a format that can be retained by the client  
in either electronic or paper form.  
(e) Establishes procedures to supervise personnel transmitting the brochure and  
supplements and prevent violations of this rule.  
(7) Nothing in this rule relieves any investment adviser from any obligation required  
under the act or a rule promulgated under the act or other federal or state law to disclose  
any information to its advisory clients or prospective advisory clients not specifically  
required by this rule.  
History: 2019 AACS.  
R 451.4.20 Proxy voting.  
Rule 4.20. It is a fraudulent, deceptive, or manipulative act, for an investment adviser  
registered, or required to be registered, under section 406 of the act, MCL 451.2406, to  
exercise voting authority with respect to client securities, unless the adviser does all of  
the following:  
(a) Adopts and implements written policies and procedures that are reasonably designed  
to ensure that the investment adviser votes client securities in the best interest of clients,  
which procedures must include how the investment adviser will address material conflicts  
that may arise between the investment adviser and its clients.  
(b) Discloses to clients how they may obtain information from the investment adviser  
about how the investment adviser voted with respect to the client’s securities.  
(c) Describes to clients the investment adviser’s proxy voting policies and procedures  
and, upon request, furnishes a copy of the policies and procedures to the requesting  
client.  
History: 2019 AACS.  
R 451.4.21 Investment adviser policies and procedures.  
Rule 4.21. (1) As used in this rule:  
(a) “Access person” means a supervised person of an investment adviser who meets  
any of the following:  
(i) Has access to either nonpublic information regarding a client’s purchase or sale  
of securities or nonpublic information regarding the portfolio holdings of a reportable  
fund.  
(ii) Is involved in making securities recommendations to clients, or who has access  
to nonpublic recommendations.  
(iii) Provides investment advice that is an investment adviser’s primary business  
and is a director, officer, or partner of that business.  
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(b) “Beneficial ownership” means that term as defined in rule 16a-1, 17 CFR  
240.16a-1, in determining whether a person has beneficial ownership of a security for  
purposes of section 16 of the Securities Exchange Act of 1934, 15 USC 78p, and the rules  
and regulations pursuant to the act.  
(c) “Chief compliance officer” means a supervised person who is an investment  
adviser representative with the authority, background, skills, and resources to develop  
and enforce an investment adviser’s policies and procedures.  
(d) “Federal securities laws” means all of the following:  
(i) The Securities Act of 1933, 15 USC 77a to 77aa.  
(ii) The Securities Exchange Act of 1934, 15 USC 78a to 78qq  
(iii) The Investment Company Act of 1940, 15 USC 80a-1 to 80a-64.  
(iv) The Investment Advisers Act of 1940, 15 USC 80b-1 to 80b-21.  
(v) Title V of the Gramm-Leach-Bliley Act, 15 USC 6801 to 6809.  
(vi) The Sarbanes-Oxley Act of 2002, Pub. L. 107-204.  
(vii) Any rules adopted by the SEC under any of the statutes in paragraphs (i) to  
(vi) of this subdivision.  
(viii) The Bank Secrecy Act, 31 USC 5311 to 5314 and 5316 to 5332, as it applies  
to funds and investment advisers.  
(ix) Any rules adopted under the Bank Secrecy Act, 31 USC 5311 to 5314 and  
5316 to 5332, by the SEC or the United States Department of the Treasury.  
(e) “Fund” means an investment company registered under the Investment  
Company Act of 1940, 15 USC 80a-1 to 80a-64.  
(f) “Initial public offering” means an offering of securities registered under the  
Securities Act of 1933, 15 USC 77a to 77aa, the issuer of which, immediately before the  
registration, was not subject to the reporting requirements of section 13 or 15(d) of the  
Securities Exchange Act of 1934, 15 USC 78m or 78o(d).  
(g) “Limited offering” means an offering that is exempt from registration under  
4(a)(2) or (5) of the Securities Act of 1933, 15 USC 77d(a)(2) or (5), or 17 CFR 230.504  
to 230.506.  
(h) “Reportable security” means a security as defined in section 202(a)(18) of the  
Investment Advisers Act of 1940, 15 USC 80b-2(a)(18), except that it does not include  
any of the following:  
(i) Direct obligations of the United States.  
(ii) Bankers' acceptances, bank certificates of deposit, commercial paper, and high-  
quality short-term debt instruments, including repurchase agreements.  
(iii) Shares issued by money market funds.  
(iv) Shares issued by open-end funds other than reportable funds.  
(v) Shares issued by unit investment trusts that are invested exclusively in 1 or  
more open-end funds, none of which are reportable funds.  
(i) ‘‘Supervised person’’ means any of the following:  
(i) A partner, officer, director, or other person occupying a similar status or  
performing similar functions.  
(ii) An employee of an investment adviser, or other person who provides  
investment advice on behalf of the investment adviser and is subject to the supervision  
and control of the investment adviser. This includes investment adviser representatives,  
Page 34  
employees, independent contractors, or other associated persons and supervised  
personnel, or other persons acting on the behalf of the investment adviser.  
(2) An investment adviser registered or required to be registered under section 403  
of the act, MCL 451.2403, shall not provide investment advice to clients unless the  
investment adviser establishes, maintains, and enforces written policies and procedures  
tailored to the investment adviser’s business model, accounting for the size of the firm,  
the services provided, and the number of locations of the investment adviser. The written  
policies and procedures must include both of the following:  
(a) Compliance policies and procedures reasonably designed to prevent violations  
by the investment adviser of the act and the rules adopted under the act.  
(b) Supervisory policies and procedures reasonably designed to prevent violations  
of the act and the rules adopted under the act by the investment adviser’s supervised  
persons.  
(3) An investment adviser, which is registered or is required to be registered, who  
has authority to vote client securities shall do all of the following:  
(a) Establish, maintain, and enforce written proxy voting policies and procedures  
that are reasonably designed to ensure that the investment adviser votes client securities  
in the best interest of clients. These procedures must include how the investment adviser  
addresses material conflicts that may arise between its interests and those of the  
investment adviser’s clients.  
(b) Disclose to clients how they may obtain information from the investment  
adviser about how it voted with respect to their securities.  
(c) Describe to clients the investment adviser’s proxy voting policies and  
procedures and, upon request, furnish a copy of the policies and procedures to the  
requesting client.  
(d) An investment adviser who does not have the authority to vote client securities  
shall disclose that fact to clients.  
(4) An investment adviser shall establish, maintain, and enforce written physical  
security and cybersecurity policies and procedures reasonably designed to ensure the  
confidentiality, integrity, and availability of physical and electronic records and  
information. The policies and procedures must be tailored to the investment adviser’s  
business model, taking into account the investment adviser’s size, services provided, and  
the number of locations. The physical security and cybersecurity policies and procedures  
must do all of the following:  
(a) Protect against reasonably anticipated threats or hazards to the security or  
integrity of client records and information.  
(b) Ensure that the investment adviser safeguards confidential client records and  
information.  
(c) Protect any records and information the release of which could result in harm or  
inconvenience to any client.  
(d) Contain provisions that assist the investment adviser to do all of the following:  
(i) Identify potential threats to the investment adviser’s information and records  
and develop the organizational understanding to manage information security risk to  
systems, assets, data, and capabilities.  
Page 35  
(ii) Protect the investment adviser’s information and records from threats,  
including the development and implementation of appropriate safeguards, to ensure  
delivery of critical infrastructure services.  
(iii) Detect breaches of the investment adviser’s records and information, and  
identify the occurrence of an information security event.  
(iv) Respond to breaches of the investment adviser’s information and records, and  
implement the appropriate activities to take action regarding a detected information  
security event.  
(v) Recover any of the investment adviser’s information or records that are  
breached. An investment adviser shall develop, implement, and maintain plans for  
information and data resilience and to restore any capabilities or services that are  
impaired due to an information security event.  
(5) An investment adviser, registered or required to be registered, shall deliver upon  
the investment adviser’s engagement by a client, and annually thereafter, a privacy policy  
to each client that is reasonably designed to aid in the client’s understanding of how the  
investment adviser collects and shares, to the extent permitted by state and federal law,  
nonpublic personal information. An investment adviser shall promptly update and deliver  
to each client an amended privacy policy, if any of the information in the policy becomes  
inaccurate.  
(6) An investment adviser shall establish, maintain, and enforce a written code of  
ethics that, at a minimum, includes all of the following:  
(a) Standards of business conduct that the investment adviser requires of its  
supervised persons that must reflect the investment adviser’s fiduciary obligations and  
those of its supervised persons.  
(b) Provisions requiring the investment adviser’s supervised persons to comply with  
applicable state and federal securities laws.  
(c) Provisions requiring all of the investment adviser’s access persons to report, and  
the investment adviser to review, their personal securities transactions and holdings  
periodically as provided in subdivisions (f) and (g) of this subrule.  
(d) Provisions requiring supervised persons to report any violations of the  
investment adviser’s code of ethics promptly to its chief compliance officer or, if the  
investment adviser’s chief compliance officer also receives reports of all violations, to  
other persons designated in the investment adviser’s code of ethics.  
(e) Provisions requiring the investment adviser to provide each of its supervised  
persons with a copy of the investment adviser’s code of ethics and any amendments, and  
requiring the investment adviser’s supervised persons to provide it with a written  
acknowledgment of their receipt of the code and any amendments.  
(f) An investment adviser registered or required to be registered under the act shall  
create holdings reports that comply with all of the following:  
(i) The code of ethics required by this subrule must require the investment  
adviser’s access persons to submit to its chief compliance officer or other persons  
designated in the investment adviser’s code of ethics a report of the access person’s  
current securities holdings that meets the following requirements. Each holdings report  
must contain, at a minimum all of the following:  
(A) The title and type of security, and as applicable the exchange ticker symbol or  
Committee on Uniform Securities Identification Procedures (CUSIP) number, number of  
Page 36  
shares, and principal amount of each reportable security in which the access person has  
any direct or indirect beneficial ownership.  
(B) The name of any broker, dealer, or bank with which the access person  
maintains an account in which any securities are held for the access person’s direct or  
indirect benefit.  
(C) The date the access person submits the report.  
(ii) The investment adviser’s access persons shall each submit a holdings report  
that complies with both of the following:  
(A) Is submitted no later than 10 days after the person becomes an access person,  
and the information must be current as of a date no more than 45 days before the date the  
person becomes an access person.  
(B) Is submitted at least once each 12-month period thereafter on a date selected  
by the investment adviser, and the information must be current as of a date no more than  
45 days before the date the report was submitted.  
(g) The code of ethics required by this subrule must require access persons to  
submit to the investment adviser’s chief compliance officer or other persons designated in  
the investment adviser’s code of ethics quarterly securities transactions reports that  
comply with all of the following:  
(i) Each transaction report must contain, at a minimum, all of the following  
information about each transaction involving a reportable security in which the access  
person had, or as a result of the transaction acquired, any direct or indirect beneficial  
ownership:  
(A) The date of the transaction, the title, and, as applicable, the exchange ticker  
symbol or CUSIP number, interest rate and maturity date, number of shares, and principal  
amount of each reportable security involved.  
(B) The nature of the transaction such as the purchase, sale, or any other type of  
acquisition or disposition.  
(C) The price of the security at which the transaction was effected.  
(D) The name of the broker, dealer, or bank with or through which the transaction  
was effected.  
(E) The date the access person submits the report.  
(ii) An access person shall submit a transaction report no later than 30 days after  
the end of each calendar quarter. The report must cover, at a minimum, all transactions  
during the quarter.  
(h) The code of ethics required by this subrule does not have to require an access  
person to submit any of the following:  
(i) A report about securities held in accounts over which the access person had no  
direct or indirect influence or control.  
(ii) A transaction report about transactions effected pursuant to an automatic  
investment plan in which regular periodic purchases or withdrawals are made  
automatically in or from investment accounts pursuant to a predetermined schedule and  
allocation, including a dividend reinvestment plan.  
(iii) A transaction report, if the report would duplicate information contained in  
broker trade confirmations or account statements that the investment adviser holds in its  
records as long as the investment adviser receives the confirmations or statements no  
later than 30 days after the end of the applicable calendar quarter.  
Page 37  
(iv) Pre-approval of certain investments: the investment adviser’s code of ethics  
must require its access persons to obtain the investment adviser’s approval before they  
directly or indirectly acquire beneficial ownership in any security in an initial public  
offering or in a limited offering.  
(i) An investment adviser with only 1 access person is not required to submit  
reports to itself or to obtain its own approval for investments in any security in an initial  
public offering or in a limited offering, if the investment adviser maintains records of all  
of its holdings and transactions that subdivisions (f) and (g)of this subrule would  
otherwise require the investment adviser to report.  
(j) A report required by SEC rule 204A-1(b), 17 CFR 275.204A-1(b), may contain a  
statement that the report will not be construed as an admission that the person making the  
report has any direct or indirect beneficial ownership in the security to which the report  
relates.  
(7) An investment adviser shall establish, maintain, and enforce written policies and  
procedures reasonably designed to prevent the misuse of material, nonpublic information  
by the investment adviser or any person associated with the investment adviser.  
(8) An investment adviser shall establish, implement, and maintain written  
procedures relating to a business continuity and succession plan. The plan must be based  
upon the facts and circumstances of the investment adviser’s business model including  
the size of the firm, type or types of services provided, and the number of locations of the  
investment adviser. The plan must provide for at least all of the following:  
(a) The protection, backup, and recovery of books and records.  
(b) Alternate means of communication with customers, key personnel, employees,  
vendors, service providers, third-party custodians, and regulators, including, but not  
limited to, providing notice of a significant business interruption or the death or  
unavailability of key personnel or other disruptions or cessation of business activities.  
(c) Office relocation, if there is a temporary or permanent loss of a principal place  
of business.  
(d) Assignment of duties to qualified responsible persons upon the death of or  
unavailability of key personnel.  
(e) Steps and methods reasonably designed to minimize service disruptions and  
client harm that could reasonably be anticipated to result from a sudden, significant  
business interruption.  
(9) An investment adviser shall review, at least annually, the adequacy of the  
policies and procedures established pursuant to this rule and the effectiveness of their  
implementation.  
(10) An investment adviser shall designate a supervised person who is an investment  
adviser representative as the chief compliance officer responsible for administering the  
investment adviser’s policies and procedures.  
History: 2019 AACS; 2022 MR 4, Eff. Feb. 16, 2022.  
R 451.4.22 Records required to be maintained by broker-dealers.  
Rule 4.22. A broker-dealer registered, or required to be registered, under the act, shall  
make, maintain, and preserve records in compliance with SEC rule 17a-3, 17 C.F.R.  
§240.17a-3, and SEC rule 17a-4, 17 C.F.R. §240.17a-4.  
Page 38  
History: 2019 AACS.  
R 451.4.23 Records required to be maintained by Michigan investment markets.  
Rule 4.23. A Michigan investment market registered or required to be registered under  
the act, shall make, maintain, and preserve records in compliance with SEC rule 17a-3,  
17 C.F.R. §240.17a-3, and SEC rule 17a-4, 17 C.F.R. §240.17a-4.  
History: 2019 AACS.  
R 451.4.24 Records to be maintained by investment advisers.  
Rule 4.24.  
(1) For the purposes of this rule, "access person" means when used in  
connection with a company primarily engaged in a business or businesses other than  
advising investment advisory clients, a person who has access to nonpublic information  
regarding any client’s purchase or sale of securities, or nonpublic information regarding  
the portfolio holdings of any reportable fund, and any person who is involved in making  
securities recommendations to clients, or who has access to such recommendations that  
are nonpublic, and any partner, officer, or director of the investment adviser.  
(2) Every investment adviser registered, or required to be registered, under the act shall  
make and keep true, accurate, and current all of the following books, ledgers, and  
records:  
(a) A journal or journals, including cash receipts and disbursements records, and any  
other records of original entry forming the basis of entries in any ledger.  
(b) General and auxiliary ledgers, or other comparable records, reflecting asset, liability,  
reserve, capital, income, and expense accounts.  
(c) A record of each order given by the investment adviser for the purchase or sale of a  
security, of any instruction received by the investment adviser from the client concerning  
the purchase, sale, receipt, or delivery of a particular security, and of a modification or  
cancellation of any such order or instruction. The record must do all of the following:  
show the terms and conditions of the order, instruction, modification, or cancellation;  
identify the person connected with the investment adviser who recommended the  
transaction to the client and the person who placed the order; and show the account for  
which entered, the date of entry, and the bank, broker-dealer by or through whom  
executed where appropriate. Orders entered pursuant to the exercise of discretionary  
power must be so designated.  
(d) All checkbooks, bank statements, canceled checks, and cash reconciliations of the  
investment adviser.  
(e) All bills or statements, or copies of, paid or unpaid, relating to the investment  
adviser's business.  
(f) All trial balances, financial statements, and internal audit working papers relating to  
the investment adviser's business.  
(g) Copies of all written communications received and sent by the investment adviser  
relating to all of the following:  
(i) Any recommendation made or proposed to be made and any advice given or  
proposed to be given.  
Page 39  
(ii) Any receipt, disbursement, or delivery of funds or securities.  
(iii) The placing or execution of any order to purchase or sell any security.  
(iv) The investment adviser shall not be required to keep any unsolicited market letters  
and other similar communications of general public distribution not prepared by or for  
the investment adviser.  
(v) If the investment adviser sends a notice, circular, or other advertisement offering a  
report, analysis, publication, or other investment advisory service to more than 10  
persons, the investment adviser shall not be required to keep a record of the names and  
addresses of the persons to whom the notice, circular, or advertisement was sent. If the  
notice, circular, or advertisement is distributed to persons named on a list, the investment  
adviser shall retain with the copy of the notice, circular, or advertisement a memorandum  
describing the list and its source.  
(h) A list or other record of all accounts that identifies the accounts in which the  
investment adviser is vested with any discretionary power with respect to the funds,  
securities, or transactions of a client.