Communications with Prospects and Customers - Investment Company Act of 1940, and FINRA Conduct Rule 2110 and 2120
Investment Company Act of 1940
Rule 34-b - Sales Literature Deemed to be Misleading
Under the Investment Company Act of 1940, Rule 34-b defines misleading sales literature. Any advertisement, pamphlet, circular, form letter, or other sales literature addressed to or intended for distribution to prospective investors that is required to be filed with the Commission as sales literature, and which contains misleading information, or which has omitted a fact necessary in order to make the statements made therein not materially misleading falls under this rule. Several provisions require that the literature be in compliance with Rule 482 described above, including:
- Sales literature that includes performance data must include the information required under Rule 482.
- Sales literature for a money market fund must include the information required under Rule 482.
- Sales literature for mutual funds (other than money market funds) must include the total return information required under Rule 482.
NASD (now known as FINRA) Conduct Rule 2110
Standards of Commercial Honor
Under FINRA General Standards of Business Conduct, a member, in the conduct of his business, must observe high standards of commercial honor and just and equitable principles of trade. Under Rule 2110, the following conduct is prohibited:
NASD (now known as FINRA) Conduct Rule 2120
Use of Manipulative or Fraudulent Devices
Members are also forbidden from using any manipulative, deceptive or other fraudulent devices in any dealings with the public under FINRA Rule 2120, which is cross referenced with SEC Rule 10b-5. This rule defines such behavior as:
The use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,