Sec. 02.02.05.15. Financial Requirements for Certain Investment Advisers

A. For purposes of this regulation, the following terms have the meanings indicated:

(1) "Net assets" means the excess of assets over liabilities, as determined by generally accepted accounting principles.

(2) "Net capital" has the meaning stated in 17 CFR §240.15c3-1 (SEC Rule 15c3-1, Net Capital Requirements for Brokers and Dealers).

(3) "Tangible net assets" means the net assets of an investment adviser registered or required to be registered reduced by the following:

(a) Prepaid expenses, except as to items properly classified as current assets under generally accepted accounting principles;

(b) Deferred charges;

(c) Goodwill, franchise rights, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, and all other assets of intangible nature; and

(d) Homes, furnishings, and automobiles and personal items not readily marketable, in the case of an individual, or advances or loans to stockholders and officers, in the case of a corporation, or advances or loans to partners, in the case of a partnership.

B. An investment adviser registered or required to be registered in this State that has custody of client funds, assets, or securities, or requires payment of advisory fees more than 6 months in advance and in excess of $500 per client, shall:

(1) Maintain at all times a minimum net capital of $20,000, or minimum tangible net assets of $35,000; or

(2) Be bonded in the amount of $10,000 by a bonding company qualified to do business in this State, or deposit cash or any other equivalent form of security as the Commissioner may permit in the amount of $10,000.

C. An investment adviser registered or required to be registered in this State shall notify the Commissioner by the close of business on the next business day if the investment adviser's total net capital or tangible net assets falls below the minimum required net capital or minimum required tangible net assets as required by §B(1) of this regulation. After transmitting the notice, the investment adviser shall, by the close of business on the following business day, file with the Commissioner a report of its financial condition, including the following:

(1) A trial balance of all ledger accounts;

(2) A computation of net capital or tangible net assets as defined in §A of this regulation;

(3) A statement of all client funds, securities, or assets that are not segregated;

(4) A computation of the aggregate amount of client ledger debit balances; and

(5) A statement of the number of client accounts.

D. For an investment adviser registered or required to be registered in this State that maintains a minimum tangible net assets requirement as required by §B(1) of this regulation, rather than the minimum net capital requirement, submission to the Commissioner of a current appraisal may be required in order to establish the worth of an asset being calculated under the tangible net asset formulation.