CHAPTER 4 SENATE BILL No. 122 An  Act concerning securities; relating to the regulation of investment advisors; amending
K.S.A. 1998 Supp. 17-1253 and repealing the existing section. Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 1998 Supp. 17-1253 is hereby amended to read as
follows: 17-1253. (a) It is unlawful for any person, in connection with the
offer, sale or purchase of any security, directly or indirectly, to:

      (1) To employ any device, scheme or artifice to defraud;

      (2) to make any untrue statement of a material fact or to omit 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; or

      (3) to engage in any act, practice or course of business which operates
or would operate as a fraud or deceit upon any person.

      (b) It is unlawful for any person who receives any consideration from
another person primarily for advising the other person as to the value of
securities or their purchase or sale, whether through the issuance of anal-
yses or reports or otherwise, to:

      (1) To employ any device, scheme or artifice to defraud the other
person; or

      (2) to engage in any act, practice or course of business which operates
or would operate as a fraud or deceit upon the other person.;

      (3) to knowingly sell any security to or purchase any security from a
client while acting as a principal for such person's own account without
disclosing to such client in writing before the completion of such trans-
action the capacity in which the person is acting and obtaining the consent
of the client to such transaction;

      (4) to knowingly effect any sale or purchase of any security for the
account of a client while acting as a broker for a person other than such
client without disclosing to such client in writing before the completion
of such transaction the capacity in which the person is acting and obtain-
ing the consent of the client to the transaction; and

      (5) to engage in any dishonest or unethical practice as the commis-
sioner may define by rule and regulation. The prohibitions of subsections
3 and 4 of this section shall not apply to any transaction with a customer
of a broker-dealer if such broker-dealer is not acting as an investment
advisor in relation to such transaction.

      (c) It is unlawful for any investment adviser to enter into, extend, or
renew any investment advisory contract if the contract:

      (1) Provides for compensation to the investment adviser on the basis
of a share of capital gains upon or capital appreciation of the funds or any
portion of the funds of the client;

      (2) fails to provide in writing that no assignment of the contract may
be made by the investment adviser without the consent of the other party
to the contract; or

      (3) fails to provide in writing that the investment adviser, if a part-
nership, shall notify the other party to the contract of any change in the
membership of the partnership within a reasonable time after the change.

      Subsection (c)(1) shall not prohibit an investment advisory contract
which provides for compensation based upon the total value of a fund
averaged over a definite period, or as of definite dates or taken as of a
definite date, or in any other manner authorized by rules and regulations
adopted by the commissioner for the purposes of furthering compatibility
with federal regulations authorizing fees based upon a share of the capital
gains upon or capital appreciation of client assets. ``Assignment,'' as used
in this subsection, includes any direct or indirect transfer or hypotheca-
tion of an investment advisory contract by the assignor or of a controlling
block of the assignor's outstanding voting securities by a security holder
of the assignor; but, if the investment adviser is a partnership, no assign-
ment of an investment advisory contract is considered to result from the
death or withdrawal of a minority of the members of the investment
adviser having only a minority interest in the business of the investment
adviser, or from the admission to the investment adviser of one or more
members who, after admission, will be only a minority of the members
and will have only a minority interest in the business.

      (d) In the solicitation of clients of a person described in subsection
(b), it is unlawful for any person to make any untrue statement of a ma-
terial fact, or to omit to state a material fact necessary in order to make
the statement made, in light of the circumstances under which the state-
ment is made, not misleading.

      (d) (e) It is unlawful for any investment adviser to take or have cus-
tody of any securities or funds of any client if:

      (1) The commissioner by rules and regulations prohibits custody; or

      (2) in the absence of such rules and regulations, the investment ad-
viser fails to notify the commissioner that such adviser has or may have
custody.

      (e) (f) A conviction for an intentional violation of this section is a
severity level 6, nonperson felony. Any violation of this section committed
on or after July 1, 1993, resulting in a loss of $25,000 or more, regardless
of its location on the sentencing grid block, shall have a presumptive
sentence of imprisonment. 
Sec.  2. K.S.A. 1998 Supp. 17-1253 is hereby repealed.
 Sec.  3. This act shall take effect and be in force from and after its
publication in the statute book.

Approved March 9, 1999.
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