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Verification Form Pursuant To Rules 260.241.2(b) 260.237.1 - California
| Verification Form Pursuant To Rules 260.241.2(b) Form. This is a California form and can be used in Broker Dealer Blue Sky Secretary Of State . |
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STATE OF CALIFORNIA DEPARTMENT OF CORPORATIONS CAPITAL AND REPORTING REQUIREMENTS If the applicant for the investment adviser certificate has power of attorney to execute client transactions or has regular or periodic custody of the clients' securities or funds, including fees for periodic publications or other investment advisory services paid six months or more in advance of the services and the applicant's principal place of business is in California, the applicant is subject to the capital requirements as prescribed in §260.237.1 of the California Code of Regulations and the reporting requirements as prescribed in §260.241.2. For your information, we have included material concerning California's capital and reporting requirements. Attached you will find the following: §260.237.1 (capital requirements) and excerpts from §260.241.2 (reporting requirements). Definition of the components used in the capital computations, formulas used in the capital computations, and the limitations. Worksheet that may be used as a guideline to calculate the capital requirements. Verification form. We would also like to remind you that: At no time shall the investment adviser (a) permit its tangible net capital to be less than required, (b) permit its total aggregate indebtedness to exceed 500% of its tangible net capital or (c) permit its current aggregate indebtedness to exceed its current net capital. The annual report should be filed within 60 days after the end of the investment adviser's fiscal year. The annual report must include supporting schedules that contain the computations net capitals and aggregate indebtedness pursuant to §260.237.1. Annual reports prepared on a consolidated basis are not acceptable unless the investment adviser guarantees, endorses, or assumes, directly or indirectly, the obligations or liabilities of its subsidiaries or affiliates. Any investment adviser who is subject to the minimum capital requirements must, in addition to the records otherwise required under §260.241.3, maintain a record of the proof of money balances of all ledger accounts in the form of trial balances and a record of the computations of net capitals and aggregate indebtedness pursuant to §260.237.1. The trial balances and computations should be prepared monthly by the tenth of each month. We encourage you to carefully review the enclosed material, and if you have any questions, please feel free to contact this Department. 260.237.1 (Rev. 02/03) American LegalNet, Inc. www.USCourtForms.com Page 1 of 5 § 260.237.1 Capital Requirements (a) No investment adviser who has any power of attorney from any investment advisory client to execute transactions or has regular or periodic custody of any of its investment advisory clients' securities or funds, including fees for periodic publications or other investment advisory services paid six months or more in advance of the services, shall permit its total aggregate indebtedness to exceed 500% of its tangible net capital or permit its current aggregate indebtedness to exceed its current net capital and, (1) The investment adviser shall at all times have and maintain tangible net capital of not less than $25,000.00; or, (2) If the investment adviser has any power or attorney from any investment advisory client to execute transactions and does not have regular or periodic custody or possession of any of its investment advisory clients' securities or funds, except the receipt of prepaid subscriptions for periodic publications, or other investment advisory services, it shall at all times have an maintain tangible net capital of not less than $5,000.00; or, (3) If the investment adviser receives fees for periodic publications or other investment advisory services paid six months or more in advance of the services and it does not have the authority described in subsection (a)(2) of this section or does not otherwise have regular or periodic custody or possession of any of its investment advisory clients' securities or funds, it shall at all times have and maintain tangible net capital of not less than $1,000.00. (b) Exemptions. (1) The provisions of subsection (a) of this section shall not apply to any investment adviser licensed as a broker-dealer under Section 25210 of the Code and subject to the capital requirements of Section 260.216.12 of these rules. (2) The Commissioner may, upon written application, exempt from the provisions of this section, either unconditionally or on specified terms and conditions, any investment adviser who satisfies the Commissioner that, because of the special nature of the investment adviser's business, its financial position, and the safeguards it has established for the protection of clients' funds and securities, it is not necessary in the public interest or for the protection of investors to subject the particular investment adviser to the provisions of this section. (c) Definitions. For the purposes of subsection (a) of this section, all financial information shall be determined in accordance with generally accepted accounting principles; and, (1) The term "tangible net capital" shall mean the net worth of the investment adviser, after excluding (A) intangible assets and (B) indebtedness which is subordinated to the claims of creditors pursuant to a satisfactory subordination agreement as hereinafter defined; (2) The term "total aggregate indebtedness" shall mean the total money liabilities of the investment adviser including all unearned income and other deferred credits and excluding indebtedness which is subordinated to the claims of creditors pursuant to a satisfactory subordination agreement, as hereinafter defined; (3) The term "current net capital" shall mean the currents assets of the investment adviser and (A) includes all unpledged, readily marketable securities and (B) excludes all advances, loans or other receivables from any subsidiary, holding company, parent, or other affiliate or the officers, directors or controlling persons of such entities or the investment adviser; (4) The term "current aggregate indebtedness" shall mean the sum of (A) 20% of the deferred or unearned income from receipts or revenues received on subscriptions for future periods and (B) the total of all other current liabilities; 260.237.1 (Rev. 02/03) American LegalNet, Inc. www.USCourtForms.com Page 2 of 5 (5) The term "satisfactory subordination agreement" shall mean a written agreement duly executed by the investment adviser an
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