4 LAWS OF MARYLAND [CH. 1

(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.

§ 14. Advisory Activities.

(a) 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 analyses or reports or otherwise,

(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.

(b) It is unlawful for any investment adviser to enter into,
extend, or renew any investment advisory contract unless it provides
in writing,

(1) that the investment adviser shall not be compensated 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) that no assignment of the contract may be made by the
investment adviser without the consent of the other party to the
contract; and

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

Clause (1) does 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. "Assignment", as used in clause (2),
includes any direct or indirect transfer or hypothecation of an
investment advisory contract by the assignor or of controlling
block of the assignor's outstanding voting securities by a security
holder of the assignor; but, if the investment adviser is a partner-
ship, no assignment of an investment advisory contract is con-
sidered 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.

(c) It is unlawful for any investment adviser to take or have
custody of any securities or funds of any client if,

(1) the Commissioner by rule prohibits custody; or

(2) in the absence of rule, the investment adviser fails to notify
the Commissioner that he has or may have custody.