Cease and Desist Orders and Injunctions
The Administrator has powerful tools to stop ongoing violations of the Uniform Securities Act. Understanding the difference between cease and desist orders and injunctions, and when each is used, is important for the Series 63 exam.
Cease and Desist Orders
A cease and desist order is a formal directive from the Administrator ordering a person to stop engaging in activity that violates (or may violate) the USA.
Key Characteristics
| Feature | Description |
|---|---|
| Issued by | State Administrator |
| Prior hearing? | No - can be issued without prior notice or hearing |
| Effect | Orders immediate stop to the violating activity |
| Purpose | Stop ongoing violations; prevent imminent violations |
Exam Alert: This is a critical exam concept—the Administrator may issue a cease and desist order without prior notice or hearing. This allows for immediate action to stop ongoing harm to investors.
When Used
Cease and desist orders are typically issued when:
- An ongoing violation is causing investor harm
- A violation is about to occur
- Immediate action is needed to protect the public
- The Administrator has reason to believe the USA is being violated
Post-Order Rights
Although no prior hearing is required, the person subject to a cease and desist order has rights:
- Right to request a hearing after the order is issued
- Right to judicial review
- Right to seek a stay of the order
Stop Orders
A stop order is similar to a cease and desist but specifically relates to securities registration:
| Stop Order Type | Effect |
|---|---|
| Stop order on registration | Halts the effectiveness of a securities registration |
| Stop order on exemption | Withdraws an exemption previously granted |
Like cease and desist orders, stop orders can be issued without prior hearing.
Court Injunctions
An injunction is a court order that prohibits specific conduct. Unlike cease and desist orders, injunctions are issued by courts, not the Administrator.
Comparison: Cease and Desist vs. Injunction
| Feature | Cease and Desist | Injunction |
|---|---|---|
| Issued by | Administrator | Court |
| When used | First response to violations | When cease and desist is ignored or stronger action needed |
| Enforcement | Administrative | Court contempt powers |
| Prior hearing | No | Yes (usually) |
When the Administrator Seeks an Injunction
The Administrator may ask a court for an injunction when:
- A cease and desist order has been violated
- The violation is particularly serious
- Criminal conduct may be involved
- Assets need to be frozen
Temporary Restraining Orders (TROs)
A temporary restraining order (TRO) is an emergency court order issued on very short notice:
- Can be issued ex parte (without the other party present)
- Typically lasts 10-14 days
- Preserves the status quo until a full hearing
- Often combined with asset freezes
Purpose of TROs
- Prevent dissipation of assets
- Stop immediate harm to investors
- Preserve evidence
- Maintain status quo pending investigation
Receiverships
The Administrator may ask a court to appoint a receiver to take control of assets:
| Function | Description |
|---|---|
| Asset protection | Secure and protect customer assets |
| Business operation | Manage ongoing business operations |
| Distribution | Return funds to defrauded investors |
| Accounting | Trace and account for all funds |
When Receivers Are Appointed
- Broker-dealer or adviser is insolvent
- Assets are at risk of dissipation
- Fraud has occurred and funds need to be traced
- Firm is unable to return customer property
Asset Freezes
The court may issue an order freezing assets to prevent their removal or dissipation:
- Prevents transfer of bank accounts
- Stops sale of property
- Preserves funds for potential restitution
- Can be combined with TRO or injunction
Judicial Review
Actions taken by the Administrator can be appealed to the courts:
| Action | Appeal Timeline |
|---|---|
| Final orders | Within 60 days |
| Cease and desist | After issuance (request hearing first) |
| Emergency orders | Immediate judicial review available |
Key Takeaways
- Cease and desist orders can be issued without prior notice or hearing
- Cease and desist orders are issued by the Administrator; injunctions are issued by courts
- Stop orders halt effectiveness of securities registrations or exemptions
- TROs are emergency court orders issued on short notice
- Courts can appoint receivers to take control of assets
- Asset freezes prevent dissipation of funds
- All administrative actions are subject to judicial review
The Administrator believes a broker-dealer is engaging in fraudulent activity that is harming investors. To immediately stop the activity, the Administrator can:
What is the key difference between a cease and desist order and an injunction?
A court appoints a receiver for a broker-dealer accused of fraud. What is the receiver's primary function?
5.5 Criminal and Civil Penalties
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