Quick Answer
A stop order lets the Administrator deny, suspend, or revoke a registration statement's effectiveness, requiring both a public-interest finding and a statutory ground. A summary suspension can happen first, without a hearing; a final stop order requires prior notice, a hearing opportunity, and written findings. Time limits protect facts already known when a registration became effective.
Stop orders are the Administrator's core enforcement tool over securities registration under the Uniform Securities Act, and they apply equally to all three methods. The exam tests both the substantive grounds for a stop order and the procedural due process it requires.
What Can a Stop Order Do?
The Administrator may issue a stop order that:
- Denies effectiveness to a registration statement
- Suspends a registration statement
- Revokes the effectiveness of a registration statement
Two requirements must be met: (1) the order must be in the public interest, AND (2) one or more statutory grounds must exist.
What Are the Grounds for a Stop Order?
| Ground | Description |
|---|---|
| Incomplete or misleading statement | Registration statement, amendment, or report is incomplete in any material respect or contains a false or misleading material statement |
| Willful violation | Offering-related willful violation of the Act or a lawfully imposed rule, order, or condition by the filer or an underwriter. The issuer, its partners, officers, directors, persons with similar status or functions, and persons controlling or controlled by it are included only if the filer is controlled by or acting for the issuer |
| Other stop orders or injunctions | The security is subject to a stop order or injunction under any other federal or state act applicable to the offering. Against an effective registration, the proceeding must be instituted within 1 year of that order or injunction. An order or injunction from another state is usable only if it rested on facts that would currently be a stop-order ground here |
| Illegal business activities | The issuer's enterprise or method of business includes activities that are illegal where performed |
| Fraud or the model's alternative unfair-terms formulation | The primary formulation reaches an offering that worked or tended to work fraud upon purchasers. The bracketed model alternative uses unfair, unjust, or inequitable terms. These are alternative formulations of one ground, not two additional grounds |
| Unreasonable compensation | Unreasonable amounts of underwriters'/sellers' discounts, commissions, promoters' profits/participation, or unreasonable options |
| Filing ineligibility | Security sought to be registered by notification (filing) is not eligible for that method |
| Coordination undertaking failure | Failure to comply with the coordination-method undertaking to forward federal amendments promptly |
| Filing fee not paid | Applicant or registrant failed to pay the proper filing fee (denial order only; vacated when corrected) |
What Time Limits Apply to Stop Orders?
- The Administrator may not institute a stop order proceeding against an effective registration statement based on a fact known at the time of effectiveness unless the proceeding is instituted within the next 30 days
- Facts the Administrator discovers after the effective date are not subject to the 30-day limit; the limit applies only to facts known when the statement became effective
- A proceeding against an effective registration statement based on another federal or state stop order or injunction may not be instituted more than 1 year from the date of that order or injunction
Exam Tip: Gotchas
- The 30-day window protects registrants from delayed second-guessing. Once the Administrator makes a registration effective knowing the relevant facts, those same facts cannot be used as the sole basis for a stop order beyond 30 days.
What Is a Summary Suspension?
The Administrator has expedited enforcement powers:
- May summarily postpone or suspend effectiveness pending a final determination
- Must promptly notify affected parties that the order has been entered and the reasons
- Upon a written request for a hearing, the matter must be set down for hearing within 15 days of the Administrator's receipt of that request. The Act sets no deadline for making the request; if none is requested and none is ordered, the order simply stays in effect until modified or vacated
Exam Tip: Gotchas
A summary suspension may come before a hearing. After receiving a written request, the Administrator must set the matter down for hearing within 15 days; the hearing need not occur within that period. A final stop order requires prior notice, a hearing opportunity, and written findings.
What Due Process Does a Final Stop Order Require?
No stop order (except a summary suspension) may be entered without:
- Appropriate prior notice to the applicant, registrant, issuer, and person on whose behalf securities are offered
- Opportunity for hearing
- Written findings of fact and conclusions of law
Can a Stop Order Be Changed or Vacated?
The Administrator may vacate or modify a stop order if conditions have changed or it is in the public interest. Stop orders are not permanent; they can be revisited.
What Should You Check on Exam Day?
- Confirm both elements are present before calling a stop order valid: public interest AND a statutory ground.
- Distinguish a summary suspension (immediate, no hearing required first) from a final stop order (requires prior notice, hearing opportunity, written findings).
- Keep the 30-day and 15-day windows straight: 30 days to challenge an effective registration on facts known at effectiveness; 15 days for the Administrator to set a hearing after a written request.
- Apply the 1-year limit when a proceeding against an effective registration relies on another federal or state stop order or injunction.
- Remember the Administrator may vacate or modify a stop order if the conditions that prompted it have changed or it is otherwise in the public interest.