Stop Orders for Securities Registrations
Section 204 covered registration actions against persons (broker-dealers, agents, investment adviser representatives (IARs), and investment advisers (IAs)). This section covers how the Administrator controls securities registrations under the Uniform Securities Act (USA) Section 306, the parallel power for securities filings.
Authority (USA Section 306)
The Administrator may issue a stop order:
- Denying effectiveness to a registration statement
- Suspending the effectiveness of a registration statement
- Revoking the effectiveness of a registration statement
Stop orders apply to all three methods of securities registration: notification (filing), coordination, and qualification.
The Two-Prong Test (Both Required)
Just like with person registrations under Section 204, the Administrator must find both:
- The order is in the public interest, and
- One or more of the specific statutory grounds exists
Exam Tip: Gotchas
- Both prongs are required. Finding a statutory ground alone is not enough; the Administrator must also find the action is in the public interest. Either prong failing defeats the stop order.
- This test is identical to the two-prong test for person registrations under Section 204. The same structure applies to both securities and persons.
Grounds for Stop Orders (USA Section 306(a)(2))
| Ground | Detail |
|---|---|
| (A) False/incomplete filing | Registration statement or amendment is incomplete or false/misleading in any material respect |
| (B) Willful violation | The filer, issuer, officer/director of issuer, controlling person, or underwriter willfully violated the Act |
| (C) Other stop order or injunction | Security is subject to another federal or state stop order or injunction (proceeding must start within 1 year of that order) |
| (D) Illegal enterprise | Issuer's enterprise includes activities that are illegal where performed |
| (E) Fraud | The offering has worked or tended to work a fraud upon purchasers |
| (F) Unreasonable compensation | Unreasonable amounts of underwriters'/sellers' commissions, promoters' profits, or options |
| (G) Ineligible for notification | Security is not eligible for registration by notification |
| (H) Coordination non-compliance | Failure to comply with the undertaking required by Section 303(b)(4) |
| (I) Filing fee | Failure to pay the proper filing fee (denial only; must vacate when corrected) |
Exam Tip: Gotchas
- Ground (I) (filing fee) is the only ground limited to denial. The Administrator cannot suspend or revoke a registration solely for a missing filing fee; the order must be vacated once the fee is paid.
- Willful violation (B) requires intent. An inadvertent error in a filing is not willful and does not satisfy ground (B); use ground (A) instead.
Limitation on Retroactive Action
The Administrator may not start a stop order proceeding against an effective registration statement on the basis of facts known when it became effective, unless the proceeding is started within 30 days after the effective date.
Think of it this way: If the Administrator reviewed a filing and let it go effective, the law gives only a 30-day window to reverse course using those same known facts. After 30 days, the Administrator cannot go back and say "we knew about that problem all along." New facts discovered later, however, can always trigger action.
- Securities registration (Section 306): 30 days after effective date
- Person registration (Section 204): 90 days after effective date
Exam Tip: Gotchas
- 30 days (securities) vs. 90 days (persons): these are frequently swapped on the exam. Securities registrations get the shorter window; person registrations get the longer one.
- The clock only starts if the Administrator already knew the facts. If the issue was discovered after the effective date, the retroactive limitation does not apply. The Administrator can act at any time on newly discovered facts.
Summary Postponement (USA Section 306(b))
The Administrator may by order summarily postpone or suspend the effectiveness of a registration statement pending final determination.
The notice-and-hearing framework mirrors Section 204(c):
- Prompt notice of the order and reasons
- Within 15 days of written request, the matter will be set for hearing
- If no hearing is requested, the order remains in effect until modified or vacated
Exam Tip: Gotchas
- Summary postponement does NOT require prior notice or a hearing. It can be issued immediately. The registrant then has the right to request a hearing within 15 days.
- The 15-day window is triggered by written request, not automatically. If the registrant does nothing, the postponement stays in force indefinitely.
Due Process for Stop Orders (USA Section 306(c))
No stop order (except for summary postponement) may be entered without:
- Appropriate prior notice to the applicant/registrant, the issuer, and the person on whose behalf the securities are offered
- Opportunity for hearing
- Written findings of fact and conclusions of law
Modification and Vacation
The Administrator may vacate or modify a stop order if:
- The conditions that prompted it have changed, or
- Doing so is in the public interest