To cease or not to cease. That is the question.
When a cop sees someone robbing a store, he or she doesn't yell "cease and desist". The officer yells "stop, put your hands up". But when a government agency sees someone committing a crime, it sometimes orders "cease and desist". That doesn't make too much sense because "desist" means "cease". (No policeman would yell "stop and stop.")
When Securities Commissioner Fred Joseph wants to issue a cease and desist to stop what he considers to be a securities law violation, he has to first issue a show cause order to the alleged culprit. For 10 to 21 days after notification, the suspicious activity can continue before a hearing is held, which means lots more consumers can lose their savings.
Joseph wants to turn that around by (1) issuing a cease and desist order when his staff provides evidence of a violation (2) providing time for the alleged violator to have a hearing and (3) requiring Joseph to prove to an Administrative Judge by a preponderance of the evidence that the activity did violate the law.
The Dept. of Regulatory Agencies (DORA) Sunset report agrees and included the change among its many recommendations at a state capitol hearing Dec. 4th, stating "The purpose of a cease and desist order is simple: the Division had identified conduct that is so bad it must be stopped immediately in order to protect the public."
Also, DORA reports the present process "requires Divison staff to avoid communications regarding a potential cease and desist case with the Commissioner, thus erecting a wall of neutrality." That makes no sense unless the legislature thinks a commissioner might notify an alleged violator of a coming action.
Most of the discussion on the securities bill revolved around "cease and desist." Rep. Rosemary Marhsall asked Joseph "what standards do you use to determine when to use cease and desist?"
Joseph's answer wasn't too helpful. He thought for a moment and answered "you know it when you see it." Of course, that's the answer usually given for outlawing pornographic material.
Chair Tambor Williams reminded Joseph the cease and desist language in present law was fully debated in Business Affairs committee in 2001. Two members of the Securities Board testified against the recommended cease and desist amendment and also against potential use of an administrative law judge rather then the division board to hear the case.
Rep. Fran Coleman, one of the 2001 amendment sponsors moved to NOT change the present system on cease and desist. There was no second to the motion, it died, and the DORA proposal remains in the bill. Rep. Williams indicated her displeasure with allowing notice of the cease and desist order to go to the alleged culprit simply by fax or first class letter.
That form of providing information to the alleged violator will likely change during the January hearing on the bill in the House Business Affairs Committee.
There are good and bad points to this bill. Using immediate cease and desist orders deprives someone of a particular method to produce income at least for a short time. On the other hand, it does not necessarily take away a license to practice. Using an administrative judge to make decisions provides more legal expertise in the procedures and admission of evidence. On the other hand, it removes power from the board.
Based on present media revelations regarding alleged corruption by corporations which does touch upon securities transactions, it might be worthwhile to require a state auditor report two or three years after adoption of a change to see how the process is working.
Legislators should also be on the alert against introduction of an amendment to the 2004 securities bill which would exempt from our securities law any sale/leaseback investment plan where equipment sold "is leased back, solely in exchange for a contractually fixed and guaranteed rate of return without any participation in risk, capital appreciation or earnings." That bill died in the 2003 session.
Ken Lane, spokesman for the Attorney General's office, labeled it "a recipe for unscrupulous promoters to circumvent securities laws." A guarantee which ignores the ability to make good on the guarantee is no guarantee.
(Jerry Kopel served 22 years in the Colorado House.)
Copyright 2015 Jerry Kopel & David Kopel