• Colorado Division of Securities Cease and Desist Proceedings
  • June 29, 2009
  • Law Firm: Holland & Hart LLP - Denver Office
  • The economic crisis has exposed an unprecedented number of securities frauds around the country.  Consistent with national trends, the Colorado Division of Securities has reported a sharp increase in the number of securities fraud investigations and cases in 2009.   Administrative cease and desist proceedings are an important weapon in the Division’s arsenal. 

    Cease and desist proceedings, authorized under 11-51-606(1.5), C.R.S., provide the Division with an expedited means of obtaining prophylactic relief on an expedited basis.  The statute allows the Securities Commissioner to issue an order directing a person or entity suspected of violating the Colorado securities Act to show cause why the a final order should not be entered directing such person or entity to cease and desist from the unlawful act or practice.   The statute also allows the Commissioner to seek to limit the activities of regulated persons in the securities industry, i.e. brokers and investment advisers, presumably by suspending or barring them.   Importantly, it does not provide for the imposition of orders seeking disgorgement, restitution, penalties or other monetary sanctions.

    The statute requires the Commissioner to notify the chairperson of the securities board or an administrative law judge (ALJ) that an order to show cause has been issued, and the chairperson or ALJ is required to set a hearing date between 10 and 21 days after commencement of the proceeding.  Hearing dates are scheduled between 10 and 21 days after transmission or service of the notification, with the respondent’s answer and witness lists due two business days before the hearing.   It is difficult for respondents to retain counsel, prepare an effective responsive pleading, and prepare for an evidentiary hearing within such a short period.   Recently, the Division has shown flexibility in delaying previously scheduled hearing dates.

    The statute allows the parties to subpoena witnesses at the hearing.  Depositions and other forms of pretrial discovery are not contemplated.  Therefore, respondents wishing to litigate must immediately identify favorable witnesses and documentary evidence.  Given the expedited nature of the proceedings and the Division’s heavy workload, respondents may hope that the Division’s relatively inexperienced and very busy lawyers will not be capable of preparing for trial within such a short period.   However, it is not surprising that few respondents wish to incur the expense and risk of litigation, and instead seek to negotiate resolution with the Division.