Cease and Desist Order
A cease-and-desist order is an administrative sanction issued by the SEC in enforcement proceedings that prohibits a respondent from committing or causing further violations of specified provisions of federal securities laws, serving both as a formal finding of past violation and as a prospective legal prohibition whose breach can result in additional sanctions.
The SEC obtained authority to issue administrative cease-and-desist orders through the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, which significantly expanded the agency's non-litigation enforcement toolkit. Before this authority was granted, the SEC had to go to federal court to obtain an injunction prohibiting future violations — a more burdensome and resource-intensive process.
A cease-and-desist order may be issued against any person who has violated or caused a violation of any provision of the federal securities laws or the rules thereunder that the SEC administers. Unlike a court injunction, which requires demonstration of a reasonable likelihood of future violations, the SEC can issue a cease-and-desist order based solely on a finding of past violations, without requiring proof of likelihood of recurrence. This is a significant procedural advantage for the SEC in the administrative forum.
Cease-and-desist orders are issued either through contested administrative proceedings (after a hearing before an ALJ) or through settlements in which the respondent consents to the order without admitting or denying the findings. The consent order route is far more common, with the vast majority of SEC enforcement actions resolved through consent orders in which the respondent agrees to the cease-and-desist, pays disgorgement and penalties, and the case closes without a contested hearing.
The term of a cease-and-desist order is typically permanent unless modified or vacated by the Commission. If a respondent subject to a cease-and-desist order commits a subsequent violation of the same statutory provision, the SEC may bring a follow-on action seeking enhanced sanctions based on the violation of the order. In egregious cases, willful violations of a cease-and-desist order can be referred to the Department of Justice for criminal contempt proceedings.
Cease-and-desist orders have a second-order effect beyond their direct legal prohibition: they are public documents that appear on the SEC's EDGAR system, in FINRA's BrokerCheck, and in state registration databases, creating a permanent public record that can affect a respondent's ability to maintain professional registrations, obtain employment in the financial industry, or attract clients and capital.
In practice, consent orders resolving SEC administrative proceedings are heavily negotiated documents. Respondents who cooperate with investigations, self-report violations, or remediate misconduct can negotiate for reduced sanctions — including the elimination or reduction of monetary penalties — while still accepting a cease-and-desist order that closes the regulatory matter.