Denial, Suspension, or Revocation of a Securities Registration

Question 1

What are the conditions for an admin to issue a stop order to deny, suspend or revoke the registration of a security.

Answer 1

if it is in the public’s best interest AND any one of the following conditions apply:

The registration statement is materially incomplete, or contains statements that are false or misleading
There has been a violation of the state’s blue sky law by:
The person filing the registration statement
The issuer
Any partner, officer, or director of the issuer
Any underwriter

Any officer of the issuer or underwriter associated with the registration has been convicted of a securities or theft-related misdemeanor or any felony

The security is subject to a federal or state court injunction or an administrator in another state has issued a stop order

The issuer’s business involves activities that are illegal in the state where performed

The offering is being made on terms that are fraudulent, unfair, unjust, or inequitable

Unreasonable amounts of underwriting compensation are being paid

The securities are being registered by filing or coordination, but do not qualify for the type of registration being requested

The issuer has failed to pay the proper filing fee (a denial order only applies until the proper fee has been paid)

Question 2

can the admin put a stop order on an effective registration based on known fact before the statement became effective?

Answer 2

The Uniform Securities Act states that the Administrator (the government agency responsible for enforcing securities laws) cannot stop a registration statement (a legal document that companies file to register their securities with the government) that has already become effective (approved) based on information that was already known at the time it became effective, unless the Administrator takes action within 30 days of the effective date.

In other words, the government cannot use information that was already known to stop a registration statement after it has been approved, unless they take action within 30 days of approving it.

Question 3

In registration by coordination or qualification, how are the investors funds held?

Answer 3

Under the USA, issuers using the registration methods of coordination or qualification may be required to hold the proceeds of the offering in escrow until certain minimums are obtained.

This prevents the issuer from simply taking the money from investors if the offering requirements are not met.

Proceeds held in escrow would be returned to investors if the offering is cancelled before completion.