September 28, 2022

Volume XII, Number 271

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If Conduct Is Not Continuing, Can It Be Discontinued?

The Commissioner of the Department of Financial Protection & Innovation is vested with broad statutory authority to issue orders directing the discontinuance of violations or that a person "desist and refrain" from specified conduct.  Cal. Corp. Code §§ 25249, 25250, 25251, 29542, 31406, and 31407 and Cal. Fin. Code §§ 2148, 12307.2, 17415, 17602, 17603, 17604, 22690, 22707.5, 22712, 28158, 28164, 50321, 50322, and 50323.   "Discontinue" and "desist" both mean to stop or cease.  Therefore, if conduct is not ongoing, it is impossible for someone to discontinue or desist.  Apparently, this logical problem has caused some Administrative Law Judges to question whether the Commissioner has the authority to issue orders against violations that are no longer ongoing.

The California Association for Micro Enterprise Opportunity and the California Low-Income Consumer Coalition are sponsoring legislation, AB 2433 (Grayson), that would authorize the Commissioner to order stopped conduct that has already ceased.  While it is certainly possible that an erstwhile violator will restart, this bill omits a critical justification for such an order - a finding that there be a reasonable likelihood of future violations.  The fact that the person has violated the law provides an inference that future violations may occur.  However, the Commissioner should not have the authority to order someone to cease and desist from conduct that has ended unless there is a reasonable likelihood that the person will re-offend based on the totality of the circumstances.  For example, a person who discovers and terminates a violation proprio motu may be judged unlikely to engage in future violations, especially when the violations do not involve scienter.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 199
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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