Securities fraud is a serious federal crime, with the ability to impact the stability of exchange markets in America and beyond. While images of wall street corruption and big corporate scandals may immediately spring to mind when you hear the term securities fraud, it is actually a broad classification of crimes that can potentially affect thousands of Americans.
If you’ve been charged with securities fraud, it’s important to understand what potential penalty and charges you are facing.
Sam Azhari, Federal Criminal Lawyer, has helped numerous clients mount a defense against charges involving securities fraud and other white collar federal crimes.
In today’s blog, we’ll examine securities fraud law to help you make sense of the charges, as well as look at some potential consequences that accompany a conviction. Remember, everyone is innocent until proven guilty in a court of law.
Now, let’s get down to business.
What is Securities Fraud?
Securities are financial instruments that hold a monetary value, like stocks and bonds, that individuals or organizations may invest into for the purpose of financial gain.
Securities fraud occurs when attempts are made to manipulate the stock market or other securities markets through fraud or deceptive practices. Investors are usually the target of securities fraud, with a multitude of different schemes existing that seek to artificially inflate the price or value of a security, or steal money from investors outright.
What Are Some Examples of Securities Fraud?
Securities fraud schemes can take a variety of forms. Even seemingly minor incidents can be prosecuted as securities fraud.
For example, using social media, chat rooms or other internet sites to try to drive up or down the stock price of a particular company is a form of securities fraud.
Likewise, starting a new business and attempting to raise funds through the sale of stocks without registering with the Securities and Exchange Commission (SEC) can be construed as securities fraud. Even over estimating your business’s forecasted earnings without proper reasoning can be seen as securities fraud.
Some of the most common securities fraud schemes include:
- Pyramid/Ponzi schemes – These schemes rely on continual recruiting of new investors to pay the promised returns to the earlier investors, creating a “house of cards” that can collapse years later. The Bernie Madoff scandal is perhaps the best known example of a ponzi scheme.
- Insider Trading – Insider trading occurs when an employee of a company or someone privy to non-public knowledge about a company uses that information to buy or sell their stock or security for financial gain. Martha Stuart was famously jailed over insider trading.
- Pump and Dump – A pump and dump occurs when an investor or broker makes up false information about a particular stock, bond, or other security in an effort to get clients to purchase it. This drives up the price, allowing the securities fraud criminal to sell their shares at a profit.
- Churning – A type of securities fraud where a broker encourages their client to make an overabundance of trades in order to generate more fees or commissions for themselves.
- Corporate Fraud – Occurs when corporate management uses deceptive practices to hide debts and losses, or overvalue the corporation’s earnings in order to inflate their stock price. The Enron scandal is one of the largest examples of corporate securities fraud in US history.
Understanding Securities Fraud Law
In the wake of the great stock market crash of 1929, the Securities Act of 1933 was implemented as the first securities fraud law enacted by the federal government to regulate the exchange of securities.
A year later, the Securities Exchange Act of 1934, created the Securities and Exchange Commission (SEC), which is the federal governing body that implements securities fraud law and regulates stock markets. Their primary purpose is to ensure that investors are protected and that the stock and securities markets operate efficiently and fairly.
The Importance of Materiality in Securities Fraud Law
One of the key components of securities fraud law is the idea of material information. Material information is considered to be any information that is critical to an investor’s decision to buy or sell a security.
When material information is withheld about a company that would reasonably impact an investor’s decision to buy or sell a stock, it is considered to be a form of securities fraud.
An example of material information being withheld could include a company not divulging a major acquisition, a product recall, a pending lawsuit, or significant changes in earning revenues. Withholding such critical information could cause an investor to buy a particular security, when they might not if they had access to this information.
In cases involving securities fraud law, the plaintiff must show that material information was either withheld or misrepresented by the defendant, who had a duty to communicate that information to the plaintiff.
Securities Fraud Penalties and Charges
Nearly all securities fraud charges will be classified as federal securities fraud charges, due to their potential impact on markets around the country. The exact penalties and charges can vary based on the nature of the crime, the amount of money involved, and the number of victims.
Securities fraud criminal charges can include:
- Wire fraud
- Mail fraud
- Securities fraud
- Insider trading
- Market manipulation
- Money laundering
- Obstruction of justice
Securities Fraud Penalties
Securities fraud penalties can be severe. If found guilty of securities fraud, jail time can carry a maximum penalty of 25 years in prison. But it’s not just prison time that can follow a securities fraud conviction.
Fines for smaller violations begin at around $10,000, reaching into the millions of dollars for significant cases of federal securities fraud. Insider trading can reach up to $5,000,000 in fines per incident.
Whatsmore, the court may order violators to pay restitution to the victims, i.e. pay back the money that they were defrauded out of, as well as forfeit any other profits made from the scheme.
Lastly, those convicted of securities fraud may ultimately be barred from working or participating in the securities industry.
Conclusion
Federal securities fraud charges have serious implications. If you have been charged with securities fraud, you need the help of an experienced securities fraud criminal defense team right away.
Contact Sami Azhari Federal Criminal Lawyer for a consultation regarding your securities fraud case.
Sami has over 17 years of experience defending federal and white collar crimes across the US, including securities fraud, wire fraud, bank fraud, racketeering (RICO), conspiracy and other federal charges.
Put your future in the hands of an experienced securities fraud defense attorney. Contact Sami Azhari Federal Criminal Lawyer today.
Recent Comments