Securities fraud is one of the most severe forms of white-collar crime, and it is one of the financial crimes most frequently scrutinized by the Federal Bureau of Investigation.
However, it can be difficult to parse precisely what securities fraud is, the punishment the crime carries if a defendant is convicted, and how you might defend yourself against a securities fraud charge.
For more information about the crime itself and the punishment for securities fraud, continue reading. If you’re facing federal securities fraud charges, the Zoukis Consulting Group can help.
What Is Securities Fraud?
Broadly speaking, securities fraud is a form of fraud in which a perpetrator uses financial securities or asset markets to exploit others. If the term seems vague, it’s because it is; securities fraud can take many forms and entail many kinds of deception.
According to the FBI, activities that constitute securities fraud can include Ponzi and pyramid schemes, high yield investment fraud, advance fee schemes, broker embezzlement, foreign currency fraud, late-day trading, hedge fund fraud, and more.
Beyond this long list of crimes, securities fraud can entail any number of duplicitous financial practices. At the most basic level, an instance of securities fraud might entail providing someone false information or withholding key information, offering bad advice, offering insider information about stocks, or acting on that information.
Examples of Securities Fraud
There are a few common examples of securities fraud. High yield investment frauds, for instance, are securities fraud where a fraudster convinces someone to make a large investment on the promise of a low-risk, high-reward opportunity ‒ which is, in fact, nonexistent.
Similarly, a pyramid scheme involves convincing a mark to buy a large amount of a low-value product to sell or to recruit others to sell. While money cycles to the originator of the scheme, each new victim is offloaded with worthless products.
In an advance fee scheme, a fraudster charges a seemingly low upfront fee in order to invest in a supposedly valuable but actually nonexistent investment opportunity. After receiving the initial payment, the fraudster does not deliver on the investment.
However, there are forms of securities fraud that are not as elaborate or complex.
Insider trading, for example, is a form of securities fraud that involves making a stock trade based on the knowledge of information not available to the public. This offense also applies if a person communicates secret information to advise a trade ‒ and the person who gave the advice and the other person who made the trade will be held guilty.
Even more simple is churning, a form of securities fraud in which a broker convinces an investor to make excessive trades in order to profit from the brokerage fee. Brokers have a fiduciary responsibility, meaning they are legally obligated to give sound advice to the best of their ability ‒ and acting in their own favor instead of the client’s will compromise this.
What Is the Punishment for Securities Fraud?
Because of the seriousness of the crime, the penalties for securities fraud can be rather severe.
Securities fraud is a Class C felony, which means conviction can result in up to 20 years in prison, three years of supervised release, $5 million in fines, and the seizure of any property or profits that resulted from the fraud.
While not all convictions are necessarily so severe, the punishment for securities fraud is still considerable. Even for lesser cases, you could face five years in prison, $10,000 in fines per crime, and several years of probation ‒ and, naturally, your suspension from financial work.
The severity of a securities fraud conviction is considerable. For that reason, it’s crucial to arm yourself with sound legal advice from an experienced securities fraud defense attorney.
A Securities Fraud Lawyer Can Help
As a financial crime, securities fraud charges frequently entangle complex investigation, lengthy processes filled with red tape, and a mountain of legal vernacular. For that reason, a charge of securities fraud is not the sort of case to handle by yourself ‒ always consult with a securities fraud defense lawyer.
Your securities fraud defense team can build your defense largely based on the underlying facts and circumstances of the prosecution’s case. Some common defenses to securities fraud charges include the following:
- You had no intent to commit fraud. Defense counsel may argue that, although a violation occurred, you were unaware that it was in fact a violation. This defense is limited in scope to criminal charges. In addition, some securities fraud cases do not hinge on the defendant’s intent.
- You acted in good faith. If you made one or more trades based on someone else’s instructions to do so, and you had no reason to think that the trades were illegal, you might avoid civil and criminal liability on that basis. This defense hinges on the employee’s belief that they were acting in good faith, with no negligence or intent to commit fraud.
- There is a lack of evidence. The prosecution must prove beyond a reasonable doubt that a defendant charged with securities fraud committed the crime(s) with which the defendant is charged. Defense counsel may challenge the charges on the basis that there is simply not sufficient evidence to convict the defendant.
- The government acted improperly. Under certain circumstances, a defense attorney can rebut the government’s charges and file a motion to suppress evidence if the SEC or state Secretary of State did not obtain the proper search warrants or otherwise acted improperly or illegally in building their case against you.
You should contact a securities fraud attorney if you’re even suspected of the crime, as the case can often be so large and unwieldy that it’s essential to get in front of the situation before any securities fraud charges can be brought against you.
Once you find a reliable securities fraud lawyer experienced with securities fraud cases, this professional will be able to navigate the complexities of the case, including the ins and outs of financial regulations, the scope of the law, and other legal matters ‒ all in all, providing you with quality legal counsel.
Considering how the charge, a conviction, and securities fraud punishment could impact your entire life, finding an exceptional securities fraud lawyer is a must.
Contact the Zoukis Consulting Group today for expert legal defense.
Published Feb 15, 2022 by Christopher Zoukis, JD, MBA | Last Updated by Christopher Zoukis, JD, MBA on Feb 1, 2023 at 1:04 pm