Securities and Investment Fraud Defense
We defend individual accused of securities fraud or deceptive practices in the commodity and stock markets. After the economy crashed in 2008, the United States has created more regulations aimed at consumer protection, and stricter enforcement of the laws affecting white-collar professionals on Wall Street. Our firm ensures it is up to date with the complex and mercurial law regarding securities fraud, and we have defended individuals accused of minor crimes to corporations accused of major, industry-wide offenses.
- Federal Legislation:
Our attorneys defend individuals and corporations that have been accused of violating any of these acts and are prepared to protect our clients from either criminal or civil prosecution:
The Securities Exchange Act of 1934 (15 USC 78 et. seq.) governs the trading of stocks and bonds in the U.S. This law established the Securities and Exchange Commission (SEC), which is the agency charged with enforcing federal securities law. Our firm has experience in dealing with agents of the SEC, in both civil and criminal investigations. This act essentially prohibits the attempt of actual defrauding of a person in connection with a commodity for future delivery, or by obtaining through means or false or fraudulent pretenses, any sale or option on a commodity for future delivery. The punishment, if convicted, depends on the facts and circumstances of each case, as well as the criminal history of the defendant. Class E felonies carry 4 years in prison, while violations of 15 USC 78l or 15 USC 780 (d) carries a potential sentence of up to 25 years.
The Securities Act of 1933 is the first piece of federal legislation to regulate the transactions of securities. It focuses on the registration of statements concerning securities within publicly traded companies.
The Trust Indenture Act of 1939 covers securities that are offered for public sale. Securities cannot be sold to the public unless there is a formal agreement between the issuer of bonds and the bondholder which conforms to the provisions of this act.
Investment Company Act of 1940 – This act regulates and minimizes conflicts of interest between companies whose securities are offered for public sale, and whose business is trading in securities.
Sarbanes-Oxley Act of 2002 – signed into law under President Bush II, the act primarily created the Public Company Accounting Oversight Board, and created several reforms which encourage corporate responsibility.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, signed into law just after the economic crisis of the last decade, was aimed at enhancing consumer protection, regulation of financial products, increasing corporate governance, disclosure, and transparency.
- New York Legislation:
- The Martin Act gives powers to the state’s attorney general to fight financial fraud – more power than any other state regulator in the country. (New York General Business Law Article 23-1, Sections 352-353). The attorney general can investigate and sue any person, partnership, or corporation which uses any scheme or device to defraud or obtain money or property through false pretense or promise. The most severe crime under the Martin Act is a class E felony, punishable by up to 4 years in prison, with a minimum sentence of 1 year. The Martin Act also carries civil penalties against offenders.
New York Attorney General Eric Schneiderman recently utilized the Martin Act when he began to probe Exxon Mobil Corp about whether the company had misled the public and the company's shareholders about the dangers of climate change. He cited the power of the Martin Act to subpoena Exxon's extensive financial records, emails, and other records all the way back to the 1970s. The Martin Act is unique and often difficult to defend against because no proof of intent to deceive is required, and prosecutors do not need to show that anyone was actually defrauded. Given the vast discretion and power delegated to the state under this law, a defense attorney can shield individuals accused of securities fraud from the broad powers of the government. The Blanch Firm has experience in defending our clients against accusations arising under the Martin Act.
- Common Securities Fraud Schemes:
Our firm has experience defending against all manner of securities fraud, but the four most common types that are prosecuted include ‘churning,' ‘pump and dump,' insider trading, and outsider trading.
Churning – This scheme refers to buying and selling an excessive amount of stock for the purpose of generating commissions for the stockbroker at the expense of his or her client’s profits. For churning to happen, the broker has to have control over the investment decisions in the customer’s account. A tell-tale sign of churning is if there are frequent in-and-out purchases or sales of stocks that are not necessary to achieve the client’s goals.
Pump and Dump – These are typically quickly built offices filled with fast-talking telemarketers that convince people on cold calls to buy debatable stock (think the early scenes of Wolf of Wall Street). Using high-pressure sales tactics, these activities generate sufficient demand to push up the share price – thus, ‘pumping' the value of the shares up. Once the stock hits a certain price, the operation sells its shares for a significant profit, (or dumps them), lowering the demand and price, and leaving investors with a loss.
Insider trading (SEC Rule 10(b)5-1)– We have considerable experience in defending our clients against accusations of insider trading. This involves trading a public company’s stocks or securities by an individual with access to information that is not publicly available. This is illegal because it is unfair to the investors without access to this information. The SEC requires trading done by corporate officers or key employees to be reported to a regulator or publicly disclosed ‘promptly.’ Much of the law on insider trading stems from case law, rather than statutes. Federal law authorizes treble damages for insider trading, and criminal convictions result in up to 20 years imprisonment. Our lawyers are kept up to date with new cases handed down from every level to ensure they have the best information with which to develop a strong defense for our clients.
Outsider trading - This is a fairly new crime being prosecuted by the SEC, which has come about primarily because of data breaches and hacking financial systems’ databases. This targets individuals who illegally hack into corporations to glean information that is not publicly available and make securities transactions based on this information. As recently as 2015, the SEC started issuing subpoenas requesting information about any and all data breaches companies had experienced. Our lawyers educate themselves on new developments in the law and ensure they are prepared to defend all possible clients.
- Defending Against Securities Fraud:
The firm understands how government investigations operate, and our lawyers know how to craft strong defenses against securities fraud charges. Usually, the prosecution must be able to show that the accused intentionally or recklessly misinterpreted or omitted information, and that because of this information, the investor reasonably relied upon the information received, which caused a financial loss. Therefore, if it can be shown that the loss was not as a result of the information relied upon by the investor, or if the defendant can show that they did not intentionally or negligently act, or knew of the falseness of their information, then the prosecution's case will not succeed.
Often, the best defense is simply getting a savvy attorney on your side very early in the matter. Corporate executives stand to lose their job if they refuse to cooperate with the SEC; however, speaking to the SEC could result in a criminal indictment or giving incriminating evidence to the government. The SEC turns over records of its civil fraud investigations to the Department of Justice for criminal prosecution. Even if you think you are involved only in a civil case, hire a competent attorney to guide you through the process of interviews and investigations with the SEC – before you speak to anyone else.
- Collateral Consequences:
Securities and Investment fraud is a complex area of law, and very often, prosecutors will tack on ancillary charges to securities fraud allegations, such as bank fraud, wire and mail fraud, computer fraud, tax fraud, RICO, obstruction of justice, and money laundering. If convicted, these stand to increase whatever sentence is given out.
In addition to steep civil crimes and lengthy prison sentences, white collar investment professionals stand to lose their credentials and qualifications if convicted, which could negatively affect their ability to make a living in the future. Those convicted often are prohibited from serving as a director or senior officer who is charged with preparing the finances of a public company and could be subject to disciplinary review by state licensing boards, such as for accountants or financial planners.
- Notorious Securities Crimes Cases:
Enron – Enron executives participated in a massive pump and dump scheme, in addition to illegal bookkeeping and reporting practices, such as by falsely reporting profits, which inflated the stock price, and going back and covering up the real numbers using unorthodox accounting practices. The Enron scandal was a catalyst in passing the Sarbanes Oxley Act of 2002. Former president Jeffrey Skilling was convicted on 19 counts, including insider trading. He was sentenced to 24 years and fined $45 million in 2006. However, he was given a deal to trim off 10 years of his sentence by giving over $40 million of his fortune to the victims of Enron’s collapse.
Galleon Group – Raj Rajaratnam founded hedge fund firm Galleon Group. In 2009, Mr. Rajaratnam was arrested on charges of conspiring to trade on insider information. Federal agents had tapped his phone, gathering evidence of multiple calls from corporate insiders providing information about the market. He was found guilty on 14 counts in 2011. Prosecutors estimated that Mr. Rajaratnam was responsible for creating one of the largest cases of insider trading in Wall Street history.
Scott London – Mr. London was a partner at KPMG, who often discussed his work with a friend, Bryan Shaw. When he found out that his friend was making trades based on their conversations, he began to accept cash gifts such as Rolex watches and trips. London received about $70,000.00 in tips before the SEC closed in on him. His friend Bryan actually earned about $1.3 million, to Mr. London’s dismay. Mr. London pled guilty, and received a sentence of 14 months in prison and a $100,000.00 fine, despite his comparatively small earnings from the scheme. This demonstrates how seriously the government takes insider trading and unfair manipulation of the market.
Recently, defense attorneys secured a small victory in the battle for their client, Benjamin Wey. Mr. Wey is a New York financier who is alleged to have made tens of millions of dollars by manipulating the stock market. A judge recently ruled that law enforcement botched a search of his office, meaning that none of the documents, business records, computer hard drives or emails gathered in that search could be used against Mr. Wey at his trial because the search was inappropriately broad. Ultimately, defense attorneys asked to dismiss Mr. Wey’s indictment based upon lack of evidence – the judge agreed, and Mr. Wey walked free. This case demonstrates how important getting the advice and representation of a competent attorney can be to someone accused of securities fraud.
- Defending All Securities Crime Charges:
The Blanch Law Firm has decades of combined experience in defending clients against securities and investment fraud. We understand the SEC's investigations for the civil aspects of prosecution, as well as the process for criminal investigations under the Department of Justice. Given the complexity of these cases and the number of agencies involved, we devote significant resources to all our securities fraud cases, ensuring our clients get the best possible defense. If you believe you are under investigation for a securities fraud matter, get in touch with our firm today.