Securities Fraud can happen when someone makes a false statement about a company or the value of its stock and others buy stocks based on that information. For example, an officer of a corporation does not accurately report the company’s financial information to its shareholders. This can artificially raise the worth of the company’s stock and encourage investors to buy shares of an unhealthy company. If the company later files for bankruptcy, people who bought shares based on false information may lose their investment completely.
Other forms of Securities Fraud includes insider trading and “pump and dump” schemes. Insider trading happens when someone with confidential information about a company’s financial state uses that information to make decisions about whether to buy or sell the stock before that information is disclosed to the public. In a “pump and dump” scheme, a person will find a small, unknown company with cheap stock and buy large amounts of its shares. This person will then send out false information about the company to encourage others to buy the stock to drive up the price. Once the price of the stock is high enough, the stock is sold for a substantial profit.
Due to the lengthy nature of the investigations that can lead to an indictment it is important to seek legal advice from experienced counsel as soon as you become aware that you could potentially be subject of the investigation and/or are under threat of indictment.
Securities Fraud schemes range from acts committed by individuals engaged in outright theft from investors such as embezzlement by stockbrokers, stock manipulation, misstatements on a public company’s financial reports and lying to corporate auditors, insider trading, front running and other illegal acts on the trading floor of a stock or commodity exchange.
Many crimes can be related to Securities Fraud include, but not limited to theft from manipulation of the market, theft from securities accounts, wire fraud, misappropriation of client assets and market manipulation.
Under the United States Code, Securities Fraud is committed when a person attempts:
- to defraud any person in connection with any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o (d)); or
- to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o (d)).
The length of imprisonment and/or fines may vary depending on the nature and circumstances of the offense, whether the offender was a second or persistent felony offender, and the offender’s criminal history. Class E felonies can result in imprisonment up to four years and/or a fixed fine not more than $5,000 or double the defendant’s gain from committing the offense. An offender may also face from 3 to 5 years on probation. Misdemeanor charges can also result in additional fines and jail time when related to felony charges. If found in violation of 15 U.S.C. 78l or 15 U.S.C. 78o (d)), a defendant shall be fined under this title, or imprisoned not more than 25 years, or both.
A defendant may also escape liability from Securities Fraud if it can be shown that the plaintiff’s damages were caused by other factors besides the misrepresentation or omission. An affirmative defense to Securities Fraud can be made if the party can prove that he or she did not know, or by using reasonable care could not have known, of any falsity or omission.
Securities Fraud can be prosecuted under the New York Penal Law and also by the U.S. Securities and Exchange Commission. Many white collar crimes are both federal and state offenses, and can be prosecuted by either or both New York and the federal government. Federal offenses will be prosecuted in New York’s federal district courts
On March 6, 2014, the Manhattan District Attorney Cyrus R. Vance, Jr., announced the indictments of Steven Davis, Stephen DiCarmine, Joel Sanders, and Zachary Warren of the now-bankrupt law firm Dewey & LeBoeuf LLP. The indictment alleged that the defendants defrauded and stole from the firm’s lenders, investors and others. The Securities and Exchange Commission conducted its own parallel investigation and also is bringing charges.