Criminal Defense Lawyers

Federal Securities Fraud

SEC Calling? DOJ Knocking? Your Facing Securities Fraud Charges

That SEC Wells Notice sitting on your desk? It’s not just a regulatory headache. Its the opening shot in what could become a federal criminal prosecution. Securities fraud under 18 USC 1348 carrys up to 25 years in federal prison. Per count. And when the SEC and DOJ coordinate—which they do more then ever these days—your facing both civil penalties AND criminal prosecution simultaneously.

Look, if your reading this, something has already happened. Maybe SEC investigators contacted you. Maybe you got that Wells Notice saying enforcement action is coming. Maybe federal agents showed up asking about trades you made years ago. Or maybe your company is under investigation and your suddenly realizing your personaly exposed. Whatever brought you here, you need to understand exactly how securities fraud prosecution works, why its so dangerous, and what you can do to protect yourself.

Because heres the thing: securities fraud cases are incredibly complex. There parallel civil and criminal tracks. Fifth Amendment landmines. Cooperation decisions that can make or break your future. But these cases can be defended—if you understand the landscape and act strategically.

Understanding Securities Fraud: Civil vs. Criminal

Securities fraud is unusual because it can be prosecuted two different ways—and often both at once.

SEC Civil Enforcement

The Securities and Exchange Commission brings civil enforcement actions under the Securities Act of 1933 and Securities Exchange Act of 1934. These are regulatory actions, not criminal prosecutions. The SEC Enforcement Division investigates, and if they find violations, they can:

Seek disgorgement (giving up ill-gotten gains). Impose civil monetary penalties—up to $1 million per violation for individuals, more for repeat offenders. Bar you from serving as officer or director of a public company. Bar you from the securities industry entirely. Obtain injunctions against future violations.

These penalties are serious, but their not prison. That’s where DOJ comes in.

DOJ Criminal Prosecution

The Department of Justice prosecutes criminal securities fraud—primarily under 18 USC 1348. Criminal prosecution means potential prison time. Up to 25 years per count for securities fraud. Plus they often stack wire fraud, mail fraud, and conspiracy charges on top.

The DOJ Fraud Section handles major securities fraud cases. U.S. Attorney’s offices handle others. FBI investigates. And increasingly, prosecutors coordinate with the SEC from the begining.

Parallel Proceedings: The Dangerous Dance

Heres what makes securities fraud so treacherous: the SEC and DOJ often investigate simultaneously. Same conduct. Same witnesses. Same documents. But different standards of proof and different consequences.

And heres the trap. The SEC can compel testimony—you dont have Fifth Amendment protections in civil proceedings the way you do in criminal cases. But anything you tell the SEC can be shared with DOJ. So if you cooperate with SEC investigators, you might be building the criminal case against yourself.

This parallel proceeding dynamic requires incredibly careful strategy. What you say to the SEC matters criminally. When you invoke Fifth Amendment protections matters civilly. The sequencing of proceedings matters. This is why securities fraud defense requires attorneys who understand both tracks.

Types of Securities Fraud

Securities fraud covers alot of ground. Understanding the specific type of alleged conduct matters for defense strategy.

Insider Trading

Trading on material, non-public information. The classic securities fraud. If you knew about that merger before it was announced—because you were an insider, or because someone tipped you off—and you traded on that information, thats insider trading.

Important: insider trading liability extends beyond the person who traded. “Tippers” who share inside information can be liable even if they didnt trade themselves. “Tippees” who receive and trade on tips are liable too. The chain can extend multiple levels.

Market Manipulation

“Pump and dump” schemes—artificially inflating a stock price then selling. Spoofing—placing fake orders to move prices. Wash trading—trading with yourself to create fake volume. These manipulation schemes are heavily prosecuted.

Market manipulation in cryptocurrency has become a major focus. The same tactics that are illegal in traditional markets are being applied to crypto, and prosecutors are catching up.

Accounting Fraud

False or misleading financial statements. Cooking the books. Revenue recognition fraud. Hiding liabilities. When public companies deceive investors about their financial condition, executives face securities fraud charges.

Investment Scheme Fraud

Ponzi schemes. Offering fraud. Promises of guaranteed returns. Misrepresentations to investors about how their money will be used. These cases often involve massive victim counts and substantial losses.

Broker-Dealer Violations

Churning—excessive trading to generate commissions. Unsuitable recommendations. Front-running. Registered representatives and broker-dealers face both regulatory and criminal liability.

Penalties: What Your Actually Facing

Alright, lets talk numbers. And these numbers should scare you—because they’re meant to.

Criminal Penalties

Under 18 USC 1348, securities fraud carrys:

• Maximum imprisonment: 25 years per count
• Maximum fine: $5 million for individuals, $25 million for organizations
• Or fine up to 2x the gross gain or loss from the offense

And prosecutors often add wire fraud (20 years), mail fraud (20 years), and conspiracy (5 years) charges. Multiple counts add up fast.

The Federal Sentencing Guidelines determine actual sentences based on loss amounts, number of victims, and other factors. Major securities fraud cases regularly result in 10-20 year sentences.

SEC Civil Penalties

On the civil side, penalties include:

Disgorgement of all profits. Civil monetary penalties—potentially millions. Permanent officer/director bars—you can never serve as officer or director of a public company again. Industry bars—banned from working in securities. Injunctions against future violations.

Career Destruction

Beyond prison and fines, securities fraud convictions—even civil judgments—destroy careers. Your done in finance. Your done as a corporate executive. Background checks will show the violation forever. Professional licenses get revoked. The reputational damage is permanent.

Defense Strategies for Securities Fraud

Despite the complexity, securities fraud cases can be defended. The key is understanding both the regulatory and criminal tracks.

Lack of Scienter

Securities fraud requires “scienter”—knowing or reckless conduct. If you genuinley didnt know the information was material, if you didnt know it was non-public, if you made a good-faith mistake—thats a defense. Intent matters.

Information Wasn’t Material

For insider trading, the information must be “material”—meaning a reasonable investor would consider it important. If the information wouldnt have affected investment decisions, it may not be material even if it was non-public.

Information Wasn’t Non-Public

If the information was already public—even through unofficial channels—trading on it isnt insider trading. Defense often involves showing the information was available through public sources.

No Duty to Disclose

Some insider trading theories require a duty—either from employment or from receiving a “tip.” If you obtained information lawfully without any duty to keep it confidential, you may not have violated insider trading rules.

Challenging the Government’s Theory

Securities fraud cases are complex, and prosecutors sometimes get the law wrong. Challenging the legal theory—not just the facts—is often part of successful defense.

Responding to SEC Investigation

If your under SEC investigation, how you respond in the early stages can determine everything.

The Wells Notice

A Wells Notice means SEC staff has concluded their investigation and intends to recommend enforcement action. You have a chance to respond—the “Wells submission”—before the Commission decides whether to proceed.

This is a critical window. A well-crafted Wells submission can sometimes prevent charges entirely, or at least shape the charges that get filed. Dont waste this opportunity.

Cooperation Calculus

Should you cooperate with the SEC? Its complicated. Cooperation can lead to reduced penalties. But remember—what you tell SEC goes to DOJ. Cooperating with SEC doesnt necessarily protect you from criminal prosecution.

Strategic cooperation—with experienced counsel—is essential. Blind cooperation can backfire spectacularly.

Fifth Amendment Timing

You can invoke Fifth Amendment protections in SEC proceedings, but there are consequences. SEC can draw adverse inferences from your refusal to testify in civil matters. Timing of when to invoke—and when to waive—requires careful strategic thinking.

Current Enforcement 2024-2025

SEC and DOJ enforcement priorities have shifted significantly:

Cryptocurrency and digital assets – Massive enforcement surge. Unregistered securities offerings, crypto exchange fraud, market manipulation in digital assets.

Insider trading remains a perennial priority, with increasingly sophisticated surveillance detecting suspicious trading patterns.

SPACs and de-SPAC transactions are under scrutiny for disclosure violations and conflicts of interest.

ESG and climate disclosures – New focus area as SEC pushes climate disclosure rules.

Whistleblower cases – SEC whistleblower program has generated massive tips leading to enforcement actions.

You Need to Act Now

Securities fraud investigations move fast. Once the SEC opens a formal investigation, documents get subpoenaed, witnesses get interviewed, and the case builds momentum. Waiting makes everything harder.

If you’ve received a Wells Notice, your on a clock. If agents have contacted you, the investigation is active. If your company is under investigation and you have individual exposure, you need your own counsel—not company counsel.

Call a federal securities defense attorney today. Not after you respond to that Wells Notice on your own. Not after you talk to SEC investigators without counsel. Today. Because in securities fraud cases, what you do in the first few weeks often determines the outcome.

The parallel civil and criminal tracks make these cases uniquely dangerous. But with the right strategy—coordinated defense across both tracks—you can protect yourself. Just dont wait until its to late.