Criminal Defense Lawyers

Federal Securities Fraud Charges SDNY

The SEC investigation is the criminal investigation. You just don’t know it yet. People hear “SEC” and think civil. They think money, fines, disgorgement – not prison. That’s exactly the mistake that destroys them. The Securities and Exchange Commission shares everything with the Department of Justice. They coordinate investigations from the start. By the time someone tells you the Department of Justice has “taken an interest” in your case, you’ve already given them everything they need to prosecute you. That testimony you provided under SEC civil subpoena – with no Miranda warnings, no Fifth Amendment discussion – gets read aloud at your criminal trial years later.

And here’s what makes the Southern District of New York different from every other federal district. SDNY – the “Sovereign District of New York” – prosecutes more major securities fraud cases than any other district in the country. Their Securities and Commodities Fraud Task Force has approximately 20 senior prosecutors working in close coordination with the SEC, the CFTC, and the FBI. Sam Bankman-Fried got 25 years. Bill Hwang got 18 years. Do Hyeong Kwon got 15 years. Bernie Madoff got 150 years. This isn’t state court where white-collar defendants negotiate probation. This is the federal courthouse on Pearl Street, where securities fraud means decades.

Understanding federal securities fraud charges in SDNY means understanding that the parallel investigation trap has probably already closed around you. The investigation started the moment your trading pattern hit a screen at FINRA’s Office of Fraud Detection and Market Intelligence. What happens next – and how you respond to it – determines whether you spend the next decade in federal prison or not.

The Parallel Investigation You Don’t Know About

Heres how the SEC-DOJ coordination actualy works, and why it’s designed to catch you.

When the SEC opens an investigation, they’re not legally required to tell you whether DOJ is also investigating. They dont have to mention that your case has been referred for criminal prosecution. They dont have to warn you that every word you say to SEC investigators is being shared with federal prosecutors.

DOJ policy is explicit about this coordination. According to the Justice Manual, “a case referral from any source, including an agency referral, to any component of the Department is a referral for all purposes.” From the moment of case intake, attorneys consider criminal, civil, regulatory, and administrative remedies simultaniously. There is no “SEC track” that later becomes a “DOJ track.” They’re the same track from the beginning.

The SEC cannot bring criminal charges. But they build the criminal case. That’s what nobody tells you until its too late.

The SEC’s Division of Enforcement works closely with federal prosecutors. SEC staff members are regularly “detailed” to the Justice Department to assist in criminal investigations and prosecutions. The same attorneys who investigated you civily may end up helping to prosecute you criminaly. They know your case inside and out becuase they built it.

The Access Request Pipeline

Heres the specific mechanism that turns your SEC cooperation into criminal evidence.

SEC rules allow for the sharing of information with other government agencies. This includes the DOJ. When prosecutors want access to what the SEC has collected – your documents, your testimony, your explanations – they file what’s called an “Access Request.”

The Access Request lets DOJ obtain copies of documents and information the SEC gathered during its investigation. Your production to the SEC becomes evidence in the criminal case. The testimony you gave under civil subpoena – without criminal defense protections – becomes transcript evidence at trial.

OK so heres the trap:

• You cooperated with the SEC becuase you were told cooperation matters
• You answered questions
• You produced documents
• You explained what happened
• You were trying to resolve a civil regulatory matter

Meanwhile, a parallel criminal investigation was running at DOJ, and the SEC was legaly allowed to not tell you about it.

You testified against yourself at your own criminal trial, years before the trial even happened.

The Wells Notice Warning That Comes Too Late

Heres what happens when the SEC decides to take formal action.

A Wells Notice is the SEC’s notification that the staff intends to recommend enforcement action. You get the Wells Notice. You hire counsel. You prepare a Wells submission explaining why the SEC shouldnt take action. This seems like standard regulatory process.

Except by the time you recieve a Wells Notice, the investigation has been running for months or years. The SEC has already reviewed your trades, your communications, your bank records. They’ve already formed conclusions. The Wells submission is your chance to change there minds – but minds are rarely changed at this stage.

And heres the devastating part. The Wells response that helps you with the SEC may destroy your criminal defense. If you admit facts to avoid SEC charges – explaining what happened, providing context, acknowledging mistakes – those admissions become evidence in the criminal case. The DOJ obtains your Wells submission through the Access Request. Your own words establish the elements prosecutors need to convict.

Many defendants learn this to late. They settle the SEC case thinking the matter is resolved. Then DOJ indicts them using the admissions they made trying to settle.

How SDNY Became Wall Street’s Courthouse

Heres why the Southern District of New York handles more securities fraud then anywhere else.

SDNY’s jurisdiction covers Manhattan – the financial capital of the world. Every major bank, every hedge fund, every investment firm operates within this district. When securities fraud involves Wall Street, it goes to SDNY.

The Securities and Commodities Fraud Task Force has been prosecuting these cases for decades. They’ve developed expertise that other districts simply dont have. The prosecutors handling your case have handled hundreds of similar cases. They know every defense strategy. They’ve seen every explanation. And they’ve built relationships with SEC enforcement staff that make parallel investigation seamless.

The Task Force investigates and prosecutes:

• All varieties of securities fraud
• Insider trading
• Market manipulation schemes
• Accounting and regulatory reporting frauds
• Ponzi schemes

They work in close coordination with the SEC, CFTC, and FBI to uncover and prosecute financial frauds.

SDNY has earned the nickname “Sovereign District of New York” becuase it operates with unusual independence from Main Justice in Washington. The office has resources, culture, and an accompanying FBI field office that give it a reputation for being exceptionaly aggressive in pursuing criminals. When SDNY decides to prosecute, they prosecute to win.

The Sentencing Reality in Major Fraud Cases

Heres what actualy happens when your convicted of securities fraud in SDNY.

The average sentence for federal securities fraud nationally is approximately 38 months. Thats a little over three years. But averages are misleading – especially for SDNY cases involving major fraud.

Sam Bankman-Fried, convicted of misappropriating billions of dollars in FTX customer funds, was sentenced to 25 years. The proof at trial established he used stolen customer funds for personal luxuries, investments, and millions in political contributions.

Bill Hwang, founder of Archegos Capital Management, was convicted of racketeering conspiracy, securities fraud, market manipulation, and wire fraud. He recieved 18 years. His co-defendant Patrick Halligan recieved 8 years.

Do Hyeong Kwon of Terraform Labs was sentenced to 15 years for wire fraud and conspiracy involving the LUNA cryptocurrency collapse.

And Bernie Madoff – the benchmark for securities fraud sentencing – recieved 150 years for orchestrating a $64.8 billion Ponzi scheme, the largest fraud in American history.

These arent outliers. These are what happens when SDNY prosecutes major securities fraud. The sentences are measured in decades, not months.

The Intent Trap You Set For Yourself

Heres how defendants hand prosecutors the hardest element to prove.

Securities fraud requires the government to prove “willful” conduct – that you knew what you were doing was wrong. This is the hardest element to establish. Prosecutors cant read minds. They need evidence of your mental state.

Your SEC cooperation provides that evidence.

Every explanation you offered to SEC investigators establishes what you knew and when you knew it. Every document you produced showing your decision-making process demonstrates intent. Every attempt to “contextualize” your trades shows sophistication. You were trying to help yourself with the civil case. Instead, you built the criminal case against yourself.

Think about what your explanations actualy prove:

• “I knew the information wasnt public yet, but I thought it was immaterial” – you just admitted you knew the information was nonpublic
• “I understood this was a gray area, so I checked with counsel” – you just admitted you knew there was a problem
• “In hindsight, I should have waited to trade” – you just admitted the trade was questionable

Prosecutors dont need confessions. They need admissions. Your SEC testimony is full of admissions.

The Timeline You Didnt Know Was Running

Heres how long securities fraud investigations actualy take.

SEC investigations move slowly. Two to five years from initial subpoena to resolution is typical. During that time, your career hangs in the balance. You may be placed on administrative leave. You may be unable to work in the industry. Your professional reputation deteriorates while the investigation drags on.

Meanwhile, the criminal investigation runs on its own timeline. You may not know it exists untill your indicted. The statute of limitations for federal securities fraud is generally five years from the date of the alleged fraud. Prosecutors have time. They use it.

The investigation proceeds through phases:

• An informal inquiry can last weeks to months
• Conversion to a formal investigation adds more months
• Document production and testimony take more time
• The Wells Notice comes
• The Wells response is submitted
• More time passes
• The SEC may take enforcement action
• More time

And throughout this entire process – years of investigation, testimony, document production – DOJ is watching. Waiting. Building the parallel case.

The Fifth Amendment Trap

Heres the impossible choice securities fraud defendants face.

In civil proceedings, invoking the Fifth Amendment allows the court to draw an adverse inference against you. If you refuse to testify in the SEC’s civil case, the judge or jury can assume your testimony would have been unfavorable. This makes it extremly difficult to defend the civil case.

But testifying creates criminal exposure. Everything you say can be shared with DOJ. Every answer becomes potential evidence.

So your choices are:

• Testify in the SEC case and potentialy hand prosecutors the evidence they need to convict you
• Or invoke the Fifth, lose the civil case by adverse inference, face industry bars from FINRA, and destroy your career while protecting yourself criminaly

There is no good option. There is only damage control.

This is why parallel investigation strategy is so critical. The decision about how to respond to SEC investigation must be made with full understanding of criminal exposure. What helps civily may destroy you criminaly. What protects you criminaly may end your career civily.

The FINRA Detection System

Heres how the investigation actualy started – probably before you knew.

FINRA’s Office of Fraud Detection and Market Intelligence monitors unusual trading patterns across the entire U.S. securities market. They oversee 635,000 brokers and 3,900+ securities firms. When trading activity looks suspicious, FINRA flags it.

Most insider trading investigations start with FINRA detection, not tips or complaints. An algorithm noticed that someone traded in a stock shortly before material news was announced. That someone made suspiciously large profits or avoided suspiciously large losses. The pattern triggered review.

FINRA refers the matter to SEC. SEC opens an investigation. The investigation may take years. You may have no idea your trading was flagged – untill you recieve a subpoena asking about trades you made years ago.

By that time, the investigation has been running. Documents have been gathered. Other traders have been interviewed. The case is further along then you realize.

Common Mistakes in SDNY Securities Fraud Cases

Defendants make predictable mistakes in federal securities fraud cases.

Mistake 1: Thinking SEC is civil and therefore not serious. Its both civil AND criminal. The SEC investigation feeds the DOJ prosecution. Treat every SEC interaction as if DOJ is watching – becuase they probably are.

Mistake 2: Cooperating with SEC without understanding criminal exposure. Cooperation that helps resolve the civil case can destroy your criminal defense. Consult with counsel who understands both tracks before providing any testimony or documents.

Mistake 3: Beleiving a Wells settlement ends the matter. Settling with SEC dosent prevent DOJ prosecution. They’re seperate agencies. Your civil resolution means nothing criminaly.

Mistake 4: Explaining your way into a conviction. Every explanation establishes intent. The more you explain what you knew and why you acted, the more evidence you provide that you acted willfully.

Mistake 5: Underestimating SDNY. This isnt a district that gives white-collar defendants probation. The Securities and Commodities Fraud Task Force has been prosecuting these cases for decades. They know what there doing. Respect that.

The Collateral Consequences That Follow Conviction

Heres what happens after the sentence – and why securities fraud convictions are career-ending.

Federal securities fraud conviction results in automatic industry bars. FINRA will bar you from association with any member firm. The SEC will bar you from serving as an officer or director of any public company. These bars are often permanent. Even if you serve your sentence and pay restitution, you may never work in finance again.

Professional licenses disappear. CPAs lose there licenses. Attorneys face disbarment. Financial advisors lose there Series 7 and other certifications. The conviction triggers automatic review by every licensing body, and the outcome is almost always revocation.

And heres the additional consequence most defendants dont consider. Disgorgement and restitution can be devastating. The court will order you to forfeit any profits from the fraudulent activity – plus pay restitution to victims. In major fraud cases, this can exceed the value of all your assets. You emerge from prison not just unemployable, but financialy ruined.

The SEC can also seek civil penalties on top of criminal fines. These penalties can reach three times the profits gained or losses avoided by the fraud. A defendant who made $5 million through insider trading faces potential civil penalties of $15 million – in addition to criminal fines and forfeiture.

The Federal Sentencing Guidelines Calculation

Heres how the court actualy calculates your sentence in securities fraud cases.

Federal sentencing guidelines use a point system to determine the guideline range. The base offense level for securities fraud is 7 points. From there, specific offense characteristics add points based on factors like:

• Loss amount: The biggest driver. More then $6,500 adds 2 points. More then $550,000 adds 10 points. More then $9.5 million adds 18 points. More then $65 million adds 24 points.
• Number of victims: 10 or more victims adds 2 points. 50 or more adds 4 points. 250 or more adds 6 points.
• Sophisticated means: If the offense involved sophisticated concealment, add 2 points.
• Use of position: If you abused a position of trust, add 2 points.
• Prior convictions: Criminal history category affects the final range.

The calculation compounds quickly. A $10 million fraud using sophisticated means by someone in a position of trust starts at 7 base points, adds 18 for loss amount, adds 2 for sophisticated means, adds 2 for abuse of trust. Thats 29 points before criminal history – corresponding to a guideline range of 87-108 months for someone with no prior criminal record.

And judges in SDNY often sentence above the guidelines in major fraud cases. Upward variances are common when the fraud affected many victims, involved egregious conduct, or demonstrated particular greed. The guidelines are a starting point, not a ceiling.

The Questions You Should Be Asking

“Is this just an SEC matter” is the wrong question for assessing your exposure.

The right questions are:

• Has DOJ been notified or referred my case?
• Is there a parallel criminal investigation I dont know about?
• What have I already said to SEC investigators that could be used criminaly?
• Does my SEC cooperation strategy account for criminal exposure?
• What is my realistic sentencing exposure if criminaly convicted?
• Am I prepared for a 2-5 year investigation timeline?

These questions lead to realistic exposure assessment. The “it’s just SEC, not criminal” perspective ignores how parallel investigations actualy work – were SEC cooperation builds the criminal case, were DOJ obtains everything through Access Requests, and were SDNY delivers decades-long sentences.

SDNY Securities and Commodities Fraud Task Force with 20+ senior prosecutors. Parallel SEC-DOJ investigations running simultaniously from intake. Access Requests letting DOJ obtain every document you produced, every word of testimony you gave. Sam Bankman-Fried getting 25 years. Bill Hwang getting 18 years. Bernie Madoff getting 150 years. Average sentences of 38 months nationally, but SDNY major fraud cases running far higher. Two to five years of investigation before resolution. Wells responses that help civily but destroy criminaly. FINRA detection triggering investigations before you know your being watched. This is federal securities fraud prosecution in the Southern District of New York – were the SEC investigation is the criminal investigation, were cooperation builds the case against you, and were Wall Streets courthouse delivers sentences measured in decades. Thats the reality for anyone facing charges in the Sovereign District.