This is an umbrella term. It is used to refer to the various crimes the U.S. Securities and Exchange Commission (SEC) regularly investigates. Each charge of securities fraud is unique, but they all have certain things in common. Securities fraud will always involve a person or entity using fraudulent practices to get money from investors. Professional traders, as well as corporate financial officers, are often found guilty of securities fraud. It is also possible for anyone involved with investing to be convicted of it.
Federal and state laws govern securities fraud. Legal actions can be started by government agencies like the SEC. Fraud is a serious crime. Anyone who violates federal or state securities laws could be facing some significant punishment. They could be subject to criminal as well as civil penalties. A criminal investigation could result in a felony conviction. It could cause someone to be incarcerated for up to 20 years or more. Significant fines could also be given to any person or business found guilty of securities fraud.
Common Types of Securities Fraud
A security is any type of financial instrument that can be invested. This includes banknotes, stocks, derivatives, options, bonds and more. Should an individual or a legal entity cheat, lie or steal to illegally obtain a profitable security trading outcome, then securities fraud has been committed. There are some common types of securities fraud.
*Dummy Corporations – This involves creating a fake company to sell non-equity stakes to unknowing investors.
*Pump and Dump – It involves taking a position on a security and then giving deceptive information about that security using a blog, chat room, email, and more. This deceptive information is intended to influence other investors to follow a person’s position on a specific security. When investors’ reactions cause the desired price changes, the fraudulent investor closes their position and walks away with a significant profit.
*Ponzi Schemes – This is a way to provide an investor with the opportunity to take an equity stake in a company that does not exist. Funds from later investors are used to provide returns for the initial investors.
*Boiler Rooms – Deceptive and high-pressure deceptive sales methods are used to sell what is known as penny stocks and other types of investments that are low value.
*Insider Trading – This involves trading securities based on information about a company that is not available to the public.
A licensed securities broker is required by law to avoid any type of securities fraud. There are some common situations they should avoid.
*Opening Illegal Accounts – This involves creating a fake investment account or a broker placing a client’s funds into their personal account.
*Unauthorized Trades – This is when a broker makes trades that have not been authorized by the client. It could be permitted if there is a written agreement between the client and the broker authorizing such trading.
*Over-Concentration – This occurs when a broker puts the majority of a client’s funds into a single investment.
*Unsuitability – This involves making investments that do not meet a client’s needs or goals. It also includes making risky investments and not making the client aware of the risk.
*Churning – This is buying or selling of securities for the sole reason of obtaining an excessive commission.
An investigation by federal authorities concerning securities fraud will begin in secret. The goal will be to obtain evidence. Those who are the focus of the investigation will be unaware they’re being investigated. At this point, the investigation could involve everything from computer forensics to wiretaps as well as subpoenas, and more. Once this is completed, and it is determined laws were broken, a search of a person or entity’s office or home could occur. People believed to be involved or who know about the securities fraud will be interviewed.
Determining Legal Defense
One of the first things that should be done is to learn all about the allegations being brought by the government. It is necessary to know if the allegations are criminal or civil. Once securities fraud allegations are made public, a person or company will be facing a new set of challenges. This is when it is important to be proactive and directly confront the allegations made by the government. All of this helps to determine the legal defense strategy that is necessary.
When a person or entity is accused of securities fraud by the government, they are facing a very challenging situation. It is something that could destroy their reputation, require them to pay fines, or even spend time in jail. When facing this type of scenario, it is important to have experienced and knowledgeable attorneys for legal representation. The attorneys at the Spodek Law Group know how to handle accusations of securities fraud. They will know how to properly assess the situation and develop the best possible legal defense.