One of the most vigorously prosecuted federal crimes is securities fraud, which includes “insider trading” on the stock market. Courts levy harsh punishments such as decades in prison and millions in fines.
This article provides an overview of the federal crime of securities fraud in Nevada. Continue reading to learn about the definition of securities fraud, how our Las Vegas criminal defense attorneys defend against it, and what penalties a conviction carries.
Definition and Penalties for Securities Fraud
The Securities and Exchange Commission (SEC) is the government agency which investigates suspected acts of securities fraud. If it finds that a crime may have been committed, the Department of Justice (DOJ) takes over the case and may bring criminal charges.
Securities Fraud is an extremely broad crime that encompasses any intentional act of fraud involving financial markets. Below are the common types of securities fraud, starting with the most prevalent-insider trading:
Insider trading (15 U.S.C. 78j)
SEC Rule 10(b) prohibits “insider trading,” which is intentionally trading on the stock market on the basis of material information that is not known to the public.
Example: Max is an employee at a publicly traded construction company in Henderson. He tells his friend Sam that the company is going to file for bankruptcy, which is still a company secret. Based on this secret information, Sam sells all his stock in the company. Since the pending bankruptcy is “material information,” and since Sam” intentionally” sold his shares “on the basis” of this “non-public” news, Sam could be arrested by the U.S. Marshals Service and booked at Henderson NV Detention Center for securities fraud.
If Sam can show that his action of selling the stock was based on public information, such as a newspaper article speculating about the company’s precarious finances, then Sam should not be criminally liable. This is because the newspaper article was available to the public.
Penalties for insider trading are among the harshest in federal law. Prison terms include up to twenty years in federal prison and/or five million dollars in fines. A corporation guilty of insider trading may be fined up to twenty-five million dollars.
Fraudulent registration of securities (15 U.S.C. 77q)
Another type of fraud is deceiving a purchaser into buying securities on the basis of materially untrue information. Even an omission of material facts on a registration statement could constitute securities fraud. A criminal sentence carries up to $10,000 in fines and/or up to five years in prison.
Sale of unregistered securities (15 U.S.C. 77e)
It is also considered securities fraud to sell unregistered securities. The punishment is a maximum of 5 years federal prison and/or up to $10,000 in fines.
Sarbanes Oxley Act of 2002 (18 U.S.C. 1348)
Bankruptcy fiascos such as Enron have given rise to new securities legislation to help prevent similar disasters. The Sarbanes Oxley Act prohibits corporate officers from committing fraud with regard to reporting requirements under securities law. Defendants face a fine and/or up to twenty-five years in prison. Meanwhile, certifying a false report carries up to twenty years in prison and/or up to five million dollars in fines.
Foreign Corrupt Practices Act (15 U.S.C. 78dd-1)
The Foreign Corrupt Practices Act (FCPA) provides civil and criminal penalties for individuals and entities who engage in bribes of foreign government officials or try to cover up such bribes with fraudulent accounting practices.
A person can be convicted of the federal crime of securities fraud only if the court finds that he/she willfully committed the fraud. If the person’s misconduct was only negligent and not willful, then he/she isn’t criminally liable. However, the defendant may still face civil prosecution for securities fraud:
When a person is suspected of negligently violating federal securities law, the SEC may sue him/her in federal court and seek civil penalties such as fines, restitution, and injunctions. But the defendant would not face prison because the suit is only civil and not criminal.
Defenses for Securities Fraud
In Nevada, there are many possible strategies to defend against allegations of securities fraud. Expectedly, the most effective defenses turn on the specific facts of each individual case. Scroll down to read about three common ways to fight federal securities fraud charges:
- Not enough evidence. The U.S. Attorney’s Office bears the burden to prove a defendant guilty beyond a reasonable doubt before the Nevada Federal Court may convict him/her. As long as the defense attorney can show the court that the prosecution lacks sufficient reliable evidence to meet this burden, the defendant should be acquitted.
- No fraudulent intent. A key element of securities fraud is that the defendant willfully committed a deceptive act to influence or benefit from financial markets. If the defense attorney can show that the defendant behaved in good faith and never intended to injure anybody, the prosecution doesn’t have a case. However, note that the defendant may still be liable in Nevada civil court if he/she negligently violated federal securities law.
- Government misconduct. In some cases, a securities fraud case can be dismissed if the SEC or other law enforcement agency engaged in misconduct when investigating the case. A typical example of illegal government conduct is executing a search without a valid search warrant. If the defendant’s rights may have been violated, his/her attorney would file with the court a “motion to suppress evidence“, which asks the judge to disregard any evidence obtained through illegal means. If the judge complies, then the prosecution may not have enough evidence left over to sustain a conviction.
Charged? Call . . . .
If you have been accused of violating federal securities fraud law in Nevada, dial our Las Vegas Federal Crimes Lawyer. We will do everything possible to negotiate and litigate the case in an attempt to win the best resolution possible.
Also see our article on securities fraud (NRS 90.650).