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Securities Fraud Crimes

SECURITIES FRAUD (15 U.S.C. ? 77a & 78a)
Like other categories of fraud, securities fraud is committed with the intention of deceiving or misleading another party.  On May 23, 1933, corporate fraud, also called business fraud, was codified as a financial crime. The following actions constitute securities fraud crimes that violate federal statutes:

  • Insider trading
  • Buying or selling unregistered securities
  • Intentionally falsifying statements or failing to include certain facts when filing documents with the Securities and Exchange Commission (SEC)
  • Falsifying statements, omitting facts, or using any scheme or deceit with the purpose of defrauding potential security purchasers when involved in interstate communications

The Assistant United States Attorney (AUSA) has the burden of proof in a federal criminal trial. In other words, to gain a conviction, the AUSA must prove beyond a reasonable doubt that the accused acted in a manner in violation of federal statutes. In a securities fraud case, the AUSA must provide evidence to prove that the defendant engaged in one of the following actions:

    • Gave false statements concerning a substantive fact, schemed to defraud one or more individuals, or made deceptive statements as a consequence of withholding information.
    • Engaged in the aforementioned actions in conjunction with selling or buying securities.
    • Performed the aforementioned actions using telephone or mail communication.
    • Acted with the intention of defrauding securities purchasers or sellers.

Three important court decisions have interpreted the statutes pertaining to securities fraud. The first, United States v. Pope, 189 F. Supp. 12, 16-7 (S.D. NY 1960), found that an individual who made untrue or misleading statements for the purpose of securing a proxy can be found guilty of securities fraud. Additionally, in the case of United States v. Flynn, 196 F.3d 927, 929 (8th Cir. 1999), the Supreme Court determined that the defendant’s intent to defraud may be proven indirectly through the facts and conditions relating to the defendant’ offences. Lastly, the Supreme Court also ruled that in order to prove the quilt of a defendant, the AUSA must demonstrate that the accused intentionally defrauded, mislead, or deluded someone. The government does not, however, necessarily need to provide evidence that the accused intended to do injury to the individual(s) he defrauded. United States v. Dixon, 536 F.2d 1388, 1396 (2d Cir. 1976).
If an individual is convicted of a felony for committing securities fraud, he faces serving up to 10 years incarceration and paying up to $1,000,000.00 in fines. In contrast, a corporation convicted of securities fraud may have to pay fines as great as $2,500,000.00.

In many securities fraud cases, the AUSA attains an indictment from a Federal Grand Jury. The AUSA may decide to prosecute a defendant for other crimes in addition to securities fraud, such as RICO crimes, wire fraud, mail fraud, money laundering, bank fraud, or conspiracy to commit any of these offenses. Importantly, a defendant in a federal case cannot receive parole, because the Federal Court System eliminated parole in 1987, nor can one receive an expungement, which is an erasure of a conviction from the public record.

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