Investment Fraud Lawyers Explain the Criminal Charge
What is the Securities and Stock Broker Fraud?
New York City is the financial epicenter of the United States and is home to major investment banks as well as countless small brokerage houses. Wall Street banks in New York City have been largely blamed by the media and in the court of public opinion for the financial crisis in 2008, resulting in new laws imposing further obligations and restrictions on the banking industry. In some cases, violations of laws regulating banks, brokerage firms, and securities trading can result in criminal penalties.
Securities and investment fraud generally result in federal criminal charges, and the cases are among the most complex within the justice system. Those accused of violating the law should seek representation from a qualified attorney with a strong background in securities cases.
Contact Bukh Law Firm, PLLC. today to speak with a New York City securities fraud lawyer with a long track record of successfully representing stock brokers and others accused of criminal violations for investment activities.
Laws on Securities Fraud
Eight different federal laws have been passed to directly govern the securities industry. The major regulations governing the behavior of brokers, financial institutions, public companies and other financial institutions include:
- The Securities Act of 1933, which requires public companies to regularly provide financial information and other significant information to investors and which prohibits misrepresentation, deceit and fraud in the sale of securities.
- The Securities Act of 1934, which gives the Securities and Exchange Commission authority over the securities industry, including the power to oversee brokerage firms and control registration of firms offering securities. Under this Act, companies with $10 million or more in assets whose securities are held by 500 or more owners must file periodic reports available to the public. Certain types of conduct, including insider trading, are prohibited, and the law imposes requirements for proxy solicitations and tender offers.
- The Trust Indenture Act of 1938, which requires a formal agreement between bondholder and bond issuer that conforms to Act standards before bonds, debentures and note are offered for sale.
- The Investment Advisers Act of 1940, which requires that all solo practitioners and firms conform to comply with certain regulations before advising others about security investments. One requirement is that the firm must register with the Securities and Exchange Commission. After Amendments to this Act in both 1996 and 2010, typically only registered investment companies and advisors with $100 million or more in assets are now subject to the requirement to register with the Securities and Exchange Commission.
- The Investment Company Act of 1940, which regulates mutual funds and other companies that engage primarily in securities trading and investing and that also offer their own securities for sale to investors. Companies are required to disclose investment policies and financial condition to investors. The goal is to ensure the public has sufficient information on a fund and its investment objectives, as well as the structure and operations of the company that the investor is purchasing shares in.
- Sarbanes-Oxley Act of 2002, which mandated enhanced financial disclosures and which created a Public Company Accounting Oversight Board to impose tighter control over auditors.
- Dodd-Frank Consumer Protection Act of 2010, which established rules for greater transparency in corporate governance, imposed new disclosure requirements and trading restrictions, and place new regulations on financial products.
- The Jumpstart Our Business Startups Act of 2012, which was enacted to minimize regulatory requirements to make it easier for businesses to raise funds in public capital markets.
Many securities fraud causes arise out of Section 10B and Rule 10B-5 of the Securities Act of 1934. Section 10B is the antifraud provision in the Securities Act of 1934 and it has been used to take legal action in cases involving insider trading, market manipulation, and misleading company filing statements. Rule 10B-5 clearly prohibits using any “device, scheme, or artifice to defraud.” Under Rule 10B-5, liability can arise from any omission or any misstatement of a fact that investors would believe to be important in their decision to buy and sell stock.
Section 10B and Rule 10B-5 have been interpreted broadly to provide opportunities for investors to sue brokers, companies, and others within the financial industry and private sector who have caused financial harm. These regulations have also provided a remedy for investors who are harmed when a broker entrusted with funds breaches a fiduciary duty, even if the broker’s conduct does not rise to the level of fraud.
Criminal Penalties for Securities and Investment Fraud
U.S. Code Section 3301 defines federal securities fraud offenses to include a violation of:
- U.S. Code Section 1348.
- Section 32(a) of the 1934 Securities and Exchange Act
- Section 24 of the 1933 Securities Act
- Section 325 of the Trust Indenture Act of 1939
- Section 217 of the 1940 Investment Advisers Act
- Section 49 of the 1940 Investment Company Act
18 U.S. Code Section 1348 imposes criminal penalties for securities and commodities fraud. Under this code section, you may be fined and sentenced to up to 25 years to life in prison for knowingly executing or attempting to execute a scheme or an artifice intended to do either of the following:
- Defraud anyone in connection with a commodity that will be delivered in the future, an option on a commodity that will be delivered in the future, or a security issued as part of a class of securities that are registered, or required to be registered, under the Securities and Exchange Act of 1964.
- Obtain any money or property in the connection with the purchase or sale of commodities for future delivery, options on commodities, or registered securities by means of false or fraudulent pretenses, misrepresentations or promises.
Section 32(a) of the Securities and Exchange Act imposes penalties for:
- Willful violations, false or misleading statements and false reports required by the Securities and Exchange Act. Penalties could include up to 20 years incarceration, and a fine up to $5,000,000. If it was not a natural person but instead a brokerage firm, corporation, or financial institution that violated the law, fines could reach $25,000,000.
- Failure to file required documents, information and reports. A failure to file reports can result in a forfeiture of $100 per day to the United States for each day the reports are not filed.
- Violations by officers, issuers or their agents, stockholders, directors, employees. Fines and civil penalties can range rom $10,000 to $2,000,000.
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Section 24 of the Securities Act of 1933 imposes up to five years incarceration and fines up to $10,000 or more for making false or misleading statements on required registration statements and for certain other violations of the rules and regulations promulgated under the authority of the Securities and Exchange Commission.
Section 325 of the Trust Indenture Act imposes penalties including up to five years imprisonment and fines of up to $10,000 for bond issuers convinced of violating regulations related to bonds, debentures and note are offered for sale.
Section 217 of the Investment Advisors Act imposes penalties of up to five years incarceration and fines up to $10,000 for willful violators of Act rules and Act regulations imposed on advisors. Section 49 of the Investment Company Act establishes the same penalty for certain violations of rules and regulations regulating mutual fund companies and other organizations that sell their own securities to investors.
Types of Securities Fraud Cases
Companies and individuals accused of criminal acts need to understand the specific nature of charges as well as potential penalties associated with conviction. Examples of criminal acts that could result in arrest and potential conviction for securities fraud include but are not limited to:
- Breach of fiduciary obligation
- False press releases
- False promises of investment returns
- Failure to Executive
- Failure to Supervise
- Filing false quarterly reports or false annual reports
- Inaccurate financial reporting
- Overtrading or churning
- Market manipulations
- Margin violations
- Misrepresentation, fraud and omissions
- Pump and dump schemes
- Questionable grants or questionable time of granting of stock options to executives
- Stock embezzlement
- Third party misrepresentation
- Unsuitable investments
- Unauthorized trading
Bukh Law Firm, PLLC has successfully represented financial institutions, investment advisors, brokers, board members, executives and other clients who have been accused of these and other securities fraud offenses. Our NYC investment fraud defense lawyers know fraud laws inside-and-out can can provide important assistance in responding to an investigation into fraudulent behavior or during a criminal trial for alleged fraud.
Getting Help from a New York City Securities Fraud Lawyer
Defenses to securities fraud charges are available, but vary depending upon the particular offense you have been accused of. Many fraud crimes require a prosecutor to prove intent as one element of the crime. A lawyer can help you to argue that your actions were an accidental violation of securities laws. A prosecutor has the burden of proving a violation of securities laws to secure a conviction. Your attorney can also help raise doubts about the veracity of claims against you and present evidence in court that undermines a prosecutor’s ability to prove a legal violation after you have been accused of a crime.
It is advisable to seek legal representation as soon as you are under suspicion of violating any securities fraud laws.
Contact a New York securities fraud lawyer at Bukh Law Firm, PLLC. today for help with your case.