Securities Fraud Lawyer Arkady Bukh Tells About Bond Fraud
What is Bond Fraud
Corporate bonds are securities that must be registered with the Securities and Exchange Commission if publicly offered for sale. Becau
se publicly-sold corporate bonds are subject to SEC registration requirements, they are also subject to all regulations applicable to any securities.
Despite the regulations intended to protect bond purchasers and issuers, fraud schemes can occur. Bond fraud schemes can involve corporate and municipal bonds, as well as unregistered bonds and bearer bonds.
Bond fraud schemes can result in federal and state charges, depending upon the nature of the fraud that was allegedly perpetrated. If you have been charged with any type of bond fraud scheme, you need to understand the legal options available to you for trying to defend yourself and stay out of prison.
Bukh Law Firm has extensive experience representing defendants who have been accused of violating the laws when it comes to issuing or selling bonds. We are ready to help you if you are under investigation or if you have been charged with crimes related to any type of bond fraud.
Examples of Bond Fraud
Mortgage Bonds
Perhaps the most famous type of bond fraud in recent years involved mortgage bonds. Mortgage bonds are bonds made up of consumer mortgage debt. When subprime mortgages were packaged into mortgage bonds and given AAA ratings from credit agencies, the bonds were sold at inflated values to investors who thought they were buying safe mortgage debts. Of course, in 2008, when defaults started to occur on subprime loans, the U.S. financial market and global financial markets crashed, big banks folded, investors lost millions, the real estate market collapsed, and the economic ramifications of the mortgage bond fraud caused a massive recession with lingering after-effects felt for years.
While mortgage bond fraud is well-known, other types of bond fraud may be less common but equally damaging to investors who face financial loss.
Bearer Bonds
Bond fraud commonly occurs when unregistered bonds are bought and sold. For example, bearer bonds are unregistered and no records are kept of ownership, sales, or transactions. The only proof that bearer bonds have value and can be redeemed is the actual physical paperwork showing the obligations to the bond holder. Bearer bonds are no longer legal for general sale in the United States but a lot of people have heard of them and try to buy them anyway (largely because many movies, including Panic Room and Die Hard, feature bearer bonds prominently). People may purchase bearer bonds because they want to evade income tax obligations on standard bond investments or because they believe the bearer bonds will provide a solid return.
One common bearer bond scam involves selling bearer bonds that don’t actually have a value. The bonds are purchased by investors who are told the bond is being sold for a fraction of the cover price. When the investor tries to redeem the bearer bond, the investor discovers that the bond was fraudulent and that he is out the money he paid for the investment.
Bearer bond scams of this nature can sometimes result in criminal charges, but it can be difficult for investors to report the scam to the police because the purchase of bearer bonds is generally prohibited in the United States. With no paper trail and no proof of ownership other than the fraudulent bond certificates, prosecutors can have a difficult time unraveling the financial transactions that occurred and taking effective legal action against securities fraud.
Other Scams
Other bond scams may be easier to prove, including scams involving legitimately-issued registered bonds. One multi-million dollar scam took advantage of the “survivor’s options” features on some corporate bonds. The survivor’s option requires repayment of the bond by the issuer before maturity if the bond owner dies. Terminally ill individuals were convinced to open joint brokerage accounts in exchange for a promise that their funeral would be paid for. Discounted corporate bonds were purchased through the joint accounts and the bonds were then redeemed at full value after death pursuant to the survivor’s options.
These are just a few of many different examples of bond fraud. Any false or misleading statements made in the purchase or sale of bonds, or any fraud schemes designed to improperly obtain funds through bond redemption, may cross the line into illegal behavior.
Criminal Penalties for Bond Fraud
Criminal penalties for bond fraud can arise under securities laws; general fraud laws; laws prohibiting bank fraud, wire fraud, and mail fraud; money laundering laws; and laws prohibiting market manipulations. It is very common for defendants to be charged by federal authorities and to face multi-count indictments.
Bond fraud can also result in prosecution by state authorities. While state-level penalties are usually not as serious as federal charges, jail time or prison is still a likely outcome if defendants are found guilty of bond fraud crimes.
While criminal cases can sometimes present challenges for prosecutors, civil cases are also a likely outcome when bond fraud is suspected. Civil fraud charges can lead to millions of dollars in fines and penalties. Defendants may also be required to make restitution to alleged victims of fraud crimes.
You can fight civil and criminal fraud charges by introducing doubt into the case against you, since the burden is on prosecutors and plaintiffs to make their case. It may also be possible to negotiate a plea agreement to avoid imprisonment, reduce penalties, and otherwise limit consequences of bond fraud. You need to make strategic choices when responding to criminal charges so you can try to get the best outcome possible in your situation.
Getting Legal Help
Bukh Law Firm, PLLC represents investors, traders, banks, brokers, and other financial professionals accused of bond fraud crimes. If you need a New York City criminal defense lawyer with a broad understanding of laws affecting the bond market and with a commitment to providing top-notch representation to defendants in investment fraud cases, call Arkady Bukh today.
