If you have found yourself under investigation for securities fraud, the situation is serious. The federal government rarely makes idle threats regarding these charges, which means if a federal law enforcement agency is asking you questions, your arrest could be imminent. Whether you have been charged or suspect you are under investigation, it is important to speak with a Houston securities fraud lawyer as soon as possible.
Securities fraud is a general term describing federal crimes related to corporate shares or stocks. Because of the large amounts of money often involved in these cases, the potential penalties for securities fraud can be severe. To learn more about the charges you face, speak with attorney Doug Murphy as soon as possible.
Understanding Federal Securities Fraud Charges Occurring in Texas
Securities fraud charges follow a slightly different path than many federal crimes. Typically, the FBI or the Department of Justice will take the lead in investigating federal crimes. While the Department of Justice will become involved with a securities fraud case at some point, the investigations begin with the Securities and Exchange Commission (SEC).
The crimes investigated by the SEC can take a number of forms. These white collar crimes could involve securities, investments, or the stock market in general. Securities fraud has been a priority of the federal government since the 1930s. Following the stock market collapse of 1929, the government has aggressively pursued allegations of fraud involving investments or the market.
Common Forms of Securities Fraud
- Insider Trading – The use of non-public inside information from a company to manipulate the stock market is against federal law. This can involve an investor with inside knowledge selling their stock due to an upcoming bad financial report. Insider trading also occurs when a person shares this type of information with other investors.
- Stock Option Fraud – Stock options are a common form of compensation for executives. Manipulating the issuance of these options to defraud the company or the stock market are unlawful. For example, backdating stock options to a point where their value is lower to make the transaction immediately profitable is an example of stock option fraud.
- High-Yield Investment Fraud – Promising risk-free, high-yield investments could also be considered fraud if the investment actually carries substantial risk.
- Ponzi Schemes – Unlike high-yield fraud, which misstates the risks of an investment, Ponzi schemes involve fake investments. These schemes use money from later investors to repay the initial investors and rely on a steady supply of victims to keep the scheme afloat.
In general, these crimes involve fraudulent statements, falsified documents, or glaring factual omissions. When a person uses these fraudulent actions to convince another person to make an investment, they could face charges of securities fraud.
Elements of the Crime
The statute most commonly associated with securities fraud is found at 18 U.S.C. Section 1348. This statute applies to a wide range of fraudulent activities regarding investments and commodities. According to the statute, all of these charges are treated as felonies. For a conviction, the prosecutor must prove that you:
- Defrauded another person involving a security or other commodity, or
- Obtained something of value in connection with the transaction of a commodity by means of a material misrepresentation.
Examples of Securities Fraud in Texas
The easiest way to understand securities fraud as it may happen in Houston, Texas is through the use of examples.
Example #1: Accounting Fraud
MegaCorp has been running at a loss for the last few years. To avoid panicking investors, the CEO instructs their accountants to falsify their financial reports. The accountants agree, overstating the companies' revenue while understating their debt. This false sense of profitability leads investors to pour money into the company without realizing it is close to failing.
Example #2: Insider Trading
Fred works at a large corporation. Their stock is currently trading at a low level given to years of weak sales. However, Fred knows that an upcoming merger with a rival will solidify the company's position in the market, vastly increasing revenue. Fred tips off his friend Bill about the merger, who buys a large amount of stock. When the merger is announced, the stock price triples. In this scenario, both Fred and Bill could face securities fraud charges.
Example #3: Microcap Stock Fraud
MiniCorp announces its initial public offering with a stock price of only a few cents. However, MiniCorp has a very low company value, which means they do not face the same regulations and reporting requirements of larger companies. The owner of MiniCorp buys up most of the stock, then issues several false press releases regarding falsified sales data and unrealistic projections. The hype from this public relations blitz makes demand skyrocket, and the owner of the company then sells the worthless stock for a large amount of money. This is known as a “pump and dump” scheme and is a common example of securities fraud.
Securities Fraud Penalties
Securities fraud is a Class C felony under federal law. If convicted, you could face a maximum prison term of 20 years as well as an additional 3 years of supervised release.
The maximum fine tops out at $5 million, but that is not the extent of the financial impact a conviction could have. The statute also requires disgorgement of any ill-gotten profits from the scheme. Any property obtained by using the proceeds of securities fraud could be confiscated by the government.
Defenses to Allegations of Securities Fraud in Texas
There are many potential defenses to a charge of securities fraud. Some of these viable defenses are common in any criminal case, like violating the statute of limitations or the use of an illegal search or seizure. If law enforcement illegally searches the home, vehicle, office, or person accused of securities fraud, a defense attorney could seek to prevent the use of any evidence collected at trial. Other defenses are more common to financial crimes like securities fraud.
Good Faith Belief
A common defense in these cases is that the defendant had a good faith belief that their statements were true. Fraud requires an intentional act and a person that genuinely believed the material statements they made should not be convicted of fraud. This is the case even if the defendant was badly mistaken. This belief must be reasonable, however. A defendant who should have known better cannot rely on their ignorance as a defense.
Lack of Knowledge
Lack of knowledge of the crime is another powerful defense. These fraudulent transactions are often complex and frequently involve people who are entirely unaware an unlawful act is taking place. Federal law explicitly prevents the conviction of anyone who lacked direct knowledge that the rule they violated existed.
No two securities fraud cases are identical, which means some defenses are more effective than others in a given case. To ensure you build the strongest defense possible, consult with a skilled Houston securities fraud defense lawyer right away.
Work with a Houston Securities Fraud Charges Lawyer
When you face prosecution for securities fraud, you can expect that the United States Attorney will bring the weight of the federal government against you. The investigation into your case could involve the SEC as well as financial specialists from the Justice Department. Given what's at stake, it is a mistake to take on your defense alone.
The federal government might be intimidating, but they can be beaten at trial. In fact, many securities fraud cases rely on flimsy evidence. Board Certified Criminal Defense Attorney Doug Murphy has built a career on facing down the government and prevailing. He has extensive experience defending those accused of federal crimes. To learn how you might prevail in your case, schedule a free consultation with the Doug Murphy Law Firm, P.C. right away.