Securities fraud refers to a type of crime involving alleged deceptive or otherwise fraudulent activity that occurs in violation of federal securities law. These laws exist to ensure that individuals who invest in privately issued securities do so based on truthful information and to prohibit insider actors from manipulating or otherwise unfairly profiting from their insider positions. In the wake of several high-profile cases involving securities fraud and major accounting issues at the turn of the new millennium, the penalties associated with securities fraud and other types of corporate misconduct were significantly increased, notably through the passage of the Sarbanes-Oxley Act of 2002.
Federal securities fraud allegations in Washington, DC can result in serious consequences, whether one is guilty of the offense or not. If convicted, penalties may include exorbitant fines as well as imprisonment. Consequently, it is important that people facing securities fraud charges retain legal counsel from a DC securities fraud lawyer. Below is further information regarding common types of securities fraud alleged and investigated by the U.S. government.
The insider trading variety of securities fraud involves people who have access to non-public information regarding the market who then use that information to benefit themselves or others. For example, a corporate officer who is aware of a major announcement being made by his or her company who makes trades based on the content of the announcement prior to its being made could potentially be investigated for and charged with insider trading. It is important to note, however, that the individual accused of insider trading does not need to be a member of that company. Insider trading charges can be levied against anyone who has access to non-public information about a company, including family members of employees, friends, and government regulators.
This type of securities fraud may be alleged if a company does not accurately make the required disclosures to its shareholders. Such conduct can artificially inflate the value of a company’s stock and encourage unwitting investors to purchase securities issued by a financially unhealthy company. Perhaps the most famous example of this type of securities fraud can be seen in the Enron scandal that came to light in the early part of the 2000s. Fundamentally, the company was using deceptive accounting practices to make the company appear more profitable than it actually was, ultimately resulting in the company’s bankruptcy. Not all securities fraud cases involve large companies. The provision of materially false information to potential investors in a small company or fund can form the basis of a securities fraud charge.
With the advent of the Internet, it has become easier to reach millions of potential investors without expending a large amount of capital. Internet fraud allegations can occur in a variety of ways, such as claims that an individual set up fake companies that have a legitimate website, or allegedly engaging in “pump and dump” schemes in which the fraudsters inflate the price of a company by providing misleading or false information, then dump their own shares of the stock once the price is elevated. Such allegations or oftentimes referred to as fraud on the market or market manipulation.
Mail and wire fraud are the catchall fraud statutes. The government can use these statutes to prosecute securities fraud cases in schemes that use the mail or wires. Not all cases of mail or wire fraud necessarily involve securities, but many do because so much trading occurs on the Internet or requires posted or telephonic communications with investors. Every time the mail or wires is used during such a scheme can form the basis of an additional count of fraud.
A Ponzi scheme is a type of investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors rather than from profits actually earned by the operation of the business or fund. Typically, the operation will promise and actually pay out a high return to the initial investors in order to attract new investors to the scheme. According to the United States Securities and Exchange Commission (SEC), there are several red flags for Ponzi schemes that potential investors should be aware of, including:
Individuals who are facing a securities fraud case can suffer serious damage to their professional reputations in addition to civil and criminal penalties. There are many ways that a DC securities fraud lawyer can defend against allegations of securities fraud. Mounting a defense early in an investigation often results in a better outcome than if the subject of a federal investigation waits to retain counsel.
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