If you discover that you are under investigation by the SEC, FBI, or other federal agency, you should know that the investigation was likely underway long before you became aware of it. This is one of the reasons it is critical that you secure the legal counsel of a federal securities fraud lawyer as quickly as possible.
Parallel Investigations
It’s extremely important to understand that while the SEC may initiate an investigation that could result in civil penalties, it is often accompanied by a parallel federal criminal investigation. The criminal investigation may build upon information gathered during the SEC investigation. It is crucial to treat the SEC’s civil investigative efforts as if they are directly feeding a law enforcement agency’s criminal investigation. For example, answers to questions asked during an SEC interview or deposition could easily be employed against you in a prosecution for securities fraud or other charges such as obstruction of justice.
Collateral Consequences
If convicted of securities or investment fraud charges, there is a possibility of a long prison sentence, steep fines, and forfeiture of alleged proceeds. In addition, investment professionals are likely to lose licenses that allow participation in the securities and/or financial services industry. They are often barred from serving as a director or senior officer of a public company.
When to Contact an Attorney
Even if you think you are involved only in a civil case, hire a competent attorney to guide you through the process of interviews and investigations with the SEC – before you speak to anyone else. If you become aware that a subpoena has been issued for any item related to you or your business, such as for email communications, bank or other financial records, you should contact an attorney immediately.
Types of Securities Fraud Investigations
Securities fraud is a broad term that encompasses an act of willful deception or misrepresentation. This may be related to the purchase and sale of stocks, commodities, or investment products.
The SEC and other law enforcement agencies investigate various forms of securities fraud. Most allegations fall into several categories. Generally, they can be grouped in the following way:
Insider Trading
This is an allegation of trading a public company’s stocks or securities by an “insider,” someone using access to information based upon material non-public knowledge. Historically, those targeted for investigation and prosecution have been employees of public companies. Much of the law on insider trading stems from court decisions interpreting various issues that have arisen over time.
Outsider Trading
This is a relatively new allegation being investigated by the SEC. It is the result of massive cyberattacks against corporations and the alleged subsequent use of hacked information to make securities transactions based on this information. The SEC and other law enforcement agencies are now targeting the alleged non-employee hackers.
Churning
This scheme refers to an allegation that a stockbroker is enriching himself or herself at the expense of the client through engaging in trades for the purpose of generating commissions. SEC Rule 15c1-7 prohibits churning. It states that a broker acts in a manipulative, deceptive, or fraudulent way when he or she has discretionary power over a customer’s account and effects transactions that are excessive in view of the financial resources and character of the customer’s account.
Pump and Dump Allegations
“Pump and dump” is an allegation of securities fraud that involves artificially inflating the price of a cheaply purchased stock through false and misleading positive statements, in order to sell the stock at a higher price. Using high-pressure sales tactics, these activities generate sufficient demand to push up the share price. Once the stock hits a certain price, the stock is sold for a significant profit, lowering the demand and price, and leaving investors with a loss.
Accounting Fraud
Falsifying or destroying account records to misrepresent the health or activities of a business.
Federal Securities Fraud Laws
There are a number of federal laws pertaining to securities and investment industry:
The Securities Act of 1933 & Securities Exchange Act of 1934
These statutes were the first federal laws to regulate the stock market and securities industry. The Securities Act of 1933 established federal power to regulate the trading of stocks and bonds in the United States. It governs initial sales of stock by businesses, prohibits fraud and requires disclosure of all essential information related to the issuance of securities to the investing public.
The Securities Exchange Act of 1934 established the SEC, the agency that performs the bulk of the regulatory functions and investigates potential violations of federal securities law in a civil context. It establishes the thresholds at which an issuer is required to register a class of securities with the SEC.
The Glass-Steagall Act
This law was passed in 1933. It separated investment banking from retail banking. It was repealed in 1999.
The Trust Indenture Act of 1939 (TIA)
The TIA was instituted in order to protect bond investors. The law prohibits the sale of any debt securities in a public offering unless they are issued pursuant to a formal written agreement that discloses the details of the bond issue, called an indenture.
Investment Company Act of 1940
This law regulates the organization of companies that engage primarily in investing and trading in securities.
Sarbanes-Oxley Act of 2002
The law sought to root out corporate fraud. It created the Public Company Accounting Oversight Board to oversee the accounting industry and created several reforms which encourage corporate responsibility.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
This law was enacted following the Great Recession, and is aimed at enhancing consumer protection, regulation of financial products, increasing corporate governance, disclosure, and transparency. The law places strict regulations on lenders and banks in an effort to protect consumers and prevent another recession.
Because of the nature of securities and investment fraud allegations and all of their various forms, there are a number of ways the allegations may be prosecuted under federal law, including:
- Conspiracy
- Obstruction of Justice (and destruction of documents under the Sarbanes-Oxley Act of 2002)
- Mail fraud
- Wire fraud
- False Statements
Contact a DC Federal Securities Fraud Attorney
The federal government devotes significant personnel and resources to investigate and prosecute these allegations. If you are caught in the crosshairs of a federal investigation, seek out thorough, aggressive defense representation as quickly as possible.
Call today to find a DC federal securities fraud lawyer equipped to handle your case.
