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Securities Fraud


By John Teakell
Dallas, Texas

I. Generally

“Securities fraud” and other criminal offenses involving securities are prosecuted in federal court as felony offenses, and these offenses are based upon allegations of fraud, sales of securities without a license, and omitting pertinent material in the sale of securities, or insider trading. When people hear the word “securities,” they often think of stock in a company. Stock would be considered a security, but the term “security” has a very broad definition in both state and federal statutes, so that investigations in either State court initiated by the State Securities Board, or an equivalent state agency, or by the U.S. Securities and Exchange Commission can cover incidents that involve shares of company stock, promissory notes, bonds, and investment contracts. Criminal investigations can result in Indictments as in any other criminal case.

These investigations can be lengthy, and they are document and financial transaction intense, and/or they focus on fraudulent sales by the targets of the investigations.

II. Charges and Indictments

Securities fraud and criminal securities offenses in federal cases are found in Title 15 of the United States Code, although many federal criminal offense statutes are listed in Title 18 of the U.S. Code. Charges in Indictments brought by the U.S. Attorney include: 1) Securities Fraud; 2) Misrepresentation or Omission of Material Facts in the Sale of Securities; 3) Sales of Securities Without a License; 4) Sales of Unregistered Securities; 5) Insider Trading; and/or 6) Money Laundering.

III. Investigations

Investigations focus to a large extent on financial documents, trading records, and statements and depositions of targets of the investigation. Often, targets of the investigation will have given statements or depositions to the U.S. Securities and Exchange Commission or the State Securities Board prior to a criminal investigation. Administrative subpoenas by the government agencies involved in administrative or civil actions may yield records or written communications from the targets of the investigation that is used in the criminal investigation.

IV. Illegal Acts Leading to Charges

The following is a list of allegations and activities that may be the basis for counts in an Indictment in a criminal securities case:

  • Misrepresentation of company’s financial status and/or stock values.
  • Misrepresentations in sales of stocks or other securities.
  • Stock manipulation schemes.
  • Insider trading (unauthorized information that allows a person to benefit from the purchase and/or sale of stock, stock options or other securities).
  • Investment contract schemes.
  • Prime bank note schemes.
  • “Pump and dump” schemes regarding penny stocks or low value stocks.
  • Sale of unregistered securities.
  • Sale of securities by an unlicensed broker

V. Results in Addition to Sentencing in Criminal Cases

In addition to sentencing in a criminal case regarding securities fraud or related securities charges, the following may occur in a related or parallel securities enforcement action by the U.S. Securities and Exchange Commission or the State Securities Board:

  • Temporary Restraining Orders and Asset Freezes
  • Permanent Injunctions Against Securities Fraud, Illegal Sales of Securities, or Other Similar Prohibitions
  • Disgorgement of ill-gotten gains
  • Civil Money Penalties

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