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Answering FAQs About Federal Securities Fraud Charges in New York


Answering FAQs About Federal Securities Fraud Charges in New York

Getting charged with federal securities fraud can be an incredibly stressful and confusing experience. You probably have a ton of questions about what securities fraud actually is, what the charges mean, and what your options are. This article aims to answer some of the most frequently asked questions about federal securities fraud charges in New York to help you understand the situation better.

What is securities fraud?

Securities fraud refers to deceptive practices in connection with the buying and selling of investment vehicles like stocks, bonds, and other securities. There are a few main types of securities fraud charges:

  • Insider trading – Buying or selling securities based on material, nonpublic information.
  • Accounting fraud – Intentionally reporting false or misleading financial information.
  • Pump-and-dump schemes – Artificially inflating the price of a stock through false or misleading statements.
  • Ponzi schemes – Using money from new investors to pay earlier investors.
  • Misrepresentations and omissions – Lying to or withholding important info from investors.

In general, securities fraud involves manipulating the securities markets to unfairly enrich yourself at the expense of other investors. It’s illegal under federal law.

What are the penalties for securities fraud?

The penalties for securities fraud depend on the specific charges, but can include:

  • Prison time – Securities fraud involving over $5,000 can result in up to 25 years in prison. Large frauds often lead to decade-long sentences.
  • Fines – Individuals can face fines up to $5 million, and entities like companies can be fined up to $25 million.
  • Disgorgement – Having to give back any profits made from illegal trading.
  • Bars from working in finance – Individuals charged with securities fraud often face permanent or temporary bans from the industry.

In addition to criminal penalties, the SEC often files civil charges seeking monetary penalties and bans from the industry. The consequences of securities fraud charges are severe.

What government agencies investigate securities fraud?

There are a few main government agencies that investigate and prosecute securities fraud cases:

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Guerline Menard
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I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.
  • Securities and Exchange Commission (SEC) – The SEC is responsible for civil enforcement of federal securities laws. They can file civil charges seeking fines and industry bars.[1]
  • Department of Justice (DOJ) – The DOJ prosecutes criminal securities fraud cases. Different DOJ divisions and U.S. Attorney’s offices handle cases.[2]
  • Federal Bureau of Investigation (FBI) – The FBI investigates potential criminal securities fraud.
  • U.S. Attorneys – Federal prosecutors who handle criminal trials and charges.

These agencies often work together on securities fraud investigations and charges. The SEC will typically file civil charges, while DOJ pursues criminal prosecution.

What are common defenses against securities fraud charges?

There are a few common defenses that may apply in securities fraud cases:

  • Lack of intent – Arguing that you did not intend to defraud investors or knowingly make false statements.
  • Reliance on professionals – Claiming you reasonably relied on advice of attorneys, accountants, etc.
  • No material misstatements – Arguing that any misstatements you made were not important or significant enough to mislead investors.
  • No reliance – Claiming investors did not actually rely on or believe the false statements.

An experienced white collar defense attorney can assess whether any of these defenses may apply in your specific case. The facts and evidence matter.

Should I cooperate with the investigation?

Whether to cooperate with securities fraud investigations is a strategic decision that requires experienced legal advice. On one hand, cooperating shows remorse and willingness to accept responsibility. Prosecutors may offer more lenient charges or sentencing recommendations in exchange for cooperation. On the other hand, cooperating means admitting guilt and providing information that may further implicate you. The benefits of cooperating are never guaranteed.

An attorney can advise you on the pros and cons of cooperation depending on the specifics of your case. There are many factors to weigh, like the strength of the evidence, chances of winning at trial, and more. Think carefully before cooperating.

What should I do if charged with securities fraud?

Here are some steps to take if you’ve been criminally charged with securities fraud:

  1. Hire an experienced white collar defense attorney – Legal expertise is critical when facing federal fraud charges.
  2. Avoid making public statements – Anything you say publicly can potentially be used against you.
  3. Follow your lawyer’s advice – Listen to your attorney’s guidance at every phase of the case.
  4. Start preparing your defense – Begin gathering documents, financial records, communications and other evidence that may help rebut the charges.
  5. Consider the possibility of a plea deal – Most securities fraud cases end in a negotiated plea agreement. Your lawyer can advise you on the pros and cons.

Facing criminal charges is frightening, but an experienced legal team can help guide you through the process and achieve the best possible outcome given the circumstances.

What are some recent prominent securities fraud cases in New York?

Some high-profile recent securities fraud cases brought by the U.S. Attorney’s Office for the Southern District of New York include:

  • Sam Bankman-Fried – The founder of crypto exchange FTX was charged in 2022 with defrauding FTX customers by diverting their funds to his hedge fund Alameda Research.[3]
  • Lev Parnas and David Correia – Associates of Rudy Giuliani convicted in 2020 of defrauding investors in a company called Fraud Guarantee.[4]
  • Telegram ICO – Messaging app founders charged in 2020 with unregistered offering and sale of securities in their $1.7 billion “Gram” token sale.[5]

These cases highlight the variety of securities fraud prosecutions pursued in New York and their prominence in the news. The area is a hotbed for prominent financial crime cases.

What are the elements prosecutors must prove?

For most securities fraud charges, prosecutors must prove:

  • A misstatement or omission of material fact
  • Made with intent to defraud
  • In connection with the purchase or sale of securities
  • Investors relied on the misstatement
  • The misstatement caused investors’ losses

Proving intent to defraud and reliance on misstatements is often key. The evidence required varies based on the specific charges pursued. An attorney can explain the nuances of the required legal elements in your case.

Can I settle securities fraud charges?

In many securities fraud cases, prosecutors will offer a plea deal or settlement. Typical options include:

  • Plea agreement – Plead guilty in exchange for reduced charges or sentencing recommendation.
  • Deferred prosecution agreement – Charges dropped after a period if you meet certain conditions.
  • Non-prosecution agreement – Agree to cooperate in exchange for no charges being filed.

Settlements often require paying fines, penalties, and restitution to victims. You may also be required to cooperate against others involved. Your attorney can negotiate to get the best deal possible.

How can I reduce my sentence?

A few ways to potentially reduce your sentence if convicted of securities fraud include:

  • Pleading guilty and accepting responsibility early on.
  • Providing substantial assistance to prosecutors investigating others.
  • Paying restitution to victims.
  • Complying with all conditions of your plea agreement.
  • Presenting mitigating personal circumstances to the judge.

However, securities fraud sentences are driven by federal guidelines and judges have limited leeway. The best way to reduce prison time is often through a favorable plea deal.

What are common SEC civil penalties?

Common civil remedies pursued by the SEC in securities fraud cases include:

  • Cease and desist order – Order prohibiting future securities law violations.
  • Officer and director bars – Bans from serving as corporate officer or director.
  • Industry bars – Temporary or permanent bans from working in securities industry.
  • Disgorgement – Repaying ill-gotten gains from illegal conduct.
  • Civil fines – Monetary fines based on severity of violations.

Large SEC settlements often include seven or eight figure fines and disgorgement. The costs can be substantial even without criminal conviction.

Can I get charged if I had no direct involvement?

Yes, you can potentially be charged for securities fraud even without directly participating. Types of secondary liability include:

  • Aiding and abetting – Knowingly providing substantial assistance to primary violators.
  • Control person liability – Executives can be liable for failure to supervise subordinates.
  • Conspiracy – Agreeing with others to commit securities fraud.

Company executives are often charged based on subordinates’ misconduct. An attorney can advise you on potential sources of liability even if you weren’t directly involved in wrongdoing.

What are the risks of going to trial?

Fighting securities fraud charges at trial has substantial risks, including:

  • Almost certain conviction – Federal prosecutors win over 90% of trials.
  • Loss of any plea deal benefits – No sentencing reductions for accepting responsibility.
  • Lengthy prison sentence – Judges impose harsher sentences after trial convictions.
  • Higher fines – Judges may issue fines above plea deal recommendations.

However, going to trial may be worthwhile if you have a strong factual defense and reasonable chance of acquittal. Your lawyer can advise if trial is a wise choice.

Should I testify in my own defense?

Testifying can be risky, but also provides opportunities like:

    • Telling your side of the story.
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