26 Nov 23

Federal Defense Against Investment Fraud

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Last Updated on: 5th December 2023, 02:11 pm


Federal Defense Against Investment Fraud

Investment fraud is a serious issue that can have devastating consequences for victims. However, there are federal laws and regulations in place to protect investors from fraudulent schemes.

What is Investment Fraud?

Investment fraud refers to deceptive practices designed to manipulate investors and unlawfully obtain money or property. Common types of investment fraud include:

  • Ponzi schemes – Investors are promised high returns but earlier investors are paid with money from later investors. Eventually the scheme collapses when no new money comes in.
  • Pump-and-dump schemes – Fraudsters hype up a stock price through false information, then sell their shares when the price peaks. This leaves later investors with losses when the price drops.
  • Affinity fraud – Fraudsters target groups they belong to, like religious or ethnic communities, exploiting trust within the group.
  • Senior fraud – Scammers target elderly investors who may be more trusting or susceptible to certain tactics.
  • Social media scams – Fraudsters use social media to spread false info and manipulate stock prices or promote fake opportunities.
  • Cold calling – Unwanted solicitations by phone with high-pressure sales tactics and false claims.
  • Churning – Excessive trading by brokers to generate commissions which does not benefit clients.
  • Unauthorized trading – Brokers make trades without client permission in order to generate fees.

Fraudsters use tactics like false promises, high-pressure sales, fake credentials, false statements, and more. They often rely on the trust placed in them based on affinity or their claimed expertise.

Federal Agencies and Regulations

Various federal agencies and regulations work to protect investors from fraud and abuse:

  • SEC – The Securities and Exchange Commission regulates securities markets and enforces securities laws. They prosecute cases of investment fraud.
  • FINRA – The Financial Industry Regulatory Authority regulates brokerage firms and brokers. They investigate fraud and maintain BrokerCheck.
  • FBI – The Federal Bureau of Investigation investigates major investment fraud cases through its White Collar Crime program.
  • CFPB – The Consumer Financial Protection Bureau educates consumers and protects against fraud in consumer finance.
  • Federal securities laws like the Securities Act of 1933 and Securities Exchange Act of 1934 require disclosure and prohibit fraud.
  • FINRA rules like Rule 2111 prohibit brokers from making unsuitable recommendations.
  • The Dodd-Frank Act established new protections and regulatory responsibilities.
  • State regulators also enforce state securities laws against investment fraud.
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Building a Defense Against Investment Fraud Charges

For those facing charges of perpetrating investment fraud crimes, having an experienced defense attorney is critical. Possible defenses include:

  • No intent to defraud – If false statements can be shown to have been made innocently without intent to mislead, this could defeat fraud charges.
  • Reliance on professionals – Demonstrating good faith reliance on accountants, lawyers, or other professionals regarding disclosures can be a defense.
  • Lack of materiality – If allegedly fraudulent statements are proven immaterial and unlikely to influence investor decisions, this undermines the charges.
  • Statute of limitations – These cases must be prosecuted within a certain time limit which a lawyer can confirm has expired.
  • Compliance with regulations – Thorough compliance efforts and acting on advice of counsel may demonstrate good faith and defeat fraud claims.
  • No participation in fraud – Those ancillary to the scheme who did not actively participate may avoid liability.
  • No knowledge of fraud – Evidence showing a lack of knowledge about any fraudulent activity can disprove intent.
  • No investor reliance – If investors relied on their own research rather than misrepresentations, it weakens the claim investors were defrauded.
  • No investor loss – Inability to prove investor loss resulting from alleged misrepresentations may defeat fraud charges.
  • Free speech – Certain claims may be defended as free speech if they do not provably include false statements of fact.

Building an effective defense requires deep knowledge of securities regulations, case law, and trial strategy. An experienced federal securities fraud defense attorney can analyze the prosecution’s case for weaknesses and build defenses to get charges reduced or dismissed.

Thorough pre-trial investigation, obtaining exculpatory evidence, and advocacy during pre-trial motions can undercut the prosecution’s case early. An effective defense lawyer knows how to avoid pitfalls like making statements that could support guilt and works to prevent legally flawed indictments.

If settlement negotiations fail, they can represent the accused vigorously at trial. Their expertise in financial cases, knowledge of securities laws, and trial experience can be invaluable in fighting investment fraud allegations. With the right legal defense, even complex securities fraud charges can potentially be overcome.