Securities Fraud FAQ: Answers to Common Questions from the Accused

Securities Fraud FAQ: Answers to Common Questions from the Accused

Being accused of securities fraud can be an incredibly stressful and confusing experience. You likely have a lot of questions about what securities fraud is, what consequences you may face, and what your options are. This FAQ aims to provide plain English answers to some of the most common questions asked by those facing securities fraud charges.

What is Securities Fraud?

Securities fraud refers to deceptive practices relating to the buying and selling of stocks, bonds, and other investments. There are many types of securities fraud, but some of the most common include:

• Insider trading – Buying or selling securities based on material, non-public information.
• Accounting fraud – Falsifying financial statements and records to misrepresent a company’s financial health.
• Pump-and-dump schemes – Artificially inflating the price of a stock through false or misleading statements, then selling your shares when the price peaks.
• Churning – Excessive trading by a broker in a client’s account to generate commissions.
• Misrepresentations and omissions – Lying to investors or failing to disclose important information that could impact investment decisions.

In general, securities fraud involves dishonest conduct that compromises the integrity of financial markets or cheats investors out of money. Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 are the main antifraud provisions related to securities fraud.

How does the government prove securities fraud?

For a criminal conviction, federal prosecutors must prove the following elements beyond a reasonable doubt:

1. Manipulation or deception – There was some act of deception, misrepresentation, or other manipulative practice.
2. Connection to securities – The manipulation or deception was in connection with the purchase or sale of a security.
3. Use of interstate commerce – The deception used an instrumentality of interstate commerce, like the telephone, internet, or mail.
4. Scienter – The defendant acted knowingly and intentionally, not by accident or mistake.
5. Reliance – Investors relied on the false or misleading statements.
6. Economic loss – Investors suffered quantifiable monetary losses.

The complex nature of securities fraud cases means prosecutors often rely heavily on circumstantial evidence to prove fraudulent intent. This can include suspicious timing of trades, relationships between parties, destruction of records, and inconsistencies in documents. It’s not always a simple matter of finding a smoking gun document or statement by the defendant.

What are the consequences of a securities fraud conviction?

A securities fraud conviction can result in:

• Prison time – Securities fraud carries up to 25 years in prison under federal law, depending on the amount lost and other factors.
• Fines – Individuals can face fines up to $5 million, in addition to the profits gained from the fraud.
• Restitution – Courts may order defendants to pay back investors for their losses.
• Probation – Courts often impose probationary periods up to 5 years following release.
• Forfeiture – Ill-gotten gains from securities fraud may be seized by the government.
• Civil penalties – Regulators like the SEC can seek civil fines against fraudsters.

Defendants also face tremendous legal fees, reputational damage, and loss of professional licenses that can derail careers and livelihoods. Securities fraud convictions should not be taken lightly.

What are common defenses in securities fraud cases?

Some potential securities fraud defenses include:

• Good faith – Arguing the defendant acted in good faith without intent to defraud.
• Reliance on professionals – Claiming the defendant relied on legal counsel or accountants who provided poor advice.
• Lack of materiality – Asserting that any misstatements were not important enough to influence investor decisions.
• Lack of reliance – Demonstrating investors did not actually rely on the defendant’s statements when trading.
• Lack of scienter – Showing the defendant did not knowingly and intentionally commit fraud.

The complexity of securities regulations means even ethical professionals can make mistakes. An experienced white collar defense attorney can help assess if any of these defenses apply in your specific case.

Should I accept a plea bargain or go to trial?

Faced with overwhelming evidence, most securities fraud defendants end up pleading guilty in return for reduced charges or lighter sentencing recommendations. However, going to trial may make sense if:

• You have a viable defense that can defeat some charges.
• Plea bargaining talks break down.
• The potential sentence after trial conviction is not much worse than the plea offer.
• You maintain innocence and want to force prosecutors to prove their case.

An experienced securities fraud attorney can advise if the plea bargain is favorable or trial is a better option after reviewing the prosecutors’ evidence and assessing potential defenses. Do not rush into a plea deal without exploring your options.

What should I do if I’m being investigated?

If you learn you are under investigation for securities fraud, it is wise to immediately:

• Hire an experienced securities fraud defense attorney.
• Decline requests for interviews by regulators or law enforcement.
• Avoid obstructing the investigation by destroying documents or lying to investigators.
• Begin gathering and preserving relevant documents and records.
• Research the investigators, prosecutors, judges and expert witnesses involved.

An skilled attorney can interface with investigators on your behalf, protect your rights, and guide you through the complex process. The earlier counsel gets involved, the better.

How can I find the best lawyer for my securities fraud case?

When selecting legal counsel, you’ll want to find someone with:

• Extensive experience in securities fraud defense specifically, not just white collar crime generally.
• Familiarity with the prosecutors and judges in your jurisdiction.
• A track record of favorable outcomes in similar cases.
• The resources and expertise to handle complex securities cases.
• Good communications skills to explain the strategies and process.

Don’t just go with the cheapest lawyer you can find. Securities cases require highly specialized knowledge. Be willing to invest in the best representation you can afford. Your freedom and reputation are on the line.

What will this cost me?

Costs for securities fraud defense can vary substantially depending on:

• The complexity of your case.
• How long the case takes to resolve.
• Whether expert witnesses need to be hired.
• If your case goes to trial.
• The size of the law firm and its overhead costs.

Budget at least $50,000-$100,000 or more. Significant costs can be incurred before you even know if charges will be filed. Be proactive about discussing costs and payment options with your lawyer.

Can I get my employer to pay my legal fees?

If you are accused of securities fraud committed in the scope of your employment, your employer may be obligated to advance your legal fees under state laws, articles of incorporation, or bylaws. However, they may stop paying if you plead guilty, are convicted, or acted outside scope of employment. Get clarity on your rights to employer-paid fees early on.

What if I can’t afford a lawyer?

If you lack the means to hire counsel, you may qualify for a court-appointed public defender for a criminal case. While free, they tend to be overworked and underresourced. You could try retaining a private attorney willing to accept payment plans or offer reduced rates. Some nonprofits like NACDL also assist in finding pro bono counsel for criminal defendants who qualify.

Can I get my seized assets back?

If assets like bank accounts or property were seized as part of the investigation, you can challenge the forfeiture after the criminal case concludes. With a good defense attorney, you may succeed in fully or partially recovering seized assets, depending on the circumstances.

Should I try to settle with regulators like the SEC?

Settling civil charges with regulators like the SEC through a consent order can potentially help resolve matters more quickly and limit penalties. However, the SEC may insist on settlements that impair your ability to contest related criminal charges. Consult counsel before attempting to settle regulatory claims related to a criminal case.

What if I’m convicted? Can I appeal?

If convicted at trial, you can appeal to a higher court to review the conviction and sentence for legal errors. With an experienced appellate lawyer, you may get convictions overturned if the trial court judge made improper evidentiary rulings or legal mistakes. Don’t hesitate to exhaust all appeal options if necessary.

Will I go to a minimum security prison?

Unlike violent offenders, first-time white collar offenders often serve sentences in minimum security federal prison camps. While still restrictive of liberty, these camps have relatively more freedom of movement and lack perimeter fencing. Consult with counsel to improve chances of placement in a minimum security facility.

How will this impact my finances and career?

The financial fallout from legal fees, fines, and restitution can be devastating. Job loss and the stigma of criminal conviction also create major career hurdles. Be proactive about money management and rebuilding your reputation after the case concludes. An attorney or career counselor can help strategize next steps.

Can I eventually get my record expunged?

Those convicted of securities fraud face barriers in getting their records expunged or sealed from public view. However, an experienced criminal defense lawyer may identify avenues for record mitigation, like deferred adjudication programs, depending on the offense and jurisdiction. Don’t assume record expungement is impossible.

What else should I know?

A few other things to keep in mind if facing securities fraud charges:

• Be cautious about public statements you make, as prosecutors will look for inconsistencies.
• Understand that regulators have broad discretion in bringing civil charges, with lower burden of proof.
• Cooperate fully with your legal team and heed their advice to strengthen your defense.
• Recognize the high conviction rate for federal charges and manage expectations accordingly.
• Stay positive – securities fraud charges are beatable with an experienced legal team on your side.

Facing securities fraud accusations is daunting, but taking prompt action to understand your options and build a strong defense can help achieve the most favorable outcome possible. Don’t go it alone – consult with a knowledgeable securities attorney right away.