Securities Fraud: How Cooperation Can Mitigate Sentencing Guidelines

Securities fraud is a serious white collar crime that can result in severe penalties, including lengthy prison sentences. However, cooperating with authorities by providing substantial assistance can be an effective strategy to reduce sentencing exposure. This article will examine securities fraud sentencing guidelines and how cooperation agreements with the government can help mitigate penalties.

The main law used to prosecute securities fraud is 18 U.S.C. Section 1348, which prohibits schemes to defraud investors in connection with the purchase or sale of securities. Convictions can lead to up to 25 years in prison and significant fines. Defendants also face sentencing based on calculations from the U.S. Sentencing Guidelines, which take into account factors like the amount of financial loss and number of victims.

According to U.S. Sentencing Commission data, in fiscal year 2020 the average sentence for securities fraud was 46 months in prison. However, this number can be much higher based on aggravating factors. For example, loss amounts greater than $9.5 million occurred in 18.1% of cases. The guidelines also increase sentences based on things like sophisticated means, being an officer or director of a public company, and number of victims.

However, another important statistic from the Commission is that 37.7% of securities fraud offenders received reduced sentences for substantial assistance to authorities. This demonstrates how cooperating with the government’s investigation can potentially pay major dividends at sentencing.

How Defendants Can Provide Substantial Assistance

Providing “substantial assistance” simply means cooperating with authorities by providing useful information and testimony for their investigation and prosecution of others. This assistance can lead prosecutors to file a motion with the court detailing the cooperation, which judges can consider to impose lighter sentences.

There are several ways securities fraud defendants can substantially assist, including:

• Confessing: Admitting culpability and providing detailed information to investigators about the scheme. This includes identifying other participants.
• Undercover Work: Wearing a wire or recording phone calls to produce evidence against targets. This is very valuable but also risky.
• Testifying Before Grand Jury: Providing testimony to secure indictments against targets. This locks in cooperation.
• Testifying at Trial: Defendants who testify for the prosecution are almost guaranteed huge sentencing reductions. But it means testifying against former partners.

The earlier a defendant cooperates, the better. Timeliness gives prosecutors and agents more opportunities to utilize the assistance. Waiting until after indictment reduces leverage.

DOJ Policy Rewards Cooperation in Corporate Cases

The Department of Justice also has formal policies that reward cooperators in corporate prosecutions for securities violations and financial fraud. These include:

• Corporate Leniency Policy: This provides immunity for the first company to self-report antitrust violations. This incentivizes businesses to cooperate swiftly.
• Individual Accountability Policy: This mandates prosecuting individuals, not just companies. Cooperation helps identify targets.
• Cooperation Credit: DOJ policy calls for prosecutors to assess cooperation and tailor charges and plea agreements accordingly. This rewards assistance.

The government wants insider help. Policies formalize incentives for companies and individuals to become cooperating witnesses. Providing substantial assistance can transform sentencing exposure.

How an Experienced Attorney Can Help

The benefits of cooperating with a securities fraud investigation are clear. But the process is complex legally and emotionally. An experienced white collar defense attorney is critical for guiding defendants through cooperation.

Specifically, an attorney can help assess the case and viability of cooperation, negotiate a favorable proffer and cooperation agreement, prepare the client for interviews and testimony, debrief after sessions, argue for maximum sentencing reductions, and provide general advice and counsel.

While cooperating with authorities after securities fraud charges can seem intimidating or counterintuitive, in many cases it offers the best opportunity to mitigate penalties and serve less prison time. But securing the full benefits of cooperation requires experienced legal guidance. Consult with a lawyer to discuss the options.