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Securities Fraud: How the Government Proves Knowledge and Intent

Securities fraud cases can seem complicated, but basically the government needs to prove two main things: that the defendant knew their actions were wrong, and that they intended to defraud investors. Let’s break it down into simpler terms.

What exactly is securities fraud? Basically it means cheating investors by using deception, half-truths, or outright lies related to buying or selling stocks, bonds, or other investments. Some common examples include:

  • Insider trading – using non-public info to get an unfair advantage
  • Accounting fraud – cooking the books to make a company look more profitable
  • Pump-and-dump schemes – artificially inflating a stock’s price to sell your own shares at a profit

So how does the government go about proving the defendant actually knew they were doing something wrong or illegal? Well, they can’t just assume the person knew – they need actual evidence. Here’s how they often try to demonstrate knowledge:

Emails & Documents Showing Awareness

If the defendant sent emails or memos showing they knew their actions were questionable, that helps prove knowledge. Like if a CEO emailed “let’s keep this off the books” or “don’t tell the auditors about this.” Pretty clear they knew it was sketchy![1]

Lies & Concealment

If someone actively lied to cover their tracks, it suggests awareness of guilt. Like if they told investors “we’re profitable” when they knew the books were cooked. Or if they used secret offshore bank accounts to hide money. That kind of deception points to knowledge.[2]

Violations of Company Policy

If the defendant broke their own company’s rules and policies, that indicates they likely knew their actions were wrong. Particularly if they actively hid violations from compliance staff and auditors.[3]

Sophistication & Experience

The government also considers the defendant’s level of financial sophistication. The more knowledgeable and experienced they are with investments and regulations, the more likely they grasped what they were doing violated laws. For example, a hedge fund manager with an MBA can’t claim ignorance as easily as a small retail investor might.[4]

Christine Twomey
Christine Twomey
2024-03-21
Just had my Divorce case settled 2 months ago after having a horrible experience with another firm. I couldn’t be happier with Claire Banks and Elizabeth Garvey with their outstanding professionalism in doing so with Spodek Law Group. Any time I needed questions answered they were always prompt in doing so with all my uncertainties after 30 yrs of marriage.I feel from the bottom of my heart you will NOT be disappointed with either one. Thanks a million.
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Brendan huisman
2024-03-18
Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!
Guerline Menard
Guerline Menard
2024-03-18
Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️
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2024-03-15
Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.
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I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!
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Hey, how you guys doing? Good afternoon my name is Anthony Williams I just want to give a great shout out to the team of. Spodek law group. It is such a honor to use them and to use their assistance through this whole case from start to finish. They did everything that they said they was gonna do and if it ever comes down to it, if I ever have to use them again, hands-down they will be the first law office at the top of my list, thank you guys so much. It was a pleasure having you guys by my side so if you guys ever need them, do not hesitate to pick up the phone and give them a call.
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2024-02-24
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.

Okay, so what about intent? How does the government prove the defendant actually meant to mislead or harm investors rather than just making an honest mistake?

Motive & Incentives

If the defendant stood to gain financially or otherwise from the fraud, it suggests intent. Like if they owned a lot of stock in the company and inflated earnings to pump up the stock price before selling their own shares. Having a clear personal incentive makes it harder to claim good intentions.[5]

Repeated & Elaborate Schemes

Sophisticated frauds carried out methodically over long periods suggest calculated intent to deceive. If it was a one-time slip up or accounting error – eh, maybe. But complex schemes executed repeatedly over years? That implies an intentional plan.

Encouraging Others & Obstruction

If the defendant directed or encouraged others to lie, shred documents, delete emails etc., it implies they intended to cover up misconduct, not just make mistakes. Especially if they obstructed investigations later on.[6]

So in summary – the government needs communication and behavior clearly demonstrating awareness plus evidence of motives and intentional orchestration. They combine these clues to argue the defendant knew their actions crossed lines and meant to mislead investors all along.

Now the defense will respond with counterarguments of course! They may claim the defendant had pure motives, simply made errors, or misunderstood complex rules. Or they may argue the defendant lacked proper training and oversight. It comes down to which side convinces the jury in the end!

I know this stuff can seem awfully complicated to us non-lawyer types. But hopefully breaking it down in simple terms makes the basics easier to grasp! Let me know if you have any other investing or securities-related questions – I’m always happy to chat more!

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