Securities Fraud: How Venue Impacts Prosecution and Sentencing

Securities Fraud: How Venue Impacts Prosecution and Sentencing

When it comes to prosecuting securities fraud cases, venue matters. Where a case is brought can impact everything from the charges filed, to the length of sentencing if convicted. This article will break down how venue impacts various aspects of securities fraud cases.

Charges Filed

Prosecutors have some flexibility when charging securities fraud cases. They may bring charges under criminal statutes like wire fraud or mail fraud, in addition to or instead of securities fraud charges. This allows them to pursue cases even when the elements for a civil securities fraud claim can’t be met.

For example, in a 2016 case, the Second Circuit held that venue is proper for securities fraud cases in the district where fraudulent phone calls or electronic communications originate [1]. So prosecutors could bring wire or mail fraud charges based on calls or emails originating in a certain district, even if a civil securities fraud claim wouldn’t fly there.

This flexibility allows prosecutors to shop venues in some cases, filing charges in whichever district offers the most favorable law or precedents for their case. It also allows them to bring charges in cases where civil recovery for victims is unlikely.

Conviction Rates

Conviction rates for securities fraud cases vary widely depending on the venue. Some districts, like the Southern District of New York, have dedicated teams of prosecutors focused on securities and financial fraud. These prosecutors handle a high volume of complex cases, and as a result often have higher conviction rates.

Other districts see very few securities cases each year. Prosecutors there may lack the specialized experience and resources of major financial centers. As a result, conviction rates tend to lag behind districts that prosecute securities fraud routinely.

So if given a choice, prosecutors will often pick venues that have a strong track record with similar cases when filing charges. The increased likelihood of securing a conviction is a major factor in venue selection.

Sentencing

When determining sentences for securities fraud convictions, courts look at the U.S. Sentencing Guidelines. But the guidelines offer a wide range, leaving judges with significant discretion based on the specifics of each case.

Within a district, a judge’s own track record with sentencing provides some indication of what defendants may face if convicted. Some judges adhere closely to the guidelines, while others are known for creative sentences like home confinement or community service requirements.

Between districts, sentencing philosophies can vary even more widely. The Second Circuit has issued a number of notable securities fraud opinions, clarifying issues like what constitutes a victim for sentencing enhancements [2]. So prosecutors in that circuit have more precedent to work from when arguing for certain enhancements.

Districts also vary when it comes to factors like cooperating with the SEC. Some judges award lighter sentences routinely for cooperation, while others view it as just a cost of doing business.

These sentencing variations between districts and individual judges represent a major consideration for prosecutors when picking venue. The difference between 3 years in prison or 6 years is certainly meaningful for defendants weighing their options.

Restitution for Victims

An important consideration for victims in securities fraud cases is the potential for restitution. Securing restitution requires prosecutors to present evidence on the losses suffered by victims as part of sentencing recommendations.

Some prosecutors have entire units dedicated to tracing ill-gotten gains and identifying victims. They work hand-in-hand with investigators to document losses thoroughly. As a result, prosecutors in those districts include large restitution amounts as part of sentencing routinely.

Other districts devote fewer resources to the restitution aspect of securities cases. Charging documents may lack specifics around victim losses, and restitution amounts can be inconsistently presented at sentencing as a result.

The nature of the fraud can also impact restitution orders. In a recent penny stock manipulation case, the DOJ highlighted restitution of over $1.3 million awarded to over 1,000 victims [3]. But in larger, more complex securities frauds, victim losses can reach billions of dollars across entire investor classes making restitution impractical.

So victims interested in recovering losses have an incentive to pay attention to the track record of venues when it comes to securing restitution in addition to jail time. The two don’t always go hand-in-hand.

Conclusion

Venue plays a key role in shaping prosecutions and outcomes for securities fraud cases. Prosecutors can leverage the differences between districts and judges when picking the venues they feel give them the best chance at conviction. Meanwhile defendants try to exploit those same differences when pushing for dismissal or transfer to more favorable districts.

For victims, things like restitution also vary widely depending on the venue. So venue decisions end up impacting all of the key parties involved in securities fraud cases.

Understanding these dynamics is important for anyone involved in a securities fraud case. Paying attention to the track records of venues can provide insight on what to expect as the case progresses. And when faced with a choice of venues, comparing the specifics between options can help inform important strategic decisions for all sides.

So next time you read about a securities fraud prosecution, take note of where charges are filed. The venue itself hints at important aspects of how the case may unfold down the road.

Citations:

[1] Second Circuit Clarifies Venue Requirements for Securities Fraud

[2] Second Circuit Clarifies Venue Requirements for Securities Fraud

[3] Former Securities Attorney Sentenced for $1.3M Penny-Stock Scheme