After the stock market crash in 2007 and 2008, the U.S. put in place more regulations to protect consumers against fraud in the stock and commodities market. While securities fraud is usually conducted by highly-knowledgeable people with expertise in the field of finance, there are some ways to identify securities fraud. Usually, when people file a claim for securities fraud, they’ve noticed unexplained losses in their investment accounts or the accounts of relatives, such as elderly parents.
The first thing they will do is speak to their broker and ask for an explanation for the transaction. If unsatisfied with the answer, they then go to the branch manager. If they still feel that their broker or the firm is denying any wrongdoing, then they will file a suit against the broker or the firm.
Individuals, such as stockbrokers and accountants, as well as corporations, can be accused of securities fraud. The accusations can range from minor crimes to wide-scale criminal activity that affects an entire industry. If you are facing securities fraud allegations then you will need an experienced attorney to represent you in front of federal prosecutors and government agencies.
Types of Securities Fraud
Because there are so many different ways to commit security fraud, there are several examples. Below are some of the most common ones:
- Suitability: Your broker made an investment recommendation that was not suitable for your income, age or investment risk
- Overconcentration: Not diversifying your investments
- Failure to Execute: failure to properly execute your trade
- Unauthorized trading: Making a trade without your explicit permission when the transaction occurs
- Omissions or misrepresentation: when your investment broker fails to disclose to you both the facts of your investment or the risks
- Elderly Fraud: your broker has taken advantage of you or a loved one based on their old age, life stage, and mental state
- Stock churning: executing excessive trades to generate commission from the account
- Pump and Dump: when the price of an owned stock is artificially inflated through misleading or false statements that make the investment seem more appealing, in an effort to sell a cheaper stock at a higher price.
History of U.S. Laws
The Securities Exchange Act of 1933 established the Securities and Exchange Commission, commonly known by its acronym as simply the SEC. Nicknamed the “truth in securities” law, the Securities Act of 1933 had two purposes: it required that investors receive vital financial information regarding the securities that are offered, and strictly prohibit misrepresentations or fraud. The Trust Indenture Act of 1939 was created to protect bond investors and prohibited the sale of any debt securities in a public offering, except qualified indentures.
In most recent years you’ve probably heard of the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The former, otherwise known as the “Public Company Accounting Reform and Investor Protection Act,” prohibited company loans to executives and protected whistleblowers. The former was signed into law in 2010 after the recession and overhauled the financial regulatory system.
The attorneys at the Law Office of Vikas Bajaj have defended corporations of varying sizes, as well as individuals, who have been accused of violating any of these acts.
Federal Sentencing Guidelines
Federal law offers enhanced penalties for different levels of securities fraud.
§2B1.1. of the Federal Code states that:
- If (A) the defendant was convicted of an offense referenced to this guideline; and (B) that offense of conviction has a statutory maximum term of imprisonment of 20 years or more
Otherwise, in addition, if the loss exceeds $6,500 then there is a range of enhancements that can add between 2 and 30 levels to the offense, which are all included in the United States Sentencing Commission Guidelines Manual.
Securities Fraud Defense
It is up to federal prosecutors to prove that you committed any of the types of securities fraud listed above or any others. They will argue that you were negligent in misinterpreting and/or omitting information from one or multiple investors which caused them to face a financial loss. One defense is that a stockbroker was not intentional in their negligence, or that they truly did not know that the information they were disseminating was false or unreliable. Also, the prosecution must prove that the loss was due specifically to the defendant’s information and not from another source.
The Law Office of Vikas Bajaj has spent years crafting tough defenses against securities fraud charges. We handle clients who have been accused of insider trading, fraudulent sales practices, embezzlement, and involvement in Ponzi schemes.
