Criminal Prosecutions of Securities Law Violations

There is an entire body of law related to the securities industry, which basically means the people and companies that help with the purchase and sale of what most of us call “stocks and bonds.” Like the tax laws, there are lawyers who devote their entire careers to working on these complex rules and regulations. Also, like tax laws, there are sometimes when a federal prosecutor will bring a criminal case alleging that someone committed crime by violating some aspect of the rules and regulations involving the securities industry. Very few criminal defense attorneys have ever defended a federal criminal case involving allegations of securities fraud, for good reason. Very few such prosecutions are ever brought. When such a case does come along, it is among the most complex matters that most criminal defense attorneys will ever see in their entire career.

The complexity of a federal criminal securities fraud case begins with the dense law that regulates the securities industry. Then, the lawyer involved in such a case needs to be well-versed in the substantive and procedural law that governs a criminal case that is brought in the federal court system. As a result, when there is a criminal investigation or prosecution against a person or a company regarding alleged securities law violations, someone needs to immediately contact a specialist, meaning a criminal defense attorney who is experienced in handling these extraordinarily complicated matters.

There are many attorneys who specialize in securities laws, but that by itself does not mean that such an attorney is the right lawyer to defend a criminal case in this area. Many specialists in securities law are often quite smart, but at the same time these lawyers usually have little or no experience standing up to describe in court the precise legal issue that is at the heart of a case. This is not a criticism, for most securities law specialists know a whole lot more about this area of the law than even the most accomplished criminal defense specialist. Securities lawyers tend to the kind of attorney more comfortable with reading and writing, as opposed to trying to explain and summarize complex legal principles for a group of ordinary people who are sitting on a jury. Just because a person is an expert in securities law, that does not mean that he or she can explain complicated subjects to a judge or jury. As a result, if you or a loved one is facing a criminal securities fraud case, that person needs a criminal defense lawyer of the sort who can quickly learn the case, which includes not only the facts, but the complex legal issues at the heart of any criminal tax prosecution. Most good criminal defense lawyers tend to be a “quick study”, and they are accustomed to learning new areas of the law for each new case they handle.

There are some specific securities laws that make it a crime to do, or not do, certain things in this highly regulated area. However, most federal prosecutors do not use these specific securities law crimes. Instead, most of these cases involve “run-of-the-mill federal fraud statutes. One reason is that most federal prosecutors do not have a lot of experience with these specialized securities crimes. Furthermore, the Assistant United States Attorneys have lots of experience with the bread-and-butter federal fraud statutes like mail fraud and wire fraud. What often happens is that a violation of the securities statutes is dressed up and inserted into one of these other fraud crimes. On occasion, however, prosecutors will use some of the specialized securities statutes along with the “usual” federal fraud crimes. When this happens, the defense attorney needs to be very attuned to some of the unique aspects of these specialized laws.

Federal prosecutors also like to include “extra” crimes in many securities law cases. They like to increase the pressure on the Defendant by including allegations that the person not only committed securities fraud, they also contend that the Defendant committed money laundering by sending the funds they earned through a financial institution. Conspiracy allegations are also common in these cases in order to cast a wider net over many actors in the drama.

After understanding both the securities laws and the specific statutes that tend to be used in a federal criminal case, the lawyer also must be accomplished in federal criminal procedure, which is the process the Judge will use when presiding over a federal criminal investigation and trial. As discussed elsewhere on this site, a federal criminal prosecution is very different from a state-court criminal case. Anyone who is confronted with a criminal securities fraud matter in federal court needs an attorney who has experience handling these very specialized matters.

There are many different fact patterns that can lead to a criminal case involving allegations of securities fraud, but usually only three types of cases end up in a criminal case. One is called a “pump and dump”, a situation where people “take over” a small traded company, “pump” up the price by issuing false press releases, and then “dump” the stock when its price hits the limit. Another related type of case is “market manipulation” when there is any intentional activity that creates a false impression about the price, availability or distribution of a security. Many people know about “insider trading” cases. These are situations where people with inside knowledge use that information to obtain a personal advantage on a trade, for themselves or some other person.

Sentencing in securities law criminal cases is exceedingly complex. The Sentencing Guidelines were tremendously increased for these crimes after some of the corporate scandals in the early 2000’s, such as Enron and the Arthur Anderson case. The defense lawyer in a federal securities law case must also have a great deal of familiarity with the very complex sentencing rules that are used for such cases in federal court. There are potential criminal fines, forfeiture and issues that can even endanger a business that was involved in the case.

Obviously, this is merely a summary of some issues that come up in a federal criminal securities fraud case. Anyone facing such a matter must consult with an expert. Please feel free to contact Paul if you’d like to talk about your case, the office number is (404) 207-1338.