SEC Defense Attorney

No, not directly. While the SEC, and, more specifically, its Division of Enforcement, have the authority to conduct investigations and pursue civil and administrative enforcement actions with the Commissioner’s approval, the SEC does not prosecute criminal cases directly. However, it can refer investigations to the U.S. Department of Justice (DOJ) in appropriate cases, and the DOJ routinely pursues criminal charges for securities fraud and related offenses arising out of SEC investigations.

There are a number of different issues that can trigger an investigation by the SEC’s Division of Enforcement.

In many cases, investigations will result from complaints filed by investors, current or former employees, and competitors. While these may take the form of formal whistleblower complaints, they can also take the form of informal complaints lodged with the Division of Enforcement. If Division staff believe that the allegations set forth in the complaint are credible, then they may choose to open an investigation to examine the matter further.

SEC investigations can also be triggered by reviews of brokerage firms’ and companies’ public filings, by media reports, and by various other sources. As your firm’s or company’s securities fraud defense counsel, we will use our resources and rely on our experience to quickly determine what triggered your investigation.

No, and this is extremely important. While the SEC focuses its enforcement efforts on the Securities Act of 1933, the Securities Exchange Act of 1934, and the various other laws and regulations that regulate the sale of securities in the United States, it regularly works in concert with other agencies to execute large-scale criminal investigations. This includes agencies such as the DOJ, the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS).

As a result, when facing an SEC investigation, it is imperative to critically assess all potential vulnerabilities. Could the IRS substantiate charges for criminal tax evasion? Even if the SEC cannot prove securities fraud, could the DOJ prosecute for mail fraud or wire fraud? These are questions you need to answer and quickly and answering them requires the advice and representation of experienced federal defense counsel.

Focusing on federal securities fraud specifically, there are a number of potential defense strategies that can be utilized to avoid criminal prosecution, or, if necessary, criminal sentencing at trial. The specific strategies that are available will depend on the specific charges at issue, as, for example, defending a brokerage firm against churning allegations is very different from defending corporate executives against allegations of insider trading.

That said, generally speaking, a key defense strategy in many securities fraud cases involves challenging the sufficiency of the government’s evidence. Securities fraud cases tend to be extraordinarily complex, and the government has the burden of establishing guilt beyond a reasonable doubt. This means that, in order to avoid prosecution, you do not need to prove that you are innocent. Rather, all that is necessary is to convince the prosecution that it does not have the evidence it needs to fully prove its case in court.

There is various specific affirmative, statutory, common law, and constitutional defenses to criminal securities fraud charges as well. At The Criminal Defense Firm, our SEC defense lawyers are skilled at effectively presenting all defenses our clients have available. This includes presenting defenses during the investigative process, in grand jury and pre-trial proceedings, and in federal district court.

Potentially, yes, although the answer to this question depends on the current status of your case. At the investigative stage, a key defense strategy often involves working to keep the investigation civil or administrative in nature, as this keeps the risks of criminal prosecution off of the table. Of course, if you haven’t done anything wrong, then this is not a strategy we would pursue.

At the same time, the standard for liability in civil and administrative matters is much lower than it is for criminal culpability. As a result, when defending against securities fraud allegations, it is absolutely essential to make sure that you are not volunteering any information that could ultimately be used to establish some form of liability. Additionally, the SEC can initiate civil or administrative proceedings in tandem with criminal prosecution by the DOJ, so it may be necessary to defend yourself (or your brokerage or company) on multiple fronts in order to completely avoid federal penalties.

Securities fraud covers all types of investment assets. If an investment asset qualifies as a security, then illegal activity related to the purchase, sale, or recommendation of the asset can be prosecuted as securities fraud. This includes both debt securities and equity securities, which the SEC defines as:

“Any stock or similar security, certificate of interest or participation in any profit sharing agreement, preorganization certificate or subscription, transferable share, voting trust certificate or certificate of deposit for an equity security, limited partnership interest, interest in a joint venture, or certificate of interest in a business trust; any security future on any such security; or any security convertible, with or without consideration into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right; or any put, call, straddle, or other option or privilege of buying such a security from or selling such a security to another without being bound to do so.”

Thus, while many securities fraud cases focus on trading in corporate stocks, the definition of securities fraud is much broader than this. Corporations, corporate insiders, broker-dealers, investors, and other entities and individuals can face SEC investigations involving all types of securities—and the SEC regularly pursues investigations beyond the markets for exchange-traded and over-the-counter stocks.

To prove securities fraud, federal prosecutors generally must establish six key elements. These elements are: (i) a material misrepresentation or omission, (ii) a transaction related to the material misrepresentation or omission, (iii) knowledge of the illegal conduct, (iv) third-party detrimental reliance, (v) economic loss, and (vi) causation linked to the third-party’s reliance. However, while these are the basic elements of a federal securities fraud case, securities fraud can take many different forms; and, some specific forms of securities fraud (i.e., insider trading) involve different elements of proof.

The SEC is the federal agency that is primarily responsible for investigating securities fraud. However, the Federal Bureau of Investigation (FBI) has jurisdiction over securities fraud cases as well, and the SEC and FBI regularly work alongside the U.S. Department of Justice (DOJ) to build cases for criminal prosecution. State securities regulators may conduct or participate in securities fraud investigations as well. When securities fraud investigations implicate other areas of federal law (i.e., consumer protections or income tax), agencies such as the Federal Trade Commission (FTC) and Internal Revenue Service Criminal Investigations (IRS CI) may also get involved.

Securities fraud is a federal crime in many cases. If the DOJ can prove that a corporate insider, broker-dealer, or other target acted intentionally or knowingly to defraud or deceive investors, then it can pursue criminal charges under the Securities Act of 1933, the Securities Exchange Act of 1934, and other pertinent federal laws. In many cases, the DOJ will target multiple entities and individuals by alleging their participation in a broadscale criminal securities fraud conspiracy.

Yes, securities fraud is considered a type of white-collar crime. This is true in cases targeting corporations, corporate insiders, and broker-dealers as well as cases targeting family members, investors, and other individuals. As a white-collar crime, securities fraud is a serious federal offense, and a conviction can lead to substantial penalties.

Along with federal imprisonment, criminal securities fraud also carries significant fines. In most cases, these fines are up to $5 million for individuals and up to $25 million for corporations. But, depending on the specific allegations involved and the number of alleged violations at issue, targeted individuals and entities can potentially face tens of millions, if not hundreds of millions, of dollars in potential criminal liability.

Securities fraud has become a top federal law enforcement priority in recent years. This is attributable to both a rise in securities fraud and the growing number of securities being made available to retail investors. The SEC regularly conducts both formal and informal investigations, and it offers substantial rewards to whistleblowers who come forward with information about securities fraud. The SEC, FBI, and DOJ all regularly issue press releases touting their efforts to combat securities fraud as well—and these efforts encompass all forms of securities fraud from insider trading and corporate disclosure violations to broker-dealer account churning and embezzlement.