Microcap Fraud Defense Lawyers

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Microcap fraud is a type of securities fraud. Because it involves small companies that are not obligated to disclose as much information as larger ones, it is very difficult to trace and therefore extremely prevalent. Paradoxically, precisely because it is so prevalent and difficult to trace, the U.S. Securities and Exchange Commission (SEC) takes great pains to seek it out and aggressively prosecute individuals and companies suspected of committing microcap fraud. This can put innocent people and entities at risk of suffering the severe penalties that come with a criminal conviction or civil judgment of fraud.

The securities fraud defense lawyers at The Criminal Defense Firm have protected numerous clients from these severe setbacks. Whether you are a small company whose microcap shares have been exploited by other bad actors or you have been accused of fraudulently using another company’s shares to commit microcap fraud, our team of senior lawyers can help.

Put our highly experienced team on your side

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Former DA

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney
& Former District Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

John W. Sellers
Linda Julin McNamara

Former Chief, DOJ Appeals

Local Counsel

Elizabeth Stepp
Elizabeth Stepp

Litigation Counsel

Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (OIG)

Timothy E. Allen
Timothy E. Allen

Former Senior Special Agent

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

David M. Bentz
David M. Bentz

Former U.S. Secret Service Agent

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

How Microcap Fraud Works

Microcap stocks are low-priced securities in small companies – generally defined as companies with less than $300 million in market capitalization – that are traded in the two over-the-counter (OTC) markets: The OTC Bulletin Board (OTCBB) and the OTC Markets Group, Inc. (often referred to as Pink Sheets). These companies have much less rigorous disclosure obligations with the SEC and other regulators – many do not need to file any financial reports with the SEC, at all. This makes microcap stocks especially vulnerable to fraudulent activities, for several reasons:

  1. There is less information for investors to use in order to make an informed investing decision or to spot fraudulent activity,
  2. The low costs for these microcap stocks – many of which fall into the definition of “penny stocks” – make performing due diligence before buying them less important for many investors,
  3. Investors are often more focused on buying a huge range of these stocks in the hopes that one of them will pay off, so they are less likely to care much if their investment is a loss,
  4. The odds that defrauded investors will pursue legal remedies or even report the fraud to the SEC after losing such a small investment are fairly low, and
  5. It is relatively easy to manipulate the market for such small companies, which do not have many assets or a large amount of securities on the market.

Altogether, these reasons make microcap securities a favorite for fraudsters. They use the lack of information that investors have in these stocks to spread misleading information about the company for their own benefit. Fraudsters can also fairly easily manipulate how a microcap stock performs on the market because their buying or selling power will have an outsized impact on the price. Finally, they are more likely to get away with their fraudulent conduct because, though the aggregate amount may still be considerable, individual victims generally do not lose very much.

A Common Example of Microcap Fraud

Microcap fraud can happen in several ways. However, a very common one combines two typical courses of conduct from general securities fraud:

  1. Spreading lies or misinformation about a company, and
  2. A pump-and-dump scheme.

First, the fraudsters pump up the price of a microcap stock by buying lots of shares. To avoid detection, they often do this over a long period of time to give it the appearance of a slowly-growing stock.

Then, the fraudsters will spread false information about the company to make other investors buy into it, often using unregulated media channels, like social media outlets, newsletters, or internet chatrooms. For example, if the microcap company is a nascent pharmaceutical company, they could get on Facebook and spread posts that the company is about to get FDA approval for a drug it is creating.

The goal is to get other investors to buy shares in the company, as well. Without much information about a microcap company, there is little that these investors can do to see through the misinformation that is being spread about it.

Once enough other investors have bought shares to elevate the price high enough, the fraudsters dump all of their shares at a profit and crash the stock’s price, leaving the defrauded investors with shares that are worth less than what they paid for them.

The Charges That You Could Face for Microcap Fraud

As a type of securities fraud, the criminal charges that suspects can face are severe. Federal law enforcement agencies often rely on the following charges to prosecute instances of microcap fraud:

  • Securities fraud under Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j) or its attendant regulation SEC Rule 10b-5 (17 C.F.R. § 240.10b-5), both of which broadly prohibit any fraudulent conduct in connection with securities trading
  • Securities fraud under Section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q), which mirrors Section 10(b)
  • Aiding and abetting fraudulent activity
  • Failing to register as a broker-dealer
  • Unregistered trading
  • Conspiracy to commit securities fraud

If pursued as a criminal offense, convictions can often carry:

  • Numerous years in prison
  • Criminal fines
  • Disgorgement, or paying back the funds that were obtained through the fraudulent behavior
  • Probation
  • Collateral consequences of a conviction like the loss of your broker’s license, if you have one

In order for prosecutors to convict you, though, they generally have to show that you acted with the specific intent of defrauding the victims of the scheme.

Not All Allegations of Microcap Fraud are Criminal in Nature

Just because there was no specific intent to defraud someone, though, does not mean that the SEC and other law enforcement agencies cannot take action against you. Knowingly, unintentionally, or even accidentally defrauding someone can still lead to legal liability.

In these cases, the SEC can pursue civil or administrative enforcement actions against suspects of microcap fraud. While these enforcement actions cannot lead to prison time, you would still face:

  • Professional repercussions, like a suspension or revocation of your license to buy and sell securities on behalf of clients
  • Huge civil fines
  • Forfeiture of profits obtained through the fraudulent conduct

Worse, the standard of proof that the SEC would have to meet is far lower in these enforcement actions. In civil cases, they often only have to prove their case by a preponderance of the evidence. In administrative cases, the SEC itself hears the evidence and makes a determination about your future entirely within the agency.

Some Frequently Asked Questions About Microcap Fraud and The Criminal Defense Firm

Who Can Get Accused of Committing Microcap Fraud?


Generally, there are two different types of people who can get accused of committing microcap fraud:


  1. Investors outside of the company

  2. Owners or insiders at the company



Nefarious investors often see microcap and other small companies as an opportunity to play with the market in ways they cannot do with larger ones. For example, a pump and dump scheme requires the up-front purchase of enough shares in the company that it makes the company’s share price rise. This does not take nearly as much to do when the company is a small one.

The microcap company’s insiders can also get accused of microcap fraud for using their insider information about the company to get ahead of other investors or for trying to inflate their company’s apparent value.

What are Some Red Flags of Microcap Fraud?


According to the SEC, there are several red flags that investors can use to spot microcap fraud. These can be useful for others to know if they want to make sure they do not attract SEC scrutiny for lawful conduct that might appear to be microcap fraud at first glance. The SEC’s red flags are:


  • Strange auditing issues

  • Odd use of footnotes in financial statements

  • Companies with lots of assets but small revenues

  • SEC trading suspensions

  • Spam communications

  • The company’s insiders own massive amounts of stock in the company


Can the SEC Pursue Criminal Charges Against Me for Microcap Fraud?


The SEC does not have the legal authority to pursue criminal charges. However, if its investigation uncovers what appears to be criminal activity, including microcap fraud, it can make a criminal referral to the U.S. Department of Justice (DOJ). Once made, the SEC will often stay involved in the case, helping DOJ prosecutors and investigators to build a case against you.

Why Doesn’t The Criminal Defense Firm Call Itself the Best at Defending Microcap Fraud Cases?


The short answer is that we prefer to let our prior client’s testimonials do that sort of talking for us.

The longer answer is that we are confident that our track record of successes both inside the courtroom and outside of it speaks for itself. Those past victories have been well-earned by the senior-level lawyers who make up the entirely of The Criminal Defense Firm’s staff.

The Criminal Defense Firm: Securities Fraud Defense Lawyers Who Handle Microcap Fraud Allegations

If you have been accused of committing microcap fraud or suspect that you are under investigation for doing so, then your future is at risk. Hiring a lawyer immediately is the best way to take matters into your own hands.

Call the experienced securities fraud defense attorneys at The Criminal Defense Firm at (866) 603-4540 or contact them online today.

Dallas 214-817-2053
Houston 713-454-7814
Detroit 313-634-0925
Baton Rouge 225-269-8749
New York 332-239-7345
Winter Park 407-890-0460
Miami 786-751-3247
Portland 207-222-7742
Nationwide 866-603-4540