Stock fraud is a serious white collar crime that is frequently charged at the federal level. Depending on the circumstances, convictions can carry up to decades in prison and huge criminal fines. Worse, because the laws and regulations defining stock fraud are deliberately written in vague ways to cover novel fraudulent techniques as they develop, defending against an allegation of stock fraud can be tricky.

The Criminal Defense Firm has experienced white collar defense lawyers who understand how to best defend against stock fraud charges in both state and federal court.

Brian J. Kuester

Former U.S. Attorney

Former DA

Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown

Former U.S. Attorney
& Former District Attorney

Local Counsel

John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Linda Julin McNamara

Former Chief, DOJ Appeals

Local Counsel

Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach

Former Special Agent (OIG)

Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

Stock Fraud: A White Collar Crime That Covers a Broad Range of Conduct

Stock fraud, also known as securities fraud or investment fraud, is the use of deception in the securities market in order to deceive investors into making transactions that benefit the actor. There are numerous ways of doing this. Just a few common examples of stock fraud include:

Pump-and-dump schemes
Ponzi schemes
Stock price manipulation
Omitting or falsifying information on filings with the U.S. Securities and Exchange Commission (SEC)
Accounting fraud
Spreading false information about a company in order to capitalize on the effects that the information has on the company’s stock
Churning an investment account in order to increase transaction fees
Lying to investors in order to obtain their investment in your company

Both individuals and companies can engage in stock fraud. Companies can even engage in stock fraud with their own securities or with those of its competitors.

Additionally, people who did not even engage in any fraudulent behavior can still get accused of conspiracy to commit stock fraud if they are a part of an agreement to perpetrate stock fraud and there is an overt act in furtherance of that agreement.

Understanding the Process of Stock Fraud Investigations

Stock fraud investigations involve the SEC, which takes a crucial role in uncovering fraudulent activities and subsequently initiating legal action. Federal agencies, such as the Federal Bureau of Investigation (FBI), often look for illegal activity in unsolicited offers or tactics employed by fraudsters to deceive innocent investors or act on tips generated by allegedly defrauded investors. These deceptive offers or tactics are often accompanied by requests for investment or personal information from the fraudster. These key elements are what federal agencies focus on during their investigations into potential stock fraud cases.

The SEC frequently collaborates with other federal entities like the FBI or the Department of Justice (DOJ) in cases involving criminal securities fraud. This collaboration generally entails sharing information about a company, leading to potential civil and criminal charges and stiff penalties.

If evidence of criminality is uncovered, the SEC will often let the DOJ or the FBI spearhead the prosecution. However, if there is no evidence of an intent to defraud, the SEC will often keep its leading role in the investigation and pursue civil or administrative sanctions against the suspect.

At the federal level, legislation strictly prohibits any scheme or act intended to defraud individuals or fraudulently obtain money from them. Individuals or companies facing charges related to stock fraud can face severe consequences, including significant criminal penalties, permanent injunctions, disgorgement of unlawfully acquired profits, imprisonment, and damage to their reputation.

The individuals or companies charged with stock fraud can be held accountable for multiple violations under various statutes and SEC regulations, such as Rule 10b-5. Moreover, state laws also play a role in combating stock fraud, with each state having its own securities commission responsible for prosecuting such cases. However, it is common for stock fraud investigations to be treated as federal offenses.

Administrative, Civil, and Criminal Penalties are Possible

Importantly, stock fraud can be pursued as a criminal, civil, or administrative offense.

Administrative cases are for relatively minor offenses. The SEC will hear the case completely within the agency, and the penalties for a finding of guilt are confined to the powers that the SEC has the authority to provide, like revoking a broker-dealer’s certification to trade securities.

Civil cases are more serious and go through the court system. However, while they carry significant financial repercussions, such as disgorgement and restitution payments, they do not carry the potential for prison time. With that said, though, law enforcement does not have to prove that you had the necessary intent to defraud. Merely negligent conduct is sufficient for a finding of liability for a civil stock fraud case.

Criminal cases of stock fraud carry the risk of imprisonment, in addition to the administrative and civil penalties. However, convictions require evidence of a specific intent to defraud others.

How to Respond to a Stock Fraud Charge

If you or your company has been accused, indicted, or formally charged with stock fraud, your next steps will be extremely important.

First and foremost, you need skilled legal representation from lawyers with experience handling these types of white collar offenses. Financial crimes like stock fraud are very different from other types of criminal offenses, like manslaughter or domestic violence. The evidence is often very well documented and there is little reliance on what witnesses saw or heard.

Secondly, it is rarely a good move to say anything to investigators, even if you have not formally been charged with stock fraud yet. Whenever law enforcement agents want to interview you, you should remember that they know a lot more about what they want than you do. While you may only be a collateral person in an investigation into someone else, even that does not mean that you are immune from liability. Even if you are not the target of an investigation, what you say can make you become a target very quickly. The best way to make an informed decision about what to do and what to say is to hire a defense lawyer as soon as you can.

Frequently Asked Questions About Stock Fraud Defense and The Criminal Defense Firm

While stock fraud is limited to stocks, which are one of the many types of securities, these three terms are often used interchangeably. They all relate to the use of fraud or deceit to unlawfully take money from investors.

Every case is unique. In some cases, establishing that you lacked the necessary intent to commit the crime of stock fraud may be your only option. In others, better alternatives may exist.

However, relying solely on the lack of intent strategy is dangerous because stock fraud can be prosecuted in criminal court or pursued as a civil offense. An intent to defraud is only a required element of the crime of stock fraud. You can still be held civilly liable for stock fraud if you did not intend to defraud anyone.

This is very important because the only things different about a criminal conviction and a civil judgment for stock fraud are the prison sentence and the penalties that come with having a criminal history: Many of the financial penalties remain, including disgorgement, paying restitution, and often paying a fine, as well.

Furthermore, it is not uncommon for law enforcement to pursue criminal charges for stock fraud only to drop them to civil allegations once they realize that they likely do not have sufficient to prove an intent to defraud. If your lack of intent is the only defense, then you have no defense for the subsequent civil case.

The Criminal Defense Firm stands out from other white collar crime defense firms in a variety of ways. One of the most important, though, is the fact that we only employ senior attorneys at our firm, many of whom only came to The Criminal Defense Firm after long careers as investigators and prosecutors within some of the same federal law enforcement agencies that generally handle stock fraud allegations, like the Department of Justice (DOJ) or the Securities and Exchange Commission (SEC).

This means that you can expect several things from us that you cannot expect from other firms in the area.

First, it means that you can rest assured that, when you contact The Criminal Defense Firm, you will speak directly with a senior lawyer. We only have senior lawyers on our staff; not even any legal secretaries to forward your message up the chain of command. There will be no communication breakdowns at The Criminal Defense Firm.

Second, it means that none of your legal work is done by a junior associate or even a paralegal. We only have senior lawyers on staff to handle your case.

Finally, it means that your case is handled by the lawyers whose experience drew you to the firm. We do not delegate it to less experienced attorneys because we do not have any.

Because it means more when our prior clients leave testimonials to that effect than if we say it about ourselves.