The U.S. Securities and Exchange Commission (SEC) has made a point of stepping up its enforcement of federal securities laws in California, particularly in the area around Silicon Valley. With the number of startups in the area, including in San Jose, and the novel investment strategies that many of them have adopted over the last decade, the SEC has become increasingly wary of securities violations that put investors at financial risk.
As a result, the agency has taken more enforcement actions than usual, subjecting numerous innocent companies to intrusive investigations that sap their time and resources.
The SEC Enforces Several Federal Laws
There are a small handful of federal laws that the SEC is tasked with enforcing. The most important among them are the:
- Sarbanes-Oxley Act
- Securities Exchange Act of 1934
- Foreign Corrupt Practices Act (FCPA)
- Securities Act of 1933
- Dodd-Frank Act
However, many of these laws give the SEC the authority to promulgate regulations to facilitate their enforcement. Some of these regulations, like Rule 10b-5, have been used to drastically expand the reach of the SEC’s enforcement actions by defining securities fraud in extremely broad ways.
The Numerous Types of SEC Fraud
Because SEC fraud is so broadly defined, there are lots of types of conduct that can fall within its ambit. Nearly any type of intentionally deceitful or deceptive course of conduct related to the purchase or sale of securities can amount to securities fraud. Just a few common examples of these white collar crimes include:
- Selling unregistered securities
- Fraud related to fees charged
- Market manipulation
- Insider trading
- Mutual fund fraud
- Short selling abuse
The SEC fraud defense lawyers at The Criminal Defense Firm have handled all of these types of allegations as well as numerous others.
Selling Unregistered Securities
Selling securities in an issuer that have not been registered with the SEC, or that are not exempted from registration, can lead to allegations of unauthorized trading.
Broker-dealers can maximize the fees that they charge clients through several deceitful means, like:
- Account churning, where the broker-dealer makes securities transactions solely to charge higher fees, and not for their client’s financial benefit
- Breakpoint fraud, where the broker-dealer does not notify their client of the discounts for buying mutual fund securities over the breakpoint amount
- Not telling the client of fees associated with securities trading
- Using overly-complicated fee structures that are meant to deceive
A common way for shareholders and investors to try to maximize their profits is to take matters into their own hands and manipulate the market so their bets pan out. Just a few of the ways this can be done are through:
- A pump-and-dump scheme, where you bulk purchase a company’s stock, wait for the price to rise from your purchase and for other investors to buy in to ride the wave, and then sell your shares at the higher price
- Wash trading, where you buy and sell a company’s stock in rapid succession to increase the transaction volume and attract other investors
- Spreading false information about a company in which you are a shareholder
Using material but nonpublic information to trade securities is the crime of insider trading. Even if you are unrelated to the company whose securities are at issue, you can still be liable for this offense, as it is the information that has be from the “inside,” not the person doing the transaction.
Mutual Fund Fraud
Mutual funds are large accounts of numerous shareholders that are invested by fund managers. This makes them prime targets for fraudulent activity, such as:
- Omitting or misrepresenting information on the fund’s prospectus
- Front running, where a broker-dealer who knows of a mutual fund’s upcoming transaction gets ahead of it with their own transactions
- Late trading, where transactions are made after business hours, but recorded before the fund calculates its daily net asset value, using new information that was not available during the day
Short Selling Abuse
Shareholders can bet against the company they invest in by borrowing their shares, selling them to other investors, repurchasing them later on, and then returning them to their original owners. If the price falls between the time the shares were borrowed and then repurchased, the person making this type of transaction, known as a short sale, makes money.
However, short selling can be abused in ways that amount to fraud, such as:
- Naked short selling, where you have not borrowed the shares and are essentially selling nothing while operating as if you are a short seller
- Short and distort, where you short sell a company’s securities and then spread false information to reduce their value
Types of SEC Enforcement Actions
The SEC can pursue these types of fraud, as well as others, in three different ways:
- Criminal allegations
- Civil lawsuits
- Administrative sanctions
If the SEC investigation uncovers evidence of an intent to defraud someone, the agency can refer the case to the Department of Justice (DOJ) or the Federal Bureau of Investigation (FBI) for criminal charges. SEC agents will continue to assist in the investigation by accumulating evidence against you, but the DOJ or the FBI will actually prosecute the charges in federal court.
If the SEC finds significant violations of federal securities laws but not any evidence that the violations were intentional, the agency can pursue a civil case of SEC fraud.
Finally, administrative sanctions can be assessed for relatively low-level violations. Unlike the other two types of SEC enforcement actions, though, administrative claims are handled entirely within the SEC, itself. Some SEC agents will behave like prosecutors and urge the hearing officer to punish you, and that hearing officer will be a member of the SEC, as well.
Some Frequently Asked Questions About SEC Fraud and The Criminal Defense Firm
What are the Penalties of SEC Fraud?
The penalties of committing SEC fraud range anywhere from decades behind bars to some fines and a suspension of your certification to buy or sell securities. They will depend largely on how the SEC chooses to pursue its case against you.
If the SEC makes a criminal referral, you could face huge fines, disgorgement, and a lengthy prison sentence. SEC fraud has a tendency to lead to other counts of related offenses, such as mail or wire fraud, that themselves carry decades in prison.
If the SEC files a civil lawsuit for SEC fraud, instead, you can still face massive financial penalties. However, prison time will no longer be a possibility.
If the SEC decides to pursue an administrative claim, then they are limited to imposing fines and suspending or revoking your license to trade in the securities industry.
What SEC Office Operates in San Jose?
The SEC has numerous regional offices across the U.S. The one that has jurisdiction to investigate and prosecute cases in San Jose is the San Francisco regional office. This office also has jurisdiction over:
- Northern California
Why Should I Consider Hiring The Criminal Defense Firm?
Not only does The Criminal Defense Firm have extremely experienced lawyers on its staff, unlike other law firms it has no one else to delegate your case to.
These two things are among the most important things that set The Criminal Defense Firm apart from other SEC defense firms in San Jose.
First, all of our attorneys have extensive experience handling SEC fraud cases. Many of them only came to The Criminal Defense Firm after spending numerous years within the DOJ, FBI, or the SEC as prosecutors or investigators. That experience inside the very same agencies that are pursuing your case give The Criminal Defense Firm the ability to predict how they will move in the future, providing our defense lawyers the opportunities they need to set your case up for success.
Second, all of the people at The Criminal Defense Firm are experienced lawyers. This makes us very different from other law firms. Other law firms generally have one or two experienced lawyers and then dozens of junior associates and even more paralegals. It is not uncommon for clients to hire a law firm based on the experience of its partners, and then to see their case get delegated to a junior associate who has never handled a case like theirs before. That never happens at The Criminal Defense Firm because there is no one for our senior attorneys to delegate your case to.
Why Don't You Call The Criminal Defense Firm the Best SEC Fraud Defense Firm in San Jose?
We prefer to let our work and the testimonials of our prior clients do that sort of talking for us.
The Criminal Defense Firm: Protection From SEC Fraud Allegations in San Jose
If you or your company has been accused of securities fraud by the SEC, you need legal representation. The Criminal Defense Firm can help in San Jose. Contact us online or call our experienced white collar defense attorneys at (866) 603-4540.