Monday, December 05, 2016


Security Fraud as defined by Federal Statutes at 15 U.S.C., Section 78J(B) can surprisingly encompass a wide range of activities that one might not readily believe are criminal. In fact the statute is purposefully vague so as to be a catch-all clause that prevents fraudulent practices in general. Despite this under the harsh Federal Sentencing Guidelines a conviction for Security Fraud often results in many years of federal prison even when someone can prove that he did not know that his actions were unlawful as all that is required under the federal criminal code is that it be shown he acted willfully. 

Securities Fraud does not require
Knowledge it's Unlawful
The statute delineates that it's unlawful to "directly or indirectly ... use or employ in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance of such rules and regulations as the SEC may prescribe." 

So we go to the SEC to find Rule 10b-5 that forbids the following:
1. Using any scheme or artifice to defraud.
2. Making any untrue statement of material fact or omitting a necessary statement of material fact that would make the statement not misleading.
3. Engaging in any act practice or course of business that operates as a fraud or deceit to a person.

As you can see this is a poor way to circumscribe what the bad behavior actually is using such a broad stroke so Federal Courts have come into play to fill the gaps. Anyone with a fiduciary duty who fails to disclose germane information before a trade is made is likely liable as would someone who self deals. 

Courts have found that the statute encompasses the following activities: churning stock accounts, directed orders, wash sales, matched orders, rigged pricing, artificial markets, market manipulation, wooden tickets, parking and boxing in the stock. All of these practices are unlawful and therefore indictable offenses even if there's no actual monetary loss for the victim. Brokers are often at risk of being falsely accused of securities fraud (or of grand theft and scheme to defraud with huge loss amounts in the state courts of Florida) just because the alleged victim lost money on a known transaction that happened to go wrong. 

However, where there is a monetary loss that loss amount will be used in federal guideline calculations at sentencing and presented to the Court by the federal probation officer who writes the Presentencing Report. The relevant Sentencing Guidelines for Security Fraud are found at Section 2B1.1 (fraud) and 2B1.4 (insider trading). These provisions provide that the dollar amount of the alleged fraud will be the chief driver for sentencing. To find the best possible results in these complicated fraud cases it's important to contact as early as possible a Federal criminal defense lawyer who is well versed in the federal courtrooms of the Middle District of Florida.

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