Federal Penalties for Securities Fraud Can Include Substantial Fines and Long-Term Imprisonment
- While securities fraud is a “white-collar” crime, the penalties for securities fraud are comparable to other serious federal offenses.
- Securities fraud offenses can be prosecuted under the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, and various other federal statutes.
- In addition to criminal prosecution, securities fraud can also lead to civil or administrative prosecution by the U.S. Department of Justice (DOJ) or the U.S. Securities and Exchange Commission (SEC).
- In many cases, individuals charged with securities fraud will face multiple counts of multiple statutory violations, with each count carrying a substantial fine and term of imprisonment.
- Spodek Law Group represents corporate executives, brokers, advisors, and other individuals facing all types of securities fraud allegations.
While many people believe that white-collar defendants who commit securities fraud will simply get a slap on the wrist, this is not the case. Although there are some high-profile cases in which individuals convicted of securities fraud have received relatively lenient sentences, this is by no means the norm. Federal prosecutors routinely pursue substantial fines and long-term imprisonment for individuals accused of securities fraud; and, as a result, the consequences of securities fraud allegations can go far beyond mere financial exposure.
5 Types of Federal White-Collar Offenses That Can Lead to Imprisonment for Securities Fraud
Several federal statutes establish civil and criminal liability for securities fraud. Each of these statutes carries significant penalties, and they are often used in conjunction to pursue maximum fines and long-term imprisonment. The following are all examples of securities law violations that can lead to prison time for corporate executives, brokers, advisors, and other individuals convicted of these offenses:
1. Violations of the Securities Act of 1933
Under the Securities Act of 1933, it is unlawful to “mak[e] any untrue statement of a material fact or omit[] to state a material fact . . . in connection with the offer or sale of any security.” This is a criminal offense that carries a maximum fine of $5,000 and up to five years of federal prison. Under 18 U.S.C. Section 3571, individuals convicted of criminal securities fraud under the Securities Act of 1933 can also be fined up to $250,000.
2. Violations of the Securities Exchange Act of 1934
The Securities Exchange Act of 1934 contains numerous provisions prohibiting securities fraud. Corporate executives and others convicted under the Securities Exchange Act of 1934 can face fines of up to $5,000,000 and up to 20 years of federal imprisonment. Broker-dealers and other “entities” can face fines of up to $25,000,000 per offense, along with other sanctions such as removal from public company oversight, suspension, and debarment.
3. Violations of the Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (SOX) extensively covers the civil and criminal consequences arising from securities fraud. For example, Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350) provides that:
“Whoever . . . (1) certifies any statement as set forth in [Section 906] knowing that the periodic report accompanying the statement does not comport with all the requirements set forth in this section shall be fined not more than $1,000,000 or imprisoned not more than 10 years, or both; or (2) willfully certifies any statement as set forth in [Section 906] knowing that the periodic report accompanying the statement does not comport with all the requirements set forth in this section shall be fined not more than $5,000,000, or imprisoned not more than 20 years, or both.”
Section 802 of the Sarbanes-Oxley Act also imposes a statutory maximum $5 million fine and 10 years of imprisonment for securities fraud offenses involving misleading, or failing to maintain, a public company’s financial records.
5. Conspiracy, Aiding and Abetting, and Attempted Securities Fraud
In addition to the substantive offenses listed above (i.e. fraud under the Securities Act of 1933 and the Securities Exchange Act of 1934), individuals can also face prosecution for conspiracy, aiding and abetting, and attempting to commit securities fraud. These are all serious offenses under federal law, and they can all carry substantial fines and long-term imprisonment.
In Addition to Federal Prison Time, Securities Fraud Can Have Various Other Consequences as Well
Along with federal prison time, securities fraud can have various other severe consequences as well. As a result, if you are under investigation for securities fraud, or if your company is under investigation and you are concerned that you could be targeted for prosecution, it is imperative that you speak with a federal defense lawyer as soon as possible. In addition to statutory fines, the other potential consequences of a securities fraud conviction include:
- Restitution – Federal judges will often order individuals convicted of securities fraud to pay restitution. This is intended to provide financial compensation to the parties injured by the offense(s) in question.
- Professional License Revocation – Professionals who are licensed by the Financial Industry Regulatory Authority (FINRA) and other licensing authorities can face professional license suspension or revocation as a result of a securities fraud conviction.
- Loss of Corporate Officer, Director, and Board Membership – Along with professional license revocation, individuals who are convicted of securities fraud offenses can be stripped of their corporate officer and director positions, and they can be barred from future board membership.
- Suspension and Debarment from Government Programs – Being convicted of securities fraud can also lead to suspension or debarment from government programs and contracts.
- Ineligibility for Federal Benefits and Voter Registration – Securities fraud can also lead to ineligibility for federal benefits such as social security, and the right to vote can be stripped as well.
FAQs: Defending Against Federal Securities Fraud Charges
What is the Securities Fraud Sentencing Guidelines range for fines and prison time?
The United States Sentencing Guidelines establish sentencing ranges for all federal criminal offenses, including securities fraud. The United States Sentencing Guidelines are not binding on the courts; but, nonetheless, most judges will look to the Sentencing Guidelines as a starting point during the sentencing phase in federal criminal cases. The Securities Fraud Sentencing Guidelines range is based upon the severity of the offense and the defendant’s criminal history, and it ranges from zero to six months to 17 to 20 years. Fines can range into the hundreds of thousands or millions of dollars, depending on the volume of the defendant’s illegal trading activity.
How do I know if I am in danger of being charged with securities fraud?
If you are aware that you are being targeted in an SEC investigation or DOJ investigation, your risk of facing securities fraud charges will depend on a number of factors. This includes the scope of the investigation, the information contained in the SEC’s or DOJ’s subpoenas, and the nature of your involvement in your company’s operations. To determine if you are at risk, you will need to engage experienced defense counsel to intervene in the government’s investigation and gain key insights on your behalf.
Why would the SEC or DOJ target me for securities fraud?
The DOJ heavily targets corporate executives and other individuals suspected of being involved in securities fraud, and the SEC routinely pursues civil enforcement actions against individuals as well. If you have engaged in high-volume trading on inside information, if your company is suspected of engaging in accounting fraud, or if you have personally traded on information that was not publicly available, these are all examples of circumstances in which you could find yourself at risk for civil or criminal prosecution.
How can I avoid going to jail for securities fraud?
To avoid going to jail for securities fraud, you will need to present a comprehensive and cohesive defense strategy designed to thoroughly challenge the government’s case. Whether you are facing charges under the Securities Act of 1933, Securities Exchange Act of 1934, Sarbanes-Oxley Act, Dodd-Frank, or any other statute, you will need a highly-experienced federal securities fraud defense lawyer who is intimately familiar with the U.S. Securities Fraud Sentencing Guidelines and who has a proven track record of helping clients avoid criminal prosecution and sentencing.
