Securities fraud encompasses a large body of law at the state and federal level. Few people know that it is a felony, in the state of Texas, pursuant to Art. 581-29 of the Texas Securities Act which states in pertinent part as follows:

“Any person who shall:

A. Sell, offer for sale or delivery, solicit subscriptions or orders for, dispose of, invite offers for, or who shall deal in any other manner in any security or securities without being a registered dealer or agent as in this Act provided shall be deemed guilty of a felony, and upon conviction thereof shall be sentenced to pay a fine of not more than $5,000 or imprisonment in the penitentiary for not less than two or more than 10 years, or by both such fine and imprisonment.

B. Sell, offer for sale or delivery, solicit subscriptions to and orders for, dispose of, invite orders for, or who shall deal in any other manner in any security or securities issued after September 6, 1955, unless said security or securities have been registered or granted a permit as provided in Section 7 of this Act, shall be deemed guilty of a felony, and upon conviction thereof shall be sentenced to pay a fine of not more than $5,000 or imprisonment in the penitentiary for not less than two or more than 10 years, or by both such fine and imprisonment.

C. In connection with the sale, offering for sale or delivery of, the purchase, offer to purchase, invitation of offers to purchase, invitations of offers to sell, or dealing in any other manner in any security or securities, whether or not the transaction or security is exempt under Section 5 or 6 of this Act, directly or indirectly: (1) engage in any fraud or fraudulent practice; (2) employ any device, scheme, or artifice to defraud; (3) knowingly make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or (4) engage in any act, practice or course of business which operates or will operate as a fraud or deceit upon any person, is guilty of a felony and upon conviction thereof shall be: (a) imprisoned for not less than two or more than 10 years and fined not more than $10,000, if the amount involved in the offense is less than $10,000; (b) imprisoned for not less than 2 or more than 20 years and fined not more than $10,000, if the amount involved in the offense is $10,000 or more but less than $100,000; or (c) imprisoned for life or for not less than 5 or more than 99 years and fined not more than $10,000, if the amount involved is $100,000 or more.”

There are numerous acts that could be considered securities fraud, and below are some examples of the types of conduct that will draw scrutiny from the regulators, including the U.S. Securities & Exchange Commission (the “SEC”) and/or the Texas Securities Board:

  • Misrepresentation (or omissions of material facts) to investors
  • Insider trading and pump and dump schemes
  • Failure to conduct the business plan as promised to investors
  • Misuse or misappropriation of proceeds raised
  • Hiding the true use of funds through manipulation of financial records
  • Grants of stock options to executives that are questionable
  • Pyramid schemes
  • Falsifying documents
  • Questionable timing of executive stock sales
  • Investment advisor misconduct
  • Unsuitable investments
  • Using offshore accounts to inflate reported assets
  • Embezzlement
  • Failure to abide by the securities laws
  • Filing false quarterly or annual reports
  • False press releases
  • Promise of exaggerated returns on investments

Obviously, there are other modes of conduct that could result in an indictment for securities fraud, but those above represent common acts that result in investigations and prosecutions. The SEC can freeze assets and will usually initiate an enforcement action. Other regulators, such as FINRA and foreign state commissioners can also begin enforcement actions. These actions become a blue print for illegal actions.

That action could be taken by the Department of Justice (DOJ), and in that case, an Assistant US Attorney is generally assigned to the case. One of the fundamental laws in place that provides the investigatory and prosecutorial power to the SEC and the DOJ is known as the Sarbanes-Oxley Act. Sarbanes-Oxley governs these situations in terms of enforcement and penalties. Additionally, most, if not all, of the various 50 states carry a felony statute for the commission of a securities violation.

Added to this is the concommitment threat of prosecution of mail and wire fraud by the Postal Inspector and it is easy to see how large the possible ramifications of these enforcement actions can be to an issuer, company, its officers, employees and directors and others in the “chain” of the wrongful action.

Some of these laws provide for enhanced sentencing based on the amounts fraudulently obtained and the number of victims, and the statute also provides for enhanced civil enforcement in order to force the convicted defendant to repay his or her victims as much as possible after the conviction. The primary Federal Securities Fraud Statute can be found at 18 U.S.C. §1348. The statute’s language is very broad and states that:

  • Whoever knowingly executes or attempts to execute a scheme or artifice;
  • To defraud any person in connection with any security; or
  • To obtain money or property by means of false or fraudulent pretenses, representations or promises, is guilty of securities fraud.

A person convicted of Securities Fraud could face up to 25 years in prison, substantial fines, and severe civil sanctions and penalties as well. There is no discharge in bankruptcy for securities fraud. The Spencer Law Firm is well experienced in working with these kinds of cases. The Spencer Law Firm has organized and structured responses to criminal investigations by the Texas Securities Board, United States Justice Department, the Internal Revenue Service, the Harris County District Attorney, the New York District Attorney, the Florida Insurance Commission, foreign state commissions, and regulatory issues through FINRA, (formerly NYSE and NASD) and SEC in regards to securities fraud allegations and felonies against representative clients.

The Spencer Law firm has been lead counsel in developing Wells Submissions and response strategy for clients involved in alleged violations of the Securities Act of 1933, as amended and Securities Exchange Act of 1934 and other charges by the SEC.

The firm has represented individuals in prosecutory investigations and indictments for security fraud as to brokers and brokerage firms on behalf of plaintiff/clients at the local, state and national level, responded to FINRA investigation for broker dealer institutional clients and individuals, coordinated defense and appeal on constitutional issues for criminal insurance regulatory and statutory violations.

The Spencer Law Firm has represented clients in banking and insurance fraud matters, involving civil RICO, mail fraud, wire fraud and conspiracy, embezzlement, insider trading, pump and dump schemes, bank document manipulation and many other matters.

If you are involved in a potential or ongoing issue related to this topic, do not hesitate to contact us today at our toll-free number: (888) 237-4529.