Securities Fraud Investigations and Prosecutions

Regulation of the securities industry is very extensive here in the United States. This intense regulation sometimes leads to investigations by regulators who often work in tandem with the FBI and criminal prosecutors. This partnership between the Securities and Exchange Commission (the “SEC”) and federal prosecutors can later result in a criminal prosecution.

The Great Recession of the past few years has led to an explosion of securities investigations that turn into criminal prosecutions. Such investigations fall into a wide variety of fact patterns. One pattern is the well-known “Ponzi scheme.” The papers and TV regularly run stories about federal prosecutors making claims that a Ponzi scheme was a criminal enterprise. In these cases, investigators claims that the operator of an investment paid off unreasonably high returns to the earlier investors by using the money they got from later investors. Other times we see securities investigators who claim that someone was trading on inside information to buy or sell a stock or other investment. We also see situations sometimes referred to as a “pump and dump”, whereby investigators claim that somebody released false or misleading information in order to “pump” up the value of a stock, after which they “dumped” the stock when it reached unreasonably high levels in the market.

The SEC is the agency in charge or regulating the securities industry. Most investigations begin when the SEC either learns of on its own, or is told about, some alleged misdeed by some person or entity involved in the securities industry. Because regulated persons and entities are obligated to cooperate with the SEC (or else, risk losing their license), such persons and entities often turn to lawyers who are specialists in the securities business. These attorneys sometimes do not appreciate how there can be parallel investigations: one by the SEC, the other by federal criminal prosecutors. That is why it often is advisable to bring in a criminal defense specialist early on to decide if it really is worth the risk of having the client provide information to the SEC during the initial phases of a matter.

If the case is going to turn into a criminal matter, it usually involves a grand jury investigation. People involved in the securities field who are caught up in such an investigation need an attorney who is accustomed to handling federal prosecutors and their tactics at this early stage in a case. As mentioned previously, too often, securities professionals rely on lawyers who are well-versed in the substantive securities law, but who are unprepared to handle the criminal side of the investigation or prosecution.

The federal securities laws include their own set of criminal penalties. However, federal prosecutors rarely use the criminal securities statutes. Instead, the mail fraud, wire fraud and bank fraud laws are the normal method by which such prosecutions are brought into federal court. Money laundering allegations are also regularly included, which increases the potential penalties along with the possibility that the government will take most or all of the defendant's assets.

More and more, we find ourselves being called in to a criminal securities case after other lawyers have been handling the matter for some time. Often, these other lawyers are well-versed in the nuances of the securities laws, but have little or no experience doing criminal cases. It is always very challenging to try and help out when the client realizes all along that his or her favorite securities attorney probably could have used help early on from an experienced criminal lawyer who specializes in federal cases. Sometime, we are called in to try and help such cases before indictment, when we can make more of an impact. Other times, the client asks us to get involved later, to prepare for or actually handle the trial, sentencing hearing or, if it goes badly, the appeal.

At Kish & Lietz, we have handled the defense of a number of securities industry professionals. We are prepared to defend against investigations or prosecutions. If you face such a situation, please feel free to call us at (404) 588-3991 or contact us online.