What to know about securities fraud

| Jun 16, 2021 | Criminal Defense |

White-collar crimes in San Jose, California, are typically not violent; they include financial schemes with the intent to defraud. The term derives from the most common offenders being people who work in financial sectors. An example of white-collar crime is securities fraud, a serious crime that comes with stiff penalties.

Securities fraud overview

Securities means a form of investment, such as stocks, bonds and commodities, and fraud commonly refers to schemes involving these investments. The Securities and Exchange Commission, which arose from the Securities and Exchange Act of 1934, oversees these investment opportunities. The offender often lures potential investors into making purchases they may not otherwise buy based on omission, misrepresentation, and hyped or false statements.

For example, a Ponzi scheme promises a high return by investing money at little risk. It seems like the scheme is working, but the early investors get paid with the money from later investors. In a pump-and-dump scheme, a scammer hypes stocks by misrepresentation to increase prices and then sells them at the inflated price.

Proving securities fraud

In a securities fraud case, prosecutors must prove several elements to convict the defendant. Some cases require proof that the investor relied on false or hyped statements to make a reasonable purchase. Reliance needs direct or indirect evidence, such as a statement or press release that the investor used to make decisions.

An element of wrongdoing also needs to exist, which means the defendant knowingly and willingly deceived the investor, causing financial loss. For example, a scammer may knowingly omit that a company has been under government investigation or misrepresent company revenue.

Securities fraud penalties typically include incarceration, restitution and hefty fines, but the prosecution can make mistakes. The defense lawyer of a person charged with securities fraud may use some common strategies, such as asserting entrapment or absence of intent, to avoid a conviction.