What a securities lawyer has to say about securities fraud penalties and sentencing

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Investments or securities come in various. It can be corporate stocks, municipal bonds, investment contracts, banknotes, and more. But there are risks in the investments mainly due to wrong guidance or advice of investment agents. Willful misrepresentation of facts is a ploy of financial advisors, brokers, and other agents of the industry. They want to dupe investors by luring them with high returns from investment in a short time. Investment frauds or securities frauds are severe white-collar crimes that can attract penalties and sentencing depending on the nature of the crime. Investors who become victims of securities fraud can seek legal protection by consulting a security fraud attorney. The attorney can take up the case and sue the fraudster for misconduct and violation of the laws to protect the rights of investors and restore financial security.

Securities fraud arise from buying, selling, and trading securities that can happen due to misrepresentation that misleads investors with wrong information about a company or its stocks and leads to a wrong investment decision that results in losses. Accounting fraud is another form of securities fraud and consists of falsifying or manipulating accounting records to give a wrong picture of the assets and liabilities of a public company. It had happened in the most well-known case of the collapse of Enron in 2001. Insider trading is the third type of securities fraud that involves trading in securities (buying or selling) based on information that is not available to the general public.

The laws

Federal and state laws apply to securities fraud, and violations of federal security laws are serious offenses that can lead to civil as well as criminal penalties. Private investors and government agencies like the US Securities and Exchange Commission can take legal actions against any fraudulent act by individuals and organizations. Felony convictions can result from criminal investigations that carry a penalty of imprisonment up to 20 years. Also, the imposition of civil fines by the National Association of Security Dealers (NASD) and the Securities and Exchange Commission (SEC) against individuals and companies is a possibility.

Federal and State Laws

The Securities and Exchange Commission (SEC) are the ears and eyes of the Federal government that is responsible for prosecuting securities fraud. In addition to the Federal laws, each state has its Security laws and state security commission in the mold of SEC. Although Securities fraud crimes are punishable under the state or federal laws, in the majority cases, these are federal crimes.

Trading in stocks

There are possibilities of security fraud when an organization or company issues stock or some other security. It can also happen when someone involved in the trading of a security or buying or selling engages in some fraudulent act. Prosecution of security fraud cases happens per the Securities Act of 1933 as well as the Securities Exchange Act of 1934, which are both federal laws. These are the primary laws that come into force and numerous related regulations and laws that also apply.

The intention of making profit

There are many ways of committing security frauds, and even though making a profit from the activity is the motive behind any fraud. You can also be guilty of fraud if you do not make any profit from the activity. Engaging in a fraudulent activity with the intention of making profit is enough to implicate you in the crime even if you do not make any profit from it.

Federal regulations

The Securities Act of 1933 revolves around companies issuing securities, and the Securities Exchange Act of 1934 encompasses the trading, buying, and selling of securities. The laws authorize the Security and Exchange Commission (SEC) to act as a regulatory agency for ensuring compliance with the laws in activities related to securities by monitoring and issuing regulatory controls.  

The Sarbanes Oxley Act of 2002 (SOX) and the Private Securities Litigation Reform Act are also relevant to the securities industry and used for claims related to securities fraud. SOX establishes penalties for violating the laws related to buying, selling, and trading in securities, which can go up to 20 years imprisonment.


Anyone convicted in securities fraud can face significant penalties. It can be in the form of civil penalties such as fines and license restrictions, as well as criminal penalties like fines and spending time in jail.

Fines – Fines can be very high for securities fraud, but the amount depends on the circumstances of the case. For example, fines for a person involved in insider trading can be as high as $5 million while it can be $10,000 or more for other types of violations like misrepresentation and churning.

Prison sentence – Incarceration or imprisonment can result from a conviction in securities fraud. Every offense of committing federal securities fraud crime can lead to 5 years in federal prison. The sentence can prolong depending on the number of offenses committed.

Probation – Securities frauds can lead to probation as a penalty, especially if there is only a single offense committed. Or also if the offenses despite violating the law do not culminate in any financial loss. Probation for a term of 5 years is the usual norm even though it can last for several years. During the period of probation, the probationer must daily report to probation monitor and fulfill the conditions imposed by the court. The conditions can be submitting to drug testing, not committing more crimes, and paying all restitution and fines.

Restitution – The court may order restitution as part of the sentence. Securities fraud often involves not only investors but also clients, employees, and others who suffer financial loss. When a person faces conviction for securities fraud, he or she must make good for the losses suffered by the affected parties due to the fraudulent activity by regularly paying the restitution amount decided by the court. The restitution is over and above the fines payable.

Securities fraud is a crime that involves extensive government investigations and complicated facts and can attract stiff fines and lengthy jail sentences. Being convicted in a securities fraud case can have severely damaging effects on a person’s life and permanently change the future.