Introduction to Securities and Commodities Fraud

The securities and commodities markets are cornerstones of the United States economy. Generations of American corporations and investors rely on these markets to generate income, which leads to an opportunity for fraud, abuse, and misrepresentation about these markets.

Currently, there is a considerable propensity for securities and commodities fraud and the potential to create a substantial financial windfall from these frauds.

Therefore, the Federal Bureau of Investigation (FBI) and other federal agencies aggressively investigate reports or suspicion a securities and commodities fraud. Anyone active in investments, brokerage firms, investment banking, and securities trading are at a higher risk for charges of securities and commodities fraud.

What Is Securities and Commodities Fraud?

Securities fraud is any occurrence of an intentionally false, misleading, or fraudulent statement about the stock of a company or its value. Based on this false information, another person makes decisions about securities or commodities trading.

These actions are also referred to as stock fraud or investment fraud. Instances of this category of securities and commodities fraud occur through:

  • Ponzi schemes,
  • Pyramid schemes,
  • Foreign currency fraud,
  • High yield investment fraud,
  • Advance fee schemes,
  • Broker embezzlement,
  • Late day trading, and
  • Foreign currency fraud.

Insider Trading As Securities Fraud

Another type of securities and commodities fraud is insider trading. Unlike, fraud through false or misleading statements, insider trading relies on the improper use of accurate information.

A great deal of information about a corporation’s financial and trading status is confidential. It is illegal to use this confidential information to make trading and investment decisions.

When confidential information is released by an executive and acted on for stocks, bonds, or commodities, this is insider trading.

Federal Laws against Securities and Commodities Fraud

Several different federal statutes regulate the stock and commodities markets. The two main set of laws were passed back in 1933 and 1934.

The Securities Act of 1933 provides the rules for trading and dispersal of information. This includes how investors receive information about trading decisions and public companies and prohibit deceit, misrepresentation, and false statements in trading. It also sets the requirements for the registration of securities.

The Securities Exchange Act of 1934 created the most powerful federal agency in securities and stock trading.

The Securities and Exchange Commission has authority over every part of the securities and commodities market, including the major players in the stock market – brokers, hedge funds, transfer agents, clearing agencies, and trading commissions.

What Laws Criminalize Securities and Commodities Fraud?

The federal criminalization of securities and commodities fraud is found in the provisions at 18 U.S. Code § 1348. This statute makes it a crime for any person to create and execute a scheme or artifice to defraud another person involved in securities trading. For example, a broker may falsify information to encourage investors to buy stock in a failing company.

Under 18 U.S. Code § 1348, it is also a crime to use false for fraudulent pretenses to obtain money or property in connection with the purchase or sale of any commodity.

Risk of Accusations of Securities and Commodities Fraud

It is essential to take proactive steps to protect yourself from investigation and accusations of securities and commodities fraud. In particular, brokers, hedge fund managers, traders, corporate executives, and investment bankers are at high risk of investigation for securities fraud.

Some of the ways to prevent an investigation or stop an investigation in the early stages are:

  • Create and implement specific processes for trading and follow any legally necessary procedures for making a trade;
  • Be detailed in documentation and ensure that any instances of deviation from required procedures; and
  • Speak with a securities and trading lawyer regarding any rules or regulations that are unclear to your staff and other employees.

First Steps After the Start of an Investigation

When proactive measures to prevent investigation of securities and commodities fraud aren’t adequate, you need to react to the charges immediately. Both time and attention to detail are vital to avoid an audit or investigation from becoming a criminal matter. As well, your choice of federal defense lawyer can have a significant impact on the outcome of an investigation.

  • Unless you are subpoenaed to testify or give evidence by the federal government, you shouldn’t speak to a federal investigator or prosecutor without your defense lawyer present.
  • Often, white collar crimes, like securities and commodities fraud, are document intensive and require a great deal of paper evidence. This makes the cases difficult to prosecute, and you aren’t required to hand over any documentation or information, except when law enforcement has a warrant.
  • Always share a subpoena or warrant for records and documents with your federal defense lawyer. You are not required to provide any information not specifically requested and before you provide documents or testify, you should understand the parameters of the requests.

A successful defense to charges of investment fraud, securities fraud, or commodities fraud relies on how quickly you obtain a skilled and knowledgeable defense lawyer. This lawyer should be familiar with the federal securities laws and the specifics of a federal securities fraud investigation.

Learn more about the top securities and commodities fraud lawyers.