We Can Help You Fight Charges of Stock Fraud

We are a premier criminal defense firm focusing on white-collar investigations and complex criminal cases involving charges of stock fraud and market manipulation.

Our securities litigation team represents public and private companies, officers, directors, employees, investment advisors, broker-dealers, and futures and securities traders who have been accused of securities fraud, conspiracy, and market manipulation.

If you have been charged with any of the crimes listed below or are currently under investigation, do not hesitate to call us today for a consultation.

Federal Laws Regulating the Securities Industry

A federal securities fraud offense includes violation of the following statutes:

  • The Securities Act of 1933;
  • The Securities Exchange Act of 1934;
  • The Trust Indenture Act of 1939;
  • The Investment Company Act of 1940;
  • The Investment Advisers Act of 1940;
  • The Foreign Corrupt Practices Act of 1977; or
  • 2010 Dodd-Frank Wall Street Reform Consumer Protection Act.

Basically, these statutes prohibit any “scheme or artifice” to defraud a person or fraudulently obtain money, in connection with securities or commodities trading.

A “scheme” or “artifice” to defraud involves a plan that will ultimately deprive another person of their right to tangible property—like money—or even intangible rights of honest services.” 1

Tangible Property, Like Money” v. “Intangible Rights of Honest Services”

Originally, stock fraud and mail and wire fraud statutes were applied strictly to schemes to defraud victims of “tangible property, including money.”

Then, in 1988, this narrow interpretation was expanded to include the criminalization of schemes to defraud people of their “intangible right of honest services.”

Types of Securities Fraud:

Compliance Corner:

Federal Agencies Who Investigate and Report Accusations of Stock Fraud

Financial markets in the U.S. are generally regulated by two government bodies:

  • the Securities and Exchange Commission (“SEC”); and
  • the Commodity Futures Trading Commission (“CFTC”).

While the SEC and CFTC have similar goals, they regulate different markets.

The SEC focuses its regulation on stocks and bond markets.

While the CFTC regulates derivative markets of commodities.

Additional regulatory and enforcement bodies include:

  • Financial Industry Regulatory Authority (FINRA):
  • National Futures Association (NFA)
  • Treasury Department’s Bureau of the Public Debt
  • Federal Reserve Banks
  • Self-regulatory organizations (“SRO”)

Each of these agencies plays a specific role in the detection, investigation, and reporting cases of fraud in the U.S. financial markets.

Civil penalties can include an injunction to prevent you from continuing trading, forfeiture of your assets, fines, and a permanent bar from the industry.

Prosecution by the Department of Justice

In addition to facing civil penalties from agencies like the SEC and CFTC, you may also face criminal charges brought by the Department of Justice (“DOJ”).

Although it may seem unfair to be penalized twice for the same act, the SEC is entitled to refer matters to state and federal prosecutors at the DOJ for criminal prosecution.

Defending against these types of cases involves a sophisticated strategy considering the outcome and evidence collected in the first case with the SEC will undoubtedly influence your second case with the DOJ.

5 Best Defenses to Securities Fraud

  1. You did not intend to manipulate the market.
  2. You did not have knowledge of the alleged “scheme” you’re accused of being a part of–therefore you did not knowingly commit a fraud on the market.
  3. The statements you made were not false.
  4. The statements you made were not misleading.
  5. If the statements were false or misleading, they were not material.

6 Elements Needed to Prove a Claim of Securities Fraud

In order to prove a claim of fraud under 10b-5 of the Securities Exchange Act of 1934, prosecutors must prove six elements:

  1. Material Misrepresentation(“active lie”)/Omission(“passive lie”) – The first step in a 10b-5 claim is proving that an individual engaged in an an “active lie,” like a false representation or material misrepresentation, or a “passive lie,” like having knowledge about a material fact and not telling anyone.
  2. Scienter – “Scienter” is the state of mind prosecutors are required to prove in individual had in order to convict them of fraud.  Basically, “scienter” refers to the mental intent to deceive.  This element is needed to distinguish fraud from negligence.
  3. In connection – In order to be convicted of fraud under 10b-5, prosecutors must prove that the fraud was carried out “in connection with” the buying or selling of a security.
  4. Reliance – In order for an individual to prove a claim of fraud, they must have actually believed the lie.  There is rebuttable presumption of reliance in cases of 10b-5 fraud.
  5. Economic Loss – This is the easiest element to prove and basically requires a simple calculation.  For example, if a broker lies and says, “that stock is going to $100, so you should buy it at $50”, and then the stock goes down to $20, an investor would have a $30 dollar “economic loss.”  In these cases, damages for “pain and suffering” are not allowed.
  6. Loss Causation – The last element a defendant must prove is that the stock brokers fraud was the reason for their loss.

Arbitration of Customer Disputes

FINRA conducts arbitrations over customer disputes pursuant to FINRA rules.

These rules and arbitrations are subject to SEC oversight.

Below are three (3) of the most commonly cited FINRA rules used in arbitration:

  • 2010 – Commercial Honor and Principle of Fair Equitable Trade:
    • Imposes a duty to act honorably (reasonable/honest) in a commercial transaction
    • Execute trades in a reasonable time/manner
    • Dealing with clients must be fair in doing transactions for them (no front running!).
    • Must be honest with clients
    • Equitable fairness – Who called first?
    • Can still be used after 10b
  • 2090 – “Know Your Customer” Rule:
    • Any individual (broker) in doing a transaction before doing so must take reasonable steps to know the customer:
      • Financial Resources
      • Financial Capabilities
      • Overall financial situation
      • Tolerance for risk
  • 2111 – “Suitability” Rule:
    • This rule states that a broker cannot recommend a transaction unless it suites the customer’s needs.
    • The statute follows a reasonable person standard in determining if the transaction suitable for the investor at the moment the trade was made.


Helping Executives and Traders Establish a Defense

How does a prosecutor tell the difference between an ordinary offer and cancellation and a criminal offer and cancellation?  They can’t.

It all comes down to the interpretation of your trade data.

Prosecutors only see one side of the story when looking at your trade data.

A good securities fraud attorney would show the other side of that story.

Prosecutors will focus only on the trade confirmations in front of them.

During the investigation, prosecutors will use a close-minded approach to analyzing your trade data.  This approach may ignore all of the things you consider when trading.

Prosecutors may not consider things like market outlook, risk aversion, margins, or earnings.

Our lawyers understand that sometimes, trading involves somewhat intuitive market strategies like estimating how the markets will respond in the future, responding to the conditions of the market, and drawing conclusions based on experimental results.

Prosecutors will downplay these intuitive trading strategies and, instead, highlight specific trades which evidence “market manipulation,” or “fraud on the market.”

New Securities Offerings – 17 CFR 242.105 – (Rule 105)

Going public is special time and new offerings present special opportunities and incentives for market manipulation.

Whether it’s propping up the price of the initial offering or stabilizing the market price to avoid a failing offering, there are many ways people can influence the market.

If your company in considering going public, review rules limiting market participation during offerings. See 17 CFR 242.105 – (Rule 105).

High Profile Accusations of Stock Fraud

  • Bitcoin, Jamie Dimon, and JPMorgan Chase

One year ago, in September of 2017, Jamie Dimon, CEO of JPMorgan Chase, was accused of market manipulation for “spreading false and misleading information” about bitcoin.

The claims of market manipulation were based on statements made by Mr. Dimon about the fact that he considered bitcoin a “fraud, which is good only for murderers and drug dealers.”

The issue was that, both before and after Mr. Dimon made these statements, JPMorgan was engaged in trading bitcoin derivatives for its clients on a Stockholm-based Nasdaq Nordic exchange.

Critics claimed Dimon’s public assertions affected the interests of his clients and many young businesses.

They took issue with the “double standard” of calling bitcoin a fraud, and at the same time, allowing his company to execute bitcoin derivative trades.

Dissemination of misleading information–even if it may not have seemed so at the time– may be considered fraudulent.

If it is likely to influence another trader in the market, it’s enough to be considered market manipulation.

If you knew, or should have known that the information was false or misleading, you could be facing fines of up to $1,000,000, imprisonment for up to 10 years, or both.

  • Executives of Electronic Game Card Company Charged with Fraud

In 2012, Electronic Game Card Inc. (EGMI) was charged with stock fraud for allegedly lying to investors about having millions of dollars in revenue, investments, and offshore accounts.

Unfortunately, the company did not have the contracts, the revenue, or the bank accounts to back up these statements.

As a result, the company went bankrupt, and angry investors sued.

The SEC also charged the company’s independent auditor for recklessly issuing clean audit opinions about the company.

Later, the replacement CEO was also charged for providing false information during conference calls with analysts and investors.

Work With an Experienced Stock Fraud Attorney

All issuers of securities, participants in the market, and market intermediaries can be charged with crimes related to stock fraud. If your words or actions influenced the market–directly or indirectly–you may be charged with market manipulation.

Our lawyers have successfully handled criminal cases and investigations brought by the DOJ, SEC, and U.S. District Attorney’s Offices.

We have also handled internal investigations involving financial crimes, price fixing, fraud and conspiracy.

If you have been charged with any of the crimes listed below or are currently under investigation, do not hesitate to call us today for a consultation.