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Defending Federal Securities Fraud Charges

Posted by Dmitry Gorin | Mar 26, 2021 | 0 Comments

The federal securities law defined under 18 U.S.C. § 1348 was formed after the mail fraud and wire fraud statutes which makes it a federal crime to defraud someone related to a security, or obtain money or property using false pretenses.

Allegations of securities fraud are typically sought against individuals, corporations, and securities brokers.

A “security” is a type of financial instrument where somebody makes an investment in order to earn returns. There are many ways to make money in securities and commodities trading.

Defending Federal Securities Fraud Charges

Still, if you don't follow federal regulations of the Securities Exchange Act, you could be charged with a federal securities crime and face large fines and several years in prison.

These charges don't apply only to investment brokers, either. Anyone who trades in commodities could commit securities fraud.

If you think you might be under federal investigation for the of securities and commodities fraud, you will need to consult with an experienced legal team to let you know what your options are.

Our federal criminal defense attorneys are providing more detailed information below.

What Is Federal Securities Fraud?

Under 18 U.S.C. § 1348, it's a federal crime to defraud or attempt to defraud anyone with a connection to a security or commodity. A security is a type of investment and may include:

  • banknotes,
  • corporate stocks,
  • investment contracts,
  • municipal bonds,
  • investment contracts.


A commodity is a good traded on the open market, such as grains, beef, gold, oil, and natural gas. Investors can buy and sell options on commodities, which allows them to buy or sell at a specific price at a future date.

What Is Federal Securities Fraud?

When someone involved with securities and commodities, such as a broker or investor, lies or cheats in an attempt to gain a financial advantage, they could be charged with federal securities and commodities fraud.

Two categories of behavior

18 U.S.C. § 1348 prohibits two categories of behavior that are related to securities and commodities trading when they execute, or knowing attempt to execute an illegal scheme.

The first is to defraud someone in connection with a commodities transaction, options transaction, or securities transaction.

The second category is to obtain money by false or fraudulent pretenses, representations, or promises related with a commodity or securities transaction.

This federal statute only criminalizes fraud related to buying and selling financial instruments, such as securities, futures, or options contracts for commodities.

Types of Federal Securities Fraud

Several types of actions or schemes may constitute securities fraud.

  • Insider trading: When an employee of a company, or someone associated with the company, has non-public knowledge and uses it to buy or sell a security to make a profit, it's insider trading. If you have information about your company that you reveal to a friend, who's not affiliated with the company but uses the information to trade securities, it's still insider trading.
  • “Pump and dump”: A pump and dump occurs when a broker or investor intentionally spreads misinformation about a security to entice others to buy, thus artificially inflating the price so they can sell it and make a profit. Getting others to buy is “pumping” up the price, and selling it afterward is “dumping.”
  • Churning: Churning is when a broker convinces a client to trade excessively to generate more fees and commissions for the broker. Churning is failing to act in the client's best interest, which brokers have a legal obligation to do as fiduciaries.
  • Misrepresentation: Attempting to manipulate the value of a security so you can profit from it later by making false statements is misrepresentation. An example might be a broker giving an interview to a reporter and knowingly giving false information to benefit from the anticipated effect on the stock.
  • Accounting fraud: When an accountant falsifies a company's accounts to misrepresent assets and liabilities and affect the value of securities, it's securities fraud.
  • Boiler rooms: A boiler room refers to brokers pressuring investors or using deceptive sales tactics to get investors to buy “penny stocks” or low-value investments.

What Are the Penalties for Federal Securities and Commodities Fraud?

A conviction of a federal securities crime could land you 25 years in prison or a fine. The amount of the fine varies depending on the nature of your case.

Insider trading could result in a $5 million fine; other types of securities fraud could carry a $10,000 fine.

Probation might also be a possible penalty if there was only one instance of fraud or there was no financial loss.

Since securities fraud usually results in a monetary loss for the victim, the court may also order you to pay restitution.

How Can I Fight a Federal Securities Fraud Charge?

It's possible to fight a federal securities fraud charge, but you need an experienced federal defense attorney by your side.

The federal government has plenty of resources at its disposal to build a case against you.

Often, the government gathers evidence of your suspected securities fraud without informing you. By the time you know that you're involved, the government may have already stockpiled evidence against you.

How Can I Fight a Federal Securities Fraud Charge?

We will guide you through the federal investigative and court process while providing legal advice on protecting your rights and developing a strategy for the best possible outcome.

We know how federal investigations are conducted and how to build effective defenses to fight federal securities fraud charges.

A federal prosecutor has to be able to prove you intentionally misinterpreted information that caused investors to sustain a financial loss.

Perhaps we can argue the loss was not a result of the information relied upon by the investor, or that you did not act in a negligent manner.

Going up against the federal government alone in this situation would be unwise and overwhelming.

If you are under a criminal investigation, or already indicted for securities and commodities fraud defined under 18 U.S.C. § 1348 or 1349, call our federal criminal defense attorneys for an initial consultation.

Eisner Gorin LLP is a nationally recognized criminal defense law firm representing clients nationwide against any type of federal crime.

Contact our firm to review the details of your case at (877) 781-1570.

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About the Author

Dmitry Gorin

Dmitry Gorin is a licensed attorney, who has been involved in criminal trial work and pretrial litigation since 1994. Before becoming partner in Eisner Gorin LLP, Mr. Gorin was a Senior Deputy District Attorney in Los Angeles Courts for more than ten years. As a criminal tri...


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