Federal securities fraud is a high-stakes white-collar crime investigated by agencies like the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Bureau of Investigation (FBI).

Under 18 U.S.C. § 1348, established under the Sarbanes-Oxley Act, it is a federal offense to intentionally defraud an individual or obtain money or property through false pretenses in connection with any security or commodity.

Whether you are a corporate executive, financial broker, accountant, or individual investor, facing a federal securities or commodities fraud investigation requires immediate legal intervention.

What Is Federal Securities and Commodities Fraud?

Under 18 U.S.C. § 1348, federal law criminalizes two distinct categories of behavior related to securities and commodities trading when executed or knowingly attempted:

• Defrauding Investors: Executing a scheme to defraud any person in connection with a commodity, futures, option, or security transaction.

• Obtaining Money by False Pretenses: Obtaining money or property by means of false representations, fraudulent promises, or material omissions relating to a commodity or security.

Covered Financial Instruments

• Securities: Corporate stocks, municipal bonds, banknotes, options, and investment contracts.

• Commodities: Physical goods and futures contracts traded on open markets, including oil, natural gas, gold, silver, and agricultural products.

Common Types of Federal Securities Fraud Schemes

Federal prosecutors aggressively pursue several common schemes under 18 U.S.C. § 1348:

• Insider Trading: Trading securities based on material, non-public information (MNPI) or tipping off external parties to trade on such information.

• Pump and Dump Schemes: Spreading false or misleading information to artificially inflate a stock's price ("pumping") before selling off held shares at the higher price ("dumping").

• Churning: A breach of fiduciary duty where a broker executes excessive trades on a client's account primarily to generate additional commissions.

• Accounting Fraud: Falsifying corporate financial records, balance sheets, or earnings reports to misrepresent assets and inflate stock value.

• Boiler Room Tactics: Using high-pressure sales calls, deceptive tactics, or misrepresentations to push low-value or speculative penny stocks onto investors.

Federal Penalties for Securities Fraud Convictions

The consequences of a federal securities or commodities fraud conviction under 18 U.S.C. § 1348 are severe:

Legal Defenses Against 18 U.S.C. § 1348 Charges

Defending against a federal securities fraud charge requires countering the complex financial evidence compiled by federal prosecutors. Key defense strategies include:

• Lack of Intent (No Mens Rea): Prosecutors must prove beyond a reasonable doubt that you acted with specific fraudulent intent. Honest mistakes, good-faith business decisions, or reliance on bad advice do not constitute criminal fraud.

• Good-Faith Business Judgment: Demonstrating that commercial representations were made in good faith based on the best information available at the time.

• Lack of Materiality: Proving that the misstatement or omission was insignificant and would not reasonably influence an investor's decision.

• Insufficient Evidence / Causation: Showing that investor financial losses were caused by general market volatility or independent economic factors rather than alleged misstatements.

Frequently Asked Questions (FAQs)

What is the difference between SEC civil enforcement and federal criminal charges?

The SEC handles civil enforcement and can impose fines, disgorgement of assets, and professional bans. The U.S. Department of Justice (DOJ) prosecutes criminal charges under 18 U.S.C. § 1348, which can result in federal prison sentences and criminal fines.

Can an individual who is not a stockbroker be charged with securities fraud?

Yes. 18 U.S.C. § 1348 applies to anyone involved in buying, selling, or advising on securities or commodities—including corporate employees, accountants, independent traders, or individuals sharing non-public tips.

What should I do if I receive an SEC subpoena or target letter from the DOJ?

Do not speak to federal agents or investigators without legal counsel present. Contact an experienced federal criminal defense attorney immediately to safeguard your rights, manage communications, and begin building a defense.

How does the government detect securities fraud?

The SEC's Division of Enforcement utilizes advanced algorithms, automated market surveillance tools, and whistleblower tips to detect abnormal trading patterns, unusual volume spikes, and social-media-driven market manipulation.

Can securities fraud charges be resolved without going to trial?

Yes. An experienced federal defense lawyer can often negotiate with U.S. Attorneys to seek dropped charges, reduced counts, or pre-trial resolution agreements depending on the strength of the evidence.

Eisner Gorin LLP can help you. Schedule your consultation by calling (818) 781-1570 or by using the contact form. Our law firm is based in Los Angeles.

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