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Securities Fraud

Federal Offense of Securities and Commodities Fraud – 18 U.S.C. § 1348

Federal securities fraud 18 U.S.C. § 1348 is a serious federal fraud crime that can result in severe legal consequences and you should never attempt to navigate the complex federal criminal justice system without experienced legal representation.

Criminal accusations of federal securities fraud can be pursued against individuals, corporations, securities brokers, financial analysts and even a government agency.

The federal securities statute described under 18 U.S.C. § 1348 is patterned after the mail fraud and wire fraud statutes, and states it's a federal crime defraud anyone in connection with a security or commodity, or to obtain any money or property from the purchase or sale a security, by using means of false or fraudulent pretenses, representations, or promises.

The Securities Exchange Act of 1934 governs trading of stocks and bonds in the United States and the law was established by the Securities and Exchange Commission (SEC), which is responsible for enforcing the federal securities law.

18 U.S.C. § 1348 provides harsh criminal penalties for a federal securities and commodities fraud conviction. In general terms, a “security” is a financial instrument where someone or an entity makes an investment seeking to earn returns.

A security includes various investments, such as bank notes, corporate stocks, municipal bonds, investment contracts, among others. If someone is involved with one of these securities and accused of cheating, stealing, or lying in an attempt to gain a financial advantage, they could be charged 18 U.S.C. § 1348 federal securities fraud.

Commodities are goods that are traded on the open market, like gold, wheat, oil, and many others. An investor will frequently offer to buy and sell options or futures on a commodity.

This is a contract allowing an investor to either buy or sell the commodity at a specific price in the future.  It should be noted that buying and selling securities and commodities contracts is crucial to the stability of our economy and global markets.

To give readers a better understanding of securities fraud laws, our federal criminal defense lawyers are providing an overview below.

Types of Federal Securities Fraud Schemes

There are many different types of behavior that could be considered a federal securities fraud offense, but the most common forms are insider trading, churning, misrepresentation, pump and dump, accounting fraud, and outsider trading.

Insider Trading 

Insider trading involves trading a public company's stocks or securities by someone with access to information publicly available. It's unlawful due to the facts it's unfair to investors who don't have access to this information.


Churning is a scheme of buying and selling an excessive amount of stock to generating commissions for the stockbroker at the expense of client profits. The broker must have control over the investment decisions of their customer's account.


Misrepresentation occurs when someone makes an attempt to manipulate the value of a security by knowingly making false statements or representations about the security to other people with the intent to make a profit from the effect of the misrepresentation.

Pump and Dump

This normally occurs when cold-call telemarketers are able to convince people to buy questionable stocks with high-pressure sales techniques. This type of activity can generate enough demand to “pump” up share prices. After the stock achieves a desired price, it will be sold, or “dumped,” for a substantial profit, leaving investors with a loss.

Accounting Fraud

Accounting fraud occurs when an accountant manipulates or falsifies a public company's financial records with intent to misrepresent the assets and liabilities.

Outsider Trading

Outsider trading is prosecuted by the SEC due to data breaches after the hacking of a financial system database. In other words, the primary target are people who unlawfully hack into corporations to get information not available to the public.

Securities fraud also includes acts of theft from investors, embezzlement, abusive short selling, Ponzi schemes, cryptocurrency crimes, or even lying to a corporate auditor.

18 U.S.C. § 1348 Criminalizes Two Categories of Behavior

Due to the complicated nature of the securities and commodities market, there are many opportunities for fraudulent behavior that attempts to take advantage of an investor.

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

The first category is defrauding anyone in connection with a commodities transaction, options transaction, or a securities transaction. The second category is obtaining of any money by false or fraudulent pretenses, representations, or promises connected with a commodity or securities transaction.

It should be noted this statute only criminalizes fraud in the context of the buying and selling financial instruments, which includes securities, futures, or options contracts for commodities. Both categories of behavior are of course related, but distinct, and punishable under 18 U.S.C. § 1348.

It should be noted that under 18 U.S.C. § 1348, you can be charged and convicted of federal securities fraud even in a situation where you never made a profit from the fraudulent activity.

In other words, just engaging in fraudulent activity with intent to profit is sufficient for a federal securities fraud offense.

In addition, depending on circumstances of the case, you could also face criminal charges of wire fraud, mail fraud, or conspiracy to commit a securities fraud, if another person was involved. 18 U.S. Code 1346 defines the related crime of honest services fraud.

Penalties for 18 U.S.C. § 1348 Securities Fraud Conviction

A federal securities fraud conviction under 18 U.S.C. § 1348 is punishable by up to 25 years in a federal prison and a fine.

18 U.S.C. § 1349 states that an attempt or conspiracy to commit a securities fraud violation can also be punished in the same way as a violation of 18 U.S.C. § 1348.

However, it should be noted the actual sentence imposed will always vary depending on the application of the United States Sentencing Guidelines, and other relevant factors that are considered by the trial judge, who has significant sentencing discretion.

In all federal financial fraud crimes, such as securities fraud, calculating the total loss amount will significantly impact the actual sentence imposed in the vast majority of cases.

It should be noted the Sentencing Guidelines define a loss as intended, rather than the actual loss, but there are some federal court judges that have expressed concerns about the fairness of using this approach.

Defenses Against Securities Fraud Charges

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

We will guide you through the federal investigative and court process and provide legal advice on steps to protect your rights and start working a strategy to obtain the best possible outcome.

We understand how federal investigations operate, and how to develop effective defenses against securities fraud charges. A federal prosecutor must prove you intentionally misinterpreted information that caused investors to sustain a financial loss.

We might be able to make an argument the loss was not a result of the information relied upon by the investor. Likewise, we might be able to argue you didn't intentionally or negligently act, or were aware the information was false.

Getting our lawyers involved in the securities fraud case early in the process can make a huge difference on the outcome. We need to first closely examine the details of your case.

Eisner Gorin LLP is a top-ranked criminal defense law firm that represents clients nationwide against all type of federal crimes. We are located at 1875 Century Park E #705, Los Angeles, CA 90067. We also have an office in the San Fernando Valley area of LA County located at 14401 Sylvan St #112 Van Nuys, CA 91401. Contact us for a consultation at 877-781-1570.

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