Understanding 18 U.S.C. § 1348
Federal securities fraud is one of the most aggressively prosecuted white-collar offenses in the United States.
Codified under 18 U.S.C. § 1348, this statute criminalizes deceptive conduct connected to the purchase or sale of securities.
Because securities fraud charges often carry lengthy prison exposure, substantial fines, forfeiture, and lifelong professional consequences, understanding the legal elements of the offense is critical.
Prosecutors must prove every element beyond a reasonable doubt, and failure on any single element can result in dismissal or acquittal.
The federal criminal defense lawyers at Eisner Gorin LLP can represent you in cases involving allegations of securities fraud. You can contact us at 818-781-1570 for a case evaluation.
What Is Federal Securities Fraud?
Under 18 U.S.C. § 1348, it is a federal crime to knowingly execute, or attempt to execute, a scheme to defraud:
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Any person in connection with a security or commodity, or
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To obtain money or property through false or fraudulent pretenses, representations, or promises
The statute applies broadly to securities regulated under the Securities Exchange Act of 1934, including stocks, bonds, notes, and many investment contracts.
The Elements Prosecutors Must Prove
To secure a conviction for federal securities fraud, the government must prove each of the following elements beyond a reasonable doubt.
1. A Scheme or Artifice to Defraud
The prosecution must establish that a scheme to defraud existed. This means more than poor judgment, negligence, or a failed business venture.
A scheme to defraud involves:
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A plan or course of conduct
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Designed to deceive or cheat
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For the purpose of obtaining money or property
The scheme may be simple or complex, but it must involve deception, not mere incompetence.
2. Fraudulent Intent (Scienter)
Intent—known legally as scienter—is often the most contested element.
The government must prove the defendant:
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Intended to deceive, manipulate, or defraud, or
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Acted with reckless disregard for the truth
Mistakes, negligence, or good-faith errors do not satisfy this requirement. Prosecutors must show the defendant knew the statements were false or misleading, or consciously ignored an obvious risk of deception.
3. A Material Misrepresentation or Omission
The prosecution must show the defendant made:
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A false statement, or
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A material omission (failure to disclose a necessary fact)
A fact is considered material if a reasonable investor would view it as important when deciding whether to buy, sell, or hold a security.
Non-actionable conduct includes:
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Puffery or sales talk
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Opinions or forward-looking statements (in many contexts)
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Trivial or immaterial inaccuracies
4. Connection to the Purchase or Sale of a Security
The fraudulent conduct must be directly connected to a securities transaction.
This element links the alleged misconduct to:
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Buying or selling securities
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Inducing investment decisions
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Market activity is regulated by the SEC
If the conduct is too attenuated from an actual securities transaction, this element may fail.
5. Use of Interstate Commerce
To establish federal jurisdiction, prosecutors must prove the scheme involved interstate commerce.
This requirement is broad and may be satisfied by:
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Emails
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Phone calls
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Wire transfers
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Internet communications
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Mailings across state lines
In practice, this element is often easily met.
Common Examples of Securities Fraud
Federal securities fraud charges frequently arise from allegations involving:
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Pump-and-dump schemes
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False financial statements
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Accounting manipulation
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Misleading investor disclosures
Each case turns on whether the government can prove the required elements, not merely whether losses occurred.
Defending Against Federal Securities Fraud Charges
An experienced federal defense attorney focuses on breaking the prosecution's proof at one or more elements.
Common defense strategies include:
Lack of Intent
Demonstrating good-faith belief, reliance on professionals, or absence of fraudulent intent.
No Material Misrepresentation
Showing the statements were accurate, immaterial, opinions, or non-actionable puffery.
No Scheme to Defraud
Arguing the conduct reflects business failure or negligence, not deception.
Advice of Counsel
If the defendant fully disclosed facts to counsel and relied on legal advice in good faith.
Why Early Legal Representation Matters
Securities fraud investigations often begin long before charges are filed, and they frequently involve parallel inquiries by the SEC and the Department of Justice.
Early intervention can:
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Prevent criminal referral
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Limit charges or counts
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Preserve critical defenses
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Reduce sentencing exposure
Statements made early—especially to investigators—can define the entire case.
Speak With a Federal Securities Fraud Defense Lawyer
Federal investigations into online securities fraud typically begin with market surveillance by the SEC's Division of Enforcement, which uses algorithmic tools to detect unusual trading patterns linked to social media activity.
If you are under investigation or facing allegations of securities fraud, the stakes are extraordinarily high. A proactive defense strategy is essential.
Several defenses apply in federal asset forfeiture cases, such as a lack of connection between the property and the alleged criminal conduct, and illegal search and seizure.
Contact Eisner Gorin LLP in Los Angeles at 818-1781-1570 for experienced representation in federal securities fraud cases and complex white-collar prosecutions.
