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A Primer on Securities Fraud

Posted on in Criminal Defense

Wisconsin criminal defense attorney, Wisconsin defense lawyer, federal crimesWith an ever-growing number of public financial scandals, white collar criminal prosecutions are becoming a larger and larger part of the federal criminal caseload. Although white collar crime is a broad umbrella that can implicate many different kinds of activity, one of the most common white collar crimes is securities fraud. However, referring to securities fraud as a single crime is somewhat misleading. The statute that covers it actually uses it as an umbrella term for different types of fraud related to financial instruments. Two of the most important types of securities fraud are the misrepresentation of material information related to the security and insider trading.

Material Misrepresentations

One of the most common types of securities fraud is through material misrepresentations. The securities law makes it a federal crime to be dishonest about facts about a company that would be important to investors. Both people inside and outside of a company can run afoul of this law. From within the company, one of the most common ways to do it is through falsified filings. For instance, if a company inflates its earnings, reporting them as being higher than they actually are, then they could be charged with securities fraud, especially if the company later enters bankruptcy despite reporting strong profits.

People outside the company can also be charged for making material misrepresentations. This occurs commonly with regard to small companies in which the offender has an investment. The offender buys stock, disseminates false information about its earning to drive up the stock price, and then sells off their stock at the newly inflated price.

Insider Trading

Another commonly prosecuted type of securities fraud is insider trading. Unlike most fraud, this does not involve making dishonest statements, but is instead about abusing trust. A person commits insider trading when they buy or sell a company's stock based on “material, nonpublic information.” For instance, if a researcher at a pharmaceutical company knew that their new drug was going to be approved before the company actually announced it, they could be guilty of insider trading if they went out that day and bought stock in the company. However, people may be absolved of insider trading charges if their awareness of the information was not actually the reason for the sale, though that can be difficult to prove.

Insider trading cases can also involve instances where a person outside the company was given the information by a company insider. In those cases, both people could be guilty of insider trading, depending on the circumstances of the revelation.

Securities fraud prosecutions can lead to heavy fines and even prison sentences. If you are facing securities fraud charges, contact a skilled Milwaukee criminal defense attorney today to learn more about how to handle the situation.
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