The Securities and Exchange Commission (SEC) is an administrative agency with extensive powers to monitor, investigate, and file civil enforcement actions in federal court or commence administrative proceedings against parties that violate federal securities laws. While the enforcement tools and penalties available to the SEC are powerful, it is not authorized to bring criminal charges against any individual or corporate entity.
However, the SEC often works hand-in-hand with the Department of Justice, collaborating with the FBI and federal prosecutors who are authorized to obtain grand jury indictments against those whom the SEC refers to DOJ for criminal prosecution. To ensure the cooperation between the two agencies is complete, the SEC will lend its attorneys to the DOJ to work as a member of the U.S. Attorney’s prosecution team.
What Power Does the SEC Have?
Even without the independent authority to bring criminal charges against a person or a company the SEC believes violated the law, the punitive power the SEC does possess is immense.
Disgorgement: One of the powers the SEC does have is the ability to order “disgorgement” as a part of a civil penalty. Disgorgement is an order to return the “ill-gotten gains” a party received through its wrongful conduct. As an example, in May 2022, the SEC filed a complaint in the U.S. District Court in Manhattan alleging an investment firm defrauded its investors of billions of dollars through a series of falsified disclosures. The SEC obtained an agreement from one company to disgorge $315.2 million in wrongfully obtained profits, pay $34 million in prejudgment interest, and pay a civil penalty of $675 million.
The belief that the SEC has no teeth because it lacks the power to bring criminal charges is demonstrably untrue.
Injunctive Relief: In addition to the crippling financial penalties the SEC can and does impose, it also seeks enforceable court orders restraining the defendant from repeating any securities violation and frequently bars defendants from engaging in professional securities activities for extended periods, perhaps even permanently.
To obtain an injunction against a party, the SEC must present a prima facie case of a securities violation and evidence that the violation is likely to occur in the future.
The combination of disgorgement and an injunction, along with massive fines, can destroy the professional and civic life of any party against whom these penalties are imposed. Add to that the prospect of a corresponding criminal prosecution brought by the DOJ at the SEC’s request, and the conclusion must be that the SEC enforcement powers are as muscular and forceful as any government agency.
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Criminal Referral by the SEC to the DOJ
When the SEC does make a referral to the DOJ for a criminal prosecution, the DOJ performs its own analysis of the evidence and can investigate the facts and the parties according to its own procedures, whether the SEC approves or disapproves. In practice, however, the SEC and the FBI work cooperatively, sharing information and data that advances the interests of the government.
Fighting against these joint agencies with their access to unlimited investigatory resources requires a highly skilled securities law defense attorney with extensive experience defending the crimes routinely filed in these cases.
Frequently Occurring Criminal Charges
The criminal charges most frequently included in SEC-related federal indictments are the following:
Mail and/or Wire Fraud:
Whenever someone communicates through means of either the U.S. Postal Service or a commercial carrier like UPS or FedEx, they become subject to prosecution for the federal crime of mail fraud.
The elements the government must prove beyond a reasonable doubt to convict a Mail Fraud defendant are these:
- having devised or intending to devise a scheme to defraud (or to perform specified fraudulent acts), and
- use of the mail for the purpose of executing, or attempting to execute, the scheme (or specified fraudulent acts).
Similarly, to win a conviction against a defendant charged with Wire Fraud, the government must prove these elements beyond a reasonable doubt:
- having devised or intending to devise a scheme to defraud (or to perform specified fraudulent acts), and
- the use of an interstate telephone call or electronic communication made in furtherance of the scheme.ii
Mail Fraud and Wire Fraud each carry penalties including up to 20 years in federal prison and a fine for each count, and each separate communication can constitute a single count.
Securities and Commodities Fraud:
A criminal indictment for Securities Fraud can be brought against anyone who executes, attempts to execute or conspires to execute a scheme to defraud another person with respect to any security or commodity registered under or required to file a report under the Securities and Exchange Act of 1934, or who obtains money or by false or fraudulent pretenses in relation to such financial instruments.
The federal statute prohibiting securities fraud carries a penalty of up to 25 years in federal prison, in addition to a fine.
Money Laundering: Laundering money is a crime for which an indictment can be issued when someone obtains money from criminal activity and conducts or attempts to conduct a financial transaction with the proceeds. Any attempt to move the criminal proceeds to disguise their nature or obscure their origin is also money laundering.
The federal law provides for a criminal penalty of up to 20 years in prison and a fine of either $500,000 or two times the value of the laundered money, whichever is greater.
Insider Trading: This offense can be committed by anyone who has access to information not publicly known about the condition of a publicly traded company or events relating to the prospective value of the company’s shares and acts to benefit from that information by trading or conspiring to trade on the inside information.
Criminal penalties for insider trading include up to 20 years in prison and a $5 million fine.
Defending Securities Related Criminal Indictments
Despite the power of the federal government to bring unlimited resources to bear against a defendant charged with securities-related crimes, qualified criminal defense lawyers with experience defending white-collar crimes can successfully defend against indictments.
Each of the federal crimes described above cannot be proven beyond a reasonable doubt unless the government can establish the defendant had a specific intent to defraud or deceive. But defendants get indicted even when they may never have had such intentions.
- The evidence may reveal that the defendant mistakenly believed the allegedly deceptive statements.
- The allegedly deceptive information may not be false.
- The defendant reasonably relied on what they believe to be a diligent, robust process in which a disclosure document was drafted, reviewed, and approved.
If you need to consult with an experienced securities-related criminal defense lawyer, contact Stechschulte Nell, Attorneys at Law today at 813-280-1244.
