Securities fraud, also known as investor or stock fraud, covers a range of activities that violate federal and state laws pertaining to buying, selling and trading securities. The most common forms of securities fraud include:
Securities fraud is governed by both federal and state laws,
and legal actions can be brought about by private investors or by a government
agency, such as the U.S. Securities and Exchange Commission. Violations of
federal securities laws are treated as serious offenses that can carry both
civil and criminal penalties. Criminal investigations can lead to felony
convictions that carry penalties of up to 20 years' imprisonment. In addition,
the Securities and Exchange Commission (
While state laws vary, federal securities laws include the
Securities Act of 1933, which addresses the issuance of securities by
companies, and the Securities Exchange Act of 1934, which governs the trading,
purchase and sale of securities. These laws authorize a government agency, the
Securities and Exchange Commission (
The Sarbanes-Oxley Act (SOX) was enacted by the U.S. federal government in 2002 in response to a number of major corporate scandals involving securities fraud, including those related to Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals cost investors billions of dollars when the share prices of the affected companies collapsed and shook public confidence in U.S. securities markets. The act contains 11 titles, or sections, which promote enhanced standards for all U.S. public companies as well as for the activities of company boards, management, and public accounting firms.
At the federal level, the SOX also establishes federal penalties for violations of laws pertaining to the buying, selling and trading of securities. Section 802 (a) of the SOX states:
Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.
Section 1107 of the SOX provides legal protection for those who report situations that may involve securities fraud. It states:
Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both.
If you believe you have been affected by securities fraud or may be involved in an investigation related to securities fraud, you should consult a qualified securities attorney for advice on the options available to you.