Securities Fraud

• NCJ Number: 236280
• Journal: American Criminal Law Review Volume: 48 Issue: 2 Dated: Spring 2011 Pages: 1129-1200
• Author(s): Griffin Finan; Jeremy Hutcher; Jan Shanklin; Alexander P. Tanenbaum
• Date Published: 2011
• Length: 72 pages
• Publication Format: Article
• Publication Type: Legislation/Policy Description
• Language: English
• Country: United States of America

Annotation

This overview of Federal statutes that define and punish securities fraud addresses elements of, defenses to, enforcement mechanisms for, penalties prescribed in, and recent developments pertinent to securities-fraud statutes.

Abstract

Although there are seven Federal statutes that govern securities transactions, securities fraud is regulated primarily through the Securities Act of 1933 (1933 Act) and the Securities Exchange Act of 1934 (1934 Act). The 1933 Act and the 1934 Act target different markets, with the 1933 Act regulating the primary market, and the 1934 Act regulating the secondary market; however, the objective of both statutes is to ensure vigorous market competition by mandating full and fair disclosure of all material information in the marketplace. The key provisions used in criminal prosecutions of securities fraud are Rule 10b-5 and section 32(a) of the 1934 Act. Rule 10b-5 is the foundation for a securities fraud claim. Section 32(a) imposes criminal liability for willful violations of section 10(b) of the 1934 Act, the Securities and Exchange Commission's (SEC's) rules promulgated under that provision, and other provisions of the Act. Two main types of fraud may form the basis for securities violations: material misrepresentations, omissions, or both; and insider trading. Elements of these offenses are reviewed, followed by an overview of defenses to securities-fraud charges. The defenses outlined are classified under intent-based defenses, reliance-based defenses and defenses based on legitimacy of criminalization. The enforcement mechanisms described pertain to SEC enforcement and criminal violations. Prescribed penalties for securities fraud offenses are reported; and recent developments in the enforcement of securities-fraud legislation focuses on Internet securities fraud, the disclosure of information to the public, and executive stock options. 479 notes