Federal Securities Fraud – 18 U.S.C. § 1348

What Is Federal Securities Fraud?

Definition Under 18 U.S.C. § 1348

Federal securities fraud is defined under 18 U.S.C. § 1348, which makes it a crime to knowingly engage in schemes to defraud investors or obtain money or property in connection with securities or commodities using false or misleading representations. This law was introduced after corporate scandals such as Enron and WorldCom, ensuring that federal prosecutors had powerful tools to address securities fraud beyond existing securities regulations.

Legislative Intent Behind the Statute

The intent of 18 U.S.C. § 1348 was to strengthen the federal government’s ability to punish deceptive practices in the securities and commodities markets. Congress enacted it as part of the Sarbanes-Oxley Act of 2002, emphasizing the need for investor protection and market integrity.

Who Can Be Charged – Individuals and Corporate Entities

Both individuals and corporations can face prosecution. Executives, employees, brokers, accountants, or anyone who misleads investors or regulators may be charged, regardless of whether the fraud occurs in public or private markets.

Scope and Applications of 18 U.S.C. § 1348

Fraud in Connection with Securities or Commodities

The statute applies to fraudulent acts tied to securities, such as stocks and bonds, as well as commodities, including oil, gas, or agricultural products.

Applicability in Public vs. Private Markets

Fraudulent activity does not need to occur on a significant exchange. Misrepresentations in private securities offerings, hedge funds, or commodities trading platforms may still trigger federal prosecution.

Overlap with SEC Rules and Other Federal Laws

While the SEC enforces civil securities regulations, 18 U.S.C. § 1348 allows the Department of Justice to pursue criminal penalties. Often, defendants face both civil enforcement actions and criminal charges simultaneously.

Examples of Conduct Prosecuted as Securities Fraud

False or Misleading Public Disclosures

Providing inaccurate or incomplete information in financial reports, press releases, or public filings misleads investors and is frequently prosecuted.

Insider Trading and Breach of Fiduciary Duty

Using non-public information to trade securities or sharing it with others for personal gain falls within the scope of securities fraud.

Corporate Accounting Manipulations

Manipulating financial statements to inflate earnings or conceal losses can lead to both SEC sanctions and criminal liability.

Market Manipulation and High-Yield Investment Fraud

Schemes designed to artificially inflate stock prices or defraud investors with promises of unrealistic returns are aggressively prosecuted.

Federal Enforcement and Investigative Procedures

Agencies Involved – SEC, DOJ, FBI

The Securities and Exchange Commission (SEC) investigates potential violations, while the Department of Justice (DOJ) and Federal Bureau of Investigation (FBI) handle criminal prosecution and investigation.

Tools Used – Wiretaps, Financial Subpoenas, and Email Tracing

Federal investigators use sophisticated tools, including wiretaps, email monitoring, and subpoenas for trading records and financial statements, to build cases.

Parallel Civil and Criminal Proceedings

Defendants may face both SEC enforcement actions and DOJ criminal charges. Civil penalties often include fines, injunctions, and disgorgement, while criminal penalties can involve prison time.

Importance of Responding to Subpoenas and Target Letters

Ignoring subpoenas or failing to respond properly can worsen a case. Early legal intervention is critical to avoid escalation.

Penalties for Violating 18 U.S.C. § 1348

Federal Sentencing Guidelines – Prison Time and Fines

Convictions can carry up to 25 years in federal prison, along with substantial fines depending on the severity of the fraud and financial loss.

Civil Remedies – Disgorgement and Injunctions

Defendants may be ordered to return ill-gotten gains and comply with permanent injunctions limiting future financial activity.

Loss of SEC Registration or Professional Licenses

Professionals such as brokers, accountants, and executives risk losing professional licenses, effectively ending their careers.

Long-Term Consequences on Employment and Reputation

Beyond legal penalties, a conviction can permanently damage reputations, making it difficult to secure future employment in any industry.

Key Defenses to Securities Fraud Allegations

Lack of Intent or Knowledge

Prosecutors must prove intent. If false statements were made without fraudulent intent, this may form a defense.

Non-Material Misstatement or Omissions

If the alleged misrepresentation was not material to investor decision-making, it may not meet the threshold for fraud.

Good Faith Reliance on Counsel or Advisors

Defendants may argue they relied on the advice of lawyers, accountants, or compliance professionals in good faith.

Constitutional and Procedural Violations

Improper searches, seizures, or violations of due process may result in suppression of evidence or dismissal of charges.

Role of a Federal Securities Fraud Defense Attorney

Navigating Federal Investigations and Regulatory Hearings

A federal securities fraud defense attorney provides guidance during investigations, helping clients respond to inquiries without self-incrimination.

Evaluating Financial and Digital Evidence

Defense attorneys analyze complex financial records and digital evidence to challenge government claims.

Building a Pretrial Strategy to Avoid Indictment

In some cases, legal counsel can persuade prosecutors not to indict or can negotiate favorable pre-indictment resolutions.

Defense at Trial or Negotiation for Settlement

If a trial is unavoidable, experienced attorneys present expert testimony and challenge the prosecution’s evidence. Alternatively, they negotiate settlements to reduce penalties.

How DCD LAW Defends Clients Facing Securities Fraud Charges

Deep Experience in Federal White-Collar Cases

At DCD LAW, our legal team focuses exclusively on criminal defense, including complex federal financial crimes like securities fraud.

Defense Strategies Focused on Dismissal or Reduction

We carefully review the government’s evidence, identifying weaknesses that can lead to dismissal, reduction of charges, or favorable plea deals.

Collaboration with Financial Experts and Investigators

We work with forensic accountants and industry experts to analyze the accuracy of financial records and challenge prosecution claims.

Discreet and Aggressive Representation

Clients facing securities fraud charges often worry about reputational damage. At DCD LAW, we provide discreet yet aggressive defense tailored to protecting both freedom and reputation.