Securities Fraud

SECURITIES FRAUD refers to the criminal conduct of persons involved in the purchase and/or sales of stock shares in both publicly and privately held companies, as well as other financial instruments, including bonds and commodities. The word security refers to a monetary interest in a company, such as: an investment contract, voting trust certificate, options to purchases stock in a company, interest in oil, gas, water, or mineral rights; as well as stocks and bonds. Federal securities laws, primarily the Securities Act of 1933 and[Page 726] the Securities Exchange Act of 1934, regulate the conduct of both brokers and stock exchanges. Shares of publicly held companies are normally purchased and sold on one of several exchanges, including: the New York Stock Exchange (NYSE), NASDAQ which is operated by the National Association of Securities Dealers, Inc. (NASD) and handles many high technology stocks as well as “over the counter” (OTC) shares; and other smaller exchanges. Security fraud can involve the actions of individual stockbrokers, company officers, internal or external auditors, or joint efforts of multiple brokers at the same or different firms. Security fraud cases can result in both civil and criminal sanctions. In the early 2000s, due to downward stock market trends, an increase in security fraud allegations was noted; however, security fraud does not apply to all losses incurred in the stock market, only those with criminal actions attributable to persons involved in fraud.

Collusion to raise a stock's price can include false claims of breakthroughs.

Corporate tax evasion using offshore entities is a form of securities fraud.

Corporate debacles, such as Enron, cause share prices to plummet.

The crime of securities fraud was much publicized with the cases of Adelphia Communications, Enron, ImClone, Tyco, and WorldCom. Another noted case involved a 15-year-old from New Jersey who generated $285,000 in profits from a pump and dump scheme. Profits and greed are the drivers behind securities fraud as articulated by stock trader Ivan Boesky in his quote to the 1986 commencement address at the University of California, Berkeley: “Greed is all right, by the way … I think greed is healthy. You can be greedy and still feel good about yourself.” Specific security fraud crimes cases are delineated as follows.