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Many people do not fully understand what securities fraud is and often think it is purely the domain of greedy bankers and top financiers. However, securities fraud very often affects small- and medium-sized business owners who are trying to raise capital for their business, or an employee following his/her boss’s directions.
Generally speaking, a security is a document issued to investors to finance a business venture. These can include stocks, bonds or any certificate or document that attests ownership of a property or equity in a business.
Securities fraud is a very complex area of law and refers to a range of fraudulent behaviors. One, for example, is the selling of unqualified securities. If you intend to sell securities in California, you need to have them qualified by the California Department of Corporations. This process involves extensive paperwork, including disclosures about the company issuing the securities. If the prosecutor proves that you failed to complete this paperwork, you may face serious criminal penalties, including jail time.
Current securities fraud law in California comes mostly from the California Corporate Securities Law of 1968 and the penalties can be very tough. Securities fraud crimes in California are ‘wobblers’, which means that they may be prosecuted as either misdemeanors or felonies depending on the facts of the case and the defendant’s criminal history, if any. If you are convicted of securities crimes in California, you can face large fines and even imprisonment.
One of the most common form of securities fraud is insider trading, which occurs when someone who is privy to information about a company that is not available to the general public buys or sells the securities of that company based on that insider information.
It is also illegal to engage in any activity that is intended to mislead the market. This might be trading in a security in a way that involves no real change in ownership or value but gives the impression that demand for this security has grown.
Naturally, it is illegal to knowingly lie to someone in order to persuade him/her to buy or sell securities. However, you should be aware that you do not need to actually say something that is untrue; you can violate this law by only a negative misrepresentation, i.e., omission.
Fortunately, the qualification requirement does not apply to all sales of securities in California. Certain sales and sale offers are exempt. This may be the case when (a) you sold securities or made the offer to no more than 35 people (spouses count as one person), (b) everyone who bought the security did so for their own account, (c) you did not publish any advertisement in relation to the security and (d) everyone who bought or was offered the security knows you on a personal or professional level.
Moreover, it’s only a crime if you willfully sell securities without complying with the qualification requirement. Therefore, if we can prove that you acted in good faith and that you sincerely believed that you were following the law, our firm can get you acquitted.
