Prosecuting Securities Fraud Under Section 17(a)(2)

Traditionally, securities fraud has been civilly enforced and criminally prosecuted under Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. Recently, however, the Securities and Exchange Commission has increasingly asserted claims under Section 17(a)(2) of the Securities Act for conduct that sounds in securities fraud, and criminal securities fraud prosecutions could follow this trend. Yet, although the elements of Section 10(b) and Rule 10b-5 violations have been well-developed by the courts, many of the elements of Section 17(a)(2) violations remain unsettled. This essay seeks to define the elements of the crime of violating Section 17(a)(2); compares and contrasts those elements to the crime of violating Rule 10b-5; and considers the policy implications of prosecuting securities fraud under Section 17(a)(2) rather than Rule 10b-5