White Collar Crime : Cases, Materials, and Problems - Chapter 5 (Securities Fraud)

Securities fraud encompasses a wide range of crimes. For example, if a company makes material misstatements or omissions about the company in public documents, then the company and its agents may be liable for defrauding investors in that company. Such fraud has been alleged in a number of high-profile corporate scandals in recent decades. In addition, securities fraud encompasses fraud committed by individual investors. The latter type of securities fraud includes what is perhaps the quintessential white collar crime — insider trading. The government has pursued a number of high profile insider trading investigations and prosecutions of public figures. Consequently, as a former director of enforcement at the Securities and Exchange Commission noted, “insider trading has a unique hold on the American popular imagination,” and is worthy of special attention. This chapter provides an overview of the principal securities fraud statutes, while focusing primarily upon insider trading. Securities fraud is just one specific type of fraud covered in the federal criminal code. It will be important during the course of this chapter to observe the interplay between specific securities fraud statutes on the one hand, and the more generally applicable crimes covered in the previous two chapters (conspiracy and mail and wire fraud) on the other. In addition, charges may also arise in specific fraud cases under the “cover-up” statutes involving false statements, perjury, and obstruction of justice covered later in this text. Readers may ask themselves, as they review the securities fraud materials herein, why the defendants in these cases are so often charged with attempting to cover up their acts.The interplay among these various criminal laws also raises important questions that appear throughout this book concerning enforcement obstacles, prosecutorial discretion, and statutory vagueness. In particular, the relationships among these crimes provide some sense of the choices prosecutors must make in deciding whether and how to charge a criminal case. This is particularly true in the securities fraud context because, as noted below, the government in many cases will be able to choose among pursuing administrative and/or civil remedies in addition to, or instead of, criminal sanctions