Home » criminal prosecution

Category: criminal prosecution

Investment Adviser Sentenced to Over 7 Years in Prison

A financial adviser was sentenced to more than 7 years in prison and ordered to pay over $3 Million in restitution for misappropriating client funds by forging client signatures and altering account statements.  The SEC alleged that the defendant made 56 unauthorized withdrawals from client account over a five-year period.  The SEC also charged that the defendant lied to her firm and provided fake documentation to hide her activities.  The SEC charged her with violating the Advisers Act and with securities fraud.  The prison sentence arose from parallel criminal proceedings brought by the U.S. Attorney for the District of Massachusetts for wire fraud, investment adviser fraud, and aggravated identity theft.

Although the SEC does not have criminal prosecution powers, it has the discretion to refer matters to the U.S. Attorney once it uncovers securities wrongdoing.  If the DoJ can make a federal criminal case because of fraud or theft, an investment adviser can end up a guest of the state for several years. 

Execs Face Up to 5 Years in Prison for Lying to SEC

Two former employees of a biotech have pleaded guilty to criminal charges of obstructing an SEC investigation.  The Justice Department accuses one of the defendants with testifying falsely before the SEC about his manipulative purchases and sales of the OTC-traded biotech.  The other employee is accused of providing a back-dated document to the SEC with the intent to obstruct the SEC’s investigation.  The two defendants face prison sentences of up to 5 years for obstructing an agency proceeding. 

Although the SEC only has civil enforcement powers, it can (and will) bring in the Justice Department if you lie to SEC investigators.  Better to take your civil medicine (fine or industry bar) than to wind up a guest of the state. 

State Securities Regulators Escalate Enforcement Activity

The North American Securities Administrators Association (NASAA), the organization of state securities regulators, reported that state securities regulators imposed $914 Million in restitution, fines and penalties in 2016, as compared to $766 Million in the prior year.  In its Enforcement Report, NASAA also reported significant increases in criminal penalties including incarceration and probation.  The number of investigations and administrative actions also increased especially against investment advisers, which, according to NASAA, may be due to “heightened state interest in individuals and firms who have transitioned from broker-dealer registration to investment adviser registration in recent years.”  NASAA also reported significant information sharing with federal regulators.

OUR TAKE:  Over the last several years, the state securities regulators have expanded examinations and enforcement along with the SEC and FINRA, making it much more difficult for any adviser or broker-dealer to avoid regulatory scrutiny.  It’s worth noting that many state securities regulators have criminal enforcement authority.


Adviser Indicted for Lying During SEC Deposition

An investment adviser was indicted in part for making a false declaration in a court proceeding by lying to the SEC during a sworn deposition.  The deposition occurred during an enforcement case that alleges that the adviser defrauded retirees by lying about account balances, falsifying documents, and creating false wires.  According to the SEC, the adviser lied in a deposition about providing false documents to investors.

OUR TAKE: Once a formal enforcement proceeding commences, any misstatements under oath can lead to criminal proceedings for perjury or lying to a regulator.  It’s always wise to ensure that the lawyer defending the enforcement action has sensitivity to the possible criminal prosecution implications.  An enforcement action may results in fines and industry bars, but criminal proceedings could result in jail time.


Investment Adviser Sentenced to 2 Years in Prison for Cherry-Picking Trades

An investment adviser was sentenced to 2 years in prison plus another 2 years of supervised release for engaging in an illegal cherry-picking scheme that favored his personal accounts over his clients.  He was also ordered to pay $1.3 Million in restitution.  The SEC charged that the adviser used omnibus accounts and allocated trades at the end of the trading day.  The SEC has not yet imposed civil penalties, which will likely include a significant financial penalty and an industry bar.

OUR TAKE: When we reported this case back in January, we noted that the SEC included 10b-5 charges to allow for criminal prosecution.   Apparently, this strategy was successful as the defendant faces 2 years behind bars.


Adviser Jailed for Fraud Based on Emails that Crossed State Lines


A financial adviser was sentenced to 10 years in prison and ordered to make $2.9 Million in restitution because his emails that furthered his activities were transmitted over state lines, thereby constituting federal wire fraud.  The SEC alleged that the defendant used cross-border emails and a web-based portal to provide false account statements and Ponzi-like payments.  The SEC asserts that he misappropriated client funds by stealing their checks and depositing them into his bank account.  The U.S. Attorney brought a criminal indictment against him for wire fraud based on the emails.

OUR TAKE: Federal wire fraud crime carries big prison and financial penalties.  In this case, the U.S. Attorney leveraged the SEC charges into a federal conviction based on his cross-state emails.


Adviser Faces Criminal Prosecution for Cherry-Picking

white collar criminal

A state-registered adviser faces civil and criminal charges for cherry-picking trades in a manner that benefited him over clients.  The SEC asserts that the respondent, the adviser’s Managing Partner and Chief Compliance Officer, placed omnibus trades before earnings announcements and then allocated the trades after the announcement such that profitable trades were allocated to his personal account and unprofitable trades were allocated to clients.  The SEC alleges that the respondent unlawfully made $1.3 Million in profits on more than 200 trades.  In addition to violations of the Advisers Act’s fiduciary provisions, the SEC also alleges violations of Section 10 and Rule 10b-5 for fraud in the sales of securities.  The respondent has been barred from the industry and faces monetary penalties as well as criminal prosecution.

OUR TAKE: The SEC has brought many cherry-picking cases with similar facts.  However, the SEC, by alleging violations of Section 10 and Rule 10b-5, opened the door for criminal prosecution.  This legal theory could potentially transform any alleged breach of fiduciary duty into a criminal case.