Thursday, August 21, 2014

Securities Fraud Cases Can Be Criminal Cases

Defending a SEC securities fraud case is not simply about the civil charges and penalties. Most securities law violations are also criminal violations, and violators can be charged both civilly and criminally.

As securities litigators, we are aware of the issue, and sometimes the cases are not brought together. When resolving an SEC case, or even a FINRA enforcement case, we are always mindful of the potential for a criminal case, or  an enforcement proceeding from a state agency.

In the usual case, if a criminal case is going to be filed, it is filed at or about the same time as the civil charges. Or, there is at least notice that a prosecutor is interested in the case. However, not always.

Case in point -  as a result of the investigation of Bernie Madoff's massive fraud, the SEC found that a former deputy dean of MIT's business school and his son were running a Ponzi scheme of their own. The father-son team settled fraud charges with the SEC in 2012 for $4.8 million and a permanent bar.

Last week, over two years later,  federal prosecutors announced that the duo are going to plead guilty to criminal charges. According to CNN they face between two and five years in prison. They could also be forced to pay as much as $290 million in fines plus payments to victims.

According to the government the duo falsely told clients that their hedge fund was delivering annual returns between 16% and 23%, enticing investors to entrust more than $500 million with them. They also falsely claimed that the money would be invested using a complex trading model based on research they conducted at MIT. In fact, they placed investor money with Bernie Madoff and the Petters Group Worldwide, both of which were later found to be Ponzi schemes.

Nearly $5 million in fines with the SEC, and then, two years later, up to 5 years in jail plus $290,000,000 in fines, PLUS repayment to victims.

Most of these schemes do not start out at schemes - they become schemes when the manager, trader, owner suffers a loss and thinks he can trade it way out of it. Regardless of how the scheme evolves, or what the oringinal good motives were, securities fraud cases carry significant civil and criminal consequences, and  require representation by securities law attorneys, with the knowledge and skill that only decades of experience can provide.

One side note - I continue to be amazed at what defendants say in emails.  Sending emails can sometimes be worse than a phone tap. In this case, the government alleges that emails between the defendants included these two gems:

We have mislead [sic] a lot of people with a range of statements that were incorrect simply to increase our income. . .
We are certainly sharing equally in this dad … Lots of our problems were caused by my good intentions but very poor actions when it came to true honesty.


 If you have an issue, if you need to respond to a subpoena or "voluntary" request from the SEC, call us.

And don't send emails to your co-workers or friends discussing the case.

Related Articles:

Ex-MIT dean and son plead guilty to hedge fund scam - Aug. 12, 2014

SEC Charges Father-and-Son Hedge Fund Managers April 20, 2012


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If you are the victim of a Ponzi scheme or the subject of an SEC investigation, call our office. Our attorneys include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, We represent investors, financial professionals, and investment firms. For more information contact Mark Astarita at 212-509-6544 or email us.
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