Criminal Defense · Haute Lawyer Network
What Is Securities Fraud?
Last reviewed: June 2026
Securities fraud is the crime of making false or misleading statements — or omitting material information — in connection with the purchase or sale of securities, in order to deceive investors and cause financial harm.
Federal securities fraud is prosecuted under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, as well as the general wire fraud statute. Securities fraud prosecutions are brought by the Department of Justice for criminal charges and by the SEC for civil enforcement.
Common forms include insider trading — trading on material non-public information — pump-and-dump schemes — artificially inflating a stock's price through false statements then selling — accounting fraud — falsifying financial statements — Ponzi schemes — paying early investors with later investors' money — and misleading prospectus statements in connection with public offerings.
Frequently Asked Questions
What is insider trading?
Trading securities based on material, non-public information obtained through a breach of a fiduciary duty or a duty of trust and confidence. Material means the information would significantly affect a reasonable investor's decision. Non-public means not yet disclosed to the general public.
What is the Misappropriation Theory of insider trading?
Under this theory, a person who misappropriates confidential information for securities trading violates the antifraud provisions — even if the information did not originate from the company whose stock was traded.
What are the penalties for securities fraud?
Criminal securities fraud convictions carry up to 20 years in federal prison. Wire fraud and securities fraud can be charged together, doubling potential exposure. Civil penalties can reach three times the profit gained or loss avoided.
What is Regulation FD?
The SEC's Fair Disclosure regulation requiring public companies to simultaneously disclose material information to all investors — preventing selective disclosure to favored analysts or institutional investors.
How does the SEC investigate securities fraud?
Through formal and informal investigations — subpoenas for documents and testimony, examination of trading records, whistleblower tips, and coordination with DOJ and FBI. Targets of SEC investigations should retain experienced securities defense counsel immediately.
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