WHAT CONSTITUTES SECURITIES FRAUD
Securities fraud can be a very complicated topic and charge in California. The California Supreme Court defines securities in no less than 500 words and they insist that the definition of what constitutes a security be defined on a case-by-case basis. Unfortunately, because securities fraud is considered a “wobbler” in California, the penalties can be quite steep if you’re convicted. In a general sense, a security would be a kind of business arrangement where a person gets a stake in the ownership of a business and/or a person gets the right to the re-payment of a debt. Some examples of securities include getting stock in a corporation, a note showing that a company owes money to the holder of the note, or a certificate that shows that the holder has some kind of interest in a profit-sharing arrangement. Securities fraud is considered a white-collar crime.
ACTIONS THAT CAN LEAD TO CHARGES OF SECURITIES FRAUD
If a person is selling unqualified securities, meaning that they don’t fill out the paperwork with the California Department of Corporations, they can be charged. Qualifying securities involves a substantial amount of paperwork and information about the company issuing the securities. If a person does not fill out the paperwork, they can face harsh criminal penalties and even jail. In this case, it is only a crime to sell securities without complying with the qualification requirement if you did so willfully or on purpose.
There are some securities that do not need to be qualified such as when an individual or a smaller business sells securities to people they already have a relationship with or they sell to a sophisticated investor. A person can avoid criminal charges for selling unqualified securities if they do all of the following: They have to sell securities or make the offer to sell securities to no more than 35 people, everyone who buys the security must purchase it for their own personal use, the person or company cannot advertise anything in connection with selling the security and everyone who purchases the security either had a preexisting relationship with the seller or they had enough business experience to be able to protect their interests.
If a person attempts to sell securities in California in a way that doesn’t meet the standards of the information that was put in the qualification paperwork, they can be charged with securities fraud. If a person were to lie about the securities they were selling or if they were not authorized to sell the securities then they can still be charged with securities fraud because in California it is illegal to engage in activities that give others a false or misleading impression about the market for the security. It is also illegal to directly lie to someone regarding the securities that a person is selling in order to get the buyer to purchase them.
One of the most recognized forms of securities fraud is insider trading. When a person knows or has access to information about a company that is not available to the general public, they cannot act on that information and buy or sell securities related to that company.
PENALTIES AND SENTENCING
Due to the fact that securities fraud is considered a wobbler in California, it can be charged as either a misdemeanor or a felony. If you are convicted of willfully selling or offering to sell securities without qualifying the securities or while violating the terms of the qualification, you can face up to 16 months, 2 years or 3 years in jail and/or a fine of up to 1 million dollars. If you willfully manipulate the market, make false or misleading statements regarding the securities, or participate in insider training, you can face up to 2, 3 or 5 years in jail and/or a fine of up to 10 million dollars.
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