When the U.S. Securities and Exchange Commission (SEC) suspects that securities law violations have occurred, they have the authority to conduct investigations and bring civil enforcement actions seeking monetary penalties and injunctions. In egregious cases, the SEC may refer investigations to criminal authorities like the Department of Justice.
If you are the subject of an SEC investigation or enforcement action, you must seek experienced legal counsel right away. Don’t delay – consult a qualified SEC violations lawyer as soon as possible if you are under SEC scrutiny. Here are 5 of the most common securities violations that the SEC investigates and prosecutes:
1. Insider Trading
One of the most widely known securities violations is insider trading, which involves trading in a public company’s stock based on material, nonpublic information in violation of a duty. Information is considered “material” if there is a substantial likelihood a reasonable investor would consider it important in making an investment decision.
Common examples include corporate insider trading based on confidential financial results or plans for a merger or acquisition. Insider trading cases are often high-profile and can result in serious civil fines and criminal charges.
2. Accounting Fraud
Another common SEC violation is accounting fraud, which involves public companies knowingly publishing materially inaccurate or misleading financial information. This may be done to appear more profitable, meet earnings targets, or avoid losses. Methods include premature revenue recognition, overstating assets, understating liabilities and expenses, and using aggressive or illegal accounting treatments.
Recent major accounting fraud cases targeted companies like Theranos, Luckin Coffee, and Hertz. Intentionally falsifying financial statements can lead to SEC fines, restatements, and loss of investor trust.
3. Failure to Register Securities
The SEC requires that all offers and sales of securities must either be registered with the SEC or qualify for an exemption from registration. It is unlawful to offer and sell unregistered securities that do not qualify for an exemption. Unregistered securities deprive investors of important disclosures necessary to make informed decisions.
Recent cases involved companies failing to register initial coin offerings (ICOs) and digital tokens before selling them to the public. Dealing in unregistered securities can result in the disgorgement of ill-gotten gains, financial penalties, and bars or suspensions.
4. Misleading Statements and Omissions
When promoting investments and communicating with the public, companies have a legal obligation to provide full and fair disclosure. This means they must avoid false statements and not omit any material information that would alter an investor’s decision to buy or sell a security.
Yet, misleading statements and omissions in press releases, investor presentations, SEC filings, and financial reporting continue to be a focus of many SEC enforcement actions. Companies may have to pay fines, return illegal profits and/or face other sanctions.
5. Market Manipulation
The SEC strictly prohibits market manipulation, which involves intentionally interfering with efficient markets to create artificial prices. Some illegal practices include wash trading, spoofing, layering, churning, cornering a market and circulating false information.
With modern technology, the SEC can detect suspicious trading patterns that may indicate manipulation. They then investigate and prosecute the parties involved. Significant civil penalties, trading suspensions and even criminal prosecution can result.
SEC Violations Lawyer Can Help With Investigations and Enforcement
Facing an SEC investigation or enforcement action is daunting. These proceedings are complex, but an experienced SEC violations lawyer can help protect your rights. They understand SEC rules and procedures and have represented many clients in negotiations with SEC staff. If settlement talks fail, they can build a vigorous defense against allegations and prove your innocence.