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Over a Million Reasons Not to Violate the Securities Laws

02.09.12

We had occasion to review the civil and criminal penalties for violating SEC regulations and the Sarbanes-Oxley Act of 2002 and thought a quick post may serve to remind our readers of the severity of securities law violations. 

Civil Penalties

 We have summarized the civil penalties and maximum penalty amounts in the following chart:

U.S. Code Citation

Civil Penalty Description

Maximum Penalty Amount

15 U.S.C. 77t(d) – Securities Act of 1933

For natural person

           $7,500

 

For any other person

           $75,000

 

For natural person / fraud

           $75,000

 

For any other person / fraud

         $375,000

 

For natural person / substantial losses or risk of losses to others

         $150,000

 

For any other person / substantial losses or risk of losses to others

         $725,000

15 U.S.C. 78ff(b) –

Securities Exchange Act of 1934

Exchange Act / failure to file information documents, reports

                $110

15 U.S.C. 78ff(c)(1)(B) – Securities Exchange Act of 1934

Foreign Corrupt Practices – any issuer

           $16,000

15 U.S.C. 78ff(c)(2)(C) – Securities Exchange Act of 1934

Foreign Corrupt Practices – any agent or stockholder acting on behalf of issuer

           $16,000

15 U.S.C. 78u-1(a)(3) – Securities Exchange Act of 1934

Insider Trading – controlling person

      $1,425,000

15 U.S.C. 78u-1 – Securities Exchange Act of 1934

Insider Trading

FN 1

15 U.S.C. 78u-2 –Securities Exchange Act of 1934

For natural person

             $7,500

 

For any other person

           $75,000

 

For natural person / fraud

           $75,000

 

For any other person / fraud

         $375,000

 

For natural person / substantial losses to others / gains to self

         $150,000

 

For any other person / substantial losses to others /gain to self

         $750,000

15 U.S.C. 78u(d)(3) – Securities Exchange Act of 1934

For natural person

            $7,500

 

For any other person

           $75,000

 

For natural person / fraud

           $75,000

 

For any other person / fraud

         $375,000

 

For natural person / substantial losses or risk of losses to others

         $150,000

 

For any other person / substantial losses or risk of losses to others

         $725,000

15 U.S.C. 7215(c)(4)(D)(i) – SOX

For natural person

         $120,000

 

For any other person

       $2,375,000

15 U.S.C. 7215(c)(4)(D)(ii) – SOX

For natural person

         $900,000

 

For any other person

      $17,800,000

 

FN 1:  Anyone found liable for trading on inside information must also pay the federal government an amount equal to any profit made or loss avoided, and under Section 21A of the Securities Exchange Act of 1934, he or she may also face a penalty of up to three times that amount. You can be barred from serving as an officer or a director of a public company.  In addition, you also face a greater likelihood of criminal penalties for insider trading and the possibility of shareholder lawsuits for securities fraud.

Criminal Penalties

It is the Justice Department and local United States attorneys’ offices, not the SEC, that have the authority to bring criminal prosecutions.  Under Section 32(a) of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, individuals face up to 20 years in prison for criminal securities fraud and/or a fine of up to $5 million for each “willful” violation of the Act and the regulations under it.  Only fines, not imprisonment, apply if the defendant can demonstrate “no knowledge” of the rule or regulation that is violated. Corporations face penalties of up to $25 million.

In addition, violators can be (and sometimes are) charged with mail and wire fraud (which can lead to a sentence of up to 20 years in prison), more general “securities fraud” (up to 25 years in prison) and possibly even racketeering, tax evasion and/or obstruction of justice.  You can also expect civil penalties to result from the SEC’s enforcement action.

Prison terms for insider-trading convictions have lengthened in recent years. According to The Wall Street Journal, from 2009 to 2011, the median jail sentence was 30 months, up from a median term of 18 months during the 2000s.  From 1993 through 1999, the median length of prison terms was only just under a year.

OUR TAKE:  The SEC does not take violations of the law and its rules lightly, and companies and individuals should understand the consequences and ramifications for such violations.

The publications contained in this site do not constitute legal advice. Legal advice can only be given with knowledge of the client's specific facts. By putting these publications on our website we do not intend to create a lawyer-client relationship with the user. Materials may not reflect the most current legal developments, verdicts or settlements. This information should in no way be taken as an indication of future results.

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