Fraudulent or deceptive activities that involve stock and commodities are generally referred to as securities fraud. There are different ways that people get involved in California securities and commodities fraud. Such offenses attract harsh penalties, which can end up ruining your reputation and profession. Los Angeles Criminal Attorney has the experience needed in protecting anyone accused of securities and commodities fraud in Los Angeles.

Definition of Securities, Commodities, Securities and Commodities Fraud Laws in California

Before we get into details about securities fraud laws in California, it is necessary to understand what securities and commodities are,  and what securities and commodities fraud means.


The term securities involve a vast range of financial instruments representing the investor’s right to income and vote in a company. They include stocks, treasury stocks, bonds, interest in a limited liability company, and notes. The unique thing about securities is that they do not have intrinsic value than cash or tangible property.


Commodities can be explained as goods used in commerce and can be interchanged with other goods of the same type. They are often used as inputs in the goods and services production. The quality of goods might differ slightly but is usually uniform across producers.

Securities Fraud

The term securities fraud represents any form of a corporation or individual manipulation that would manipulate the securities and gain in one way or another. The fraud involves manipulations such as giving misleading or false information to affect the value of the securities or commodities, resulting in financial losses to consumers, private companies, financial institutions, and investors.

 Commodities Fraud

Commodities fraud is defined as the sale or purported sale of a commodity through unlawful means. It is a serious white-collar crime that has complex and challenging backgrounds that can take years to challenge.

Common Securities and Commodities Fraud Actions that can Lead to Criminal Penalties

Securities frauds are quite complicated. There are different types of actions that are considered as securities fraud. Below are several activities that can put someone at risk of facing criminal liability for violating California’s securities laws.

Broker Misconduct

Although there are many ethical brokers, there are others who choose to break their legal and moral obligations towards their clients. Most of these actions expose the clients to losses while the unethical brokers claim liability damages from the clients. Typical brokers’ misconducts that fall under this category include unsuitable investments, margin trading, and misleading illustrations.

Hedge Fund Abuse

Hedge funds are complicated securities transaction vehicles that might mislead investors in believing that they have little protection. Therefore, you might find a dishonest hedge fund manager who lies about the background or qualifications, the fund’s performance, and past situations related to hedge fund theft. In that case, clients end up at a loss while the managers gain from their dishonesty.

Sale of Unqualified Securities

Securities need to be qualified with the California Department of Corporations before they are sold. The qualification process involves a lot of paperwork and disclosures about the firm issuing the securities. A simple failure to complete the paperwork can lead to criminal penalties since it can be considered as a securities fraud.

Omission of Facts

Whenever a securities adviser is sharing an investment opportunity with you, all the necessary facts must be given to make an informed decision. Unethical brokers might try to avoid giving some of the facts, making such an action qualify as a ground to claim him or her.

Dealing with Securities that are Exempted

The qualification requirement does not apply to the sale of all securities. There are certain sales and offers that are exempted and do not need to be qualified. One category of the exempt sale usually comes when a small or individual business faces accusation of selling unqualified securities. This applies only to a small number of people with a preexisting relationship with or is a sophisticated investor.

This kind of securities deal can be considered valid if the following facts are accurate:

  • You made an offer or sold securities to more than 35 people
  • Everyone involved in the deal did so for their account. This means that the buyers were planning to distribute or re-sell the securities
  • You did not make any advertisement or publication concerning the sale of the securities
  • The people involved in the securities deal had a preexisting business or personal relationship with you, or they are experienced enough to protect their interest during the transaction.

If you do anything contrary to the requirements stated above, you will be conducting a securities fraud and will be liable for criminal penalties.

Misleading Behavior in Securities Deal

You can run afoul of California securities law if you get involved in misleading behavior when dealing with securities. This means that you are not supposed to willfully trade securities in a way that you are manipulating the market. The following activities explain some of the ways you can use misleading behaviors in securities deals.

  • Trading without making any change of ownership to make a false or misleading impression
  • Entering an order to buy or sell securities with the foreknowledge that someone else will enter and offset the same size of the order to make a misleading or false impression

Insider Training

Insider training is a classical securities fraud that most people practice. It involves foreknowing about something about a company due to a relationship with the person within the company and going forward to buying or selling stocks. In contrast, the information is unknown to the general public. Any securities deal that you seal based on such information makes you liable for securities fraud.


When unethical brokers make excessive trades in their accounts to make more commission for their best interest, this is referred to as churning. It is against the requirements of securities trading and makes one liable for securities fraud.

Commodities Fraud

Commodities fraud involves assets that are traded on organized exchanges such as the Chicago Mercantile Exchange, Chicago Board of Trade, New York Future Exchange, Kansas City Board of Trade, and other markets.

In most cases, such fraud involves failure to register with the exchange, who perform transactions without any economic purpose other than generating profit for themselves or their members. It usually involves providing false information to customers or stealing customer funds.

Securities Fraud Laws in California

Both federal and state laws govern anything to do with securities and prosecution of securities fraud. This means that one can be accused by the federal government or the state government. When it comes to current securities fraud laws in California, most of them come from the California Corporate Securities Law of 1968. Let’s have a look at some of the common laws that fall under this section.

California Corporation Code Section 25400

California Corporation Code Section 25400, deals with fraudulent or misleading transactions. Under this law, it is unlawful for anyone in California to:

  • Create a deceptive appearance of active trading in a security or false, misleading impression concerning the market of any security
  • To allow the transaction of securities to more than one person or manipulating the securities to induce purchase or sale of the securities by another person
  • Offer the sale or purchase of securities by circulating false information to likely lower or raise the price of the securities

California Corporation Code Section 25401

Under California Corporation Code Section 25401, it is unlawful to offer to sell or buy securities within California using written or oral contracts. In contrast, the information about the securities is false or misleading.

California Corporation Code Section 25402

California Corporation Code Section 25402 deals with insider training. In this case, it is unlawful to involve in the sale or purchase of securities with the foreknowledge of details about the company issuing the securities while the information is unknown to the public.

When it comes to federal laws that govern the securities industry, several laws are involved. The following are the laws that the federal government has put in place to regulate the securities industry.

Securities Act of 1933

The Securities Act of 1933 marks the first piece of federal legislation that regulates securities exchange. It focuses on the registrations of statements related to securities within companies that are traded publicly.

Trust Indenture Act of 1939

The Trust Indenture Act of 1939 deals with securities offered for public sale. Under this act, securities cannot be publicly sold unless there is a formal agreement between the bondholder and the issuer of bonds.

Investment Company Act (1940)

The Investment Company Act (1940) controls and minimizes conflict of interest between companies who have their securities publicly sold, and their business is focused on trading securities.

Sarbanes-Oxley Act (2002)

The Sarbanes- Oxley Act (2002) was signed by President Bush the second. It led to the creation of (PCAOB) or Public Company Accounting Oversight Board and a few reforms that encourage corporate responsibility.

Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)

The Dodd-Frank Wall Street Reform and Consumer Protection (2010) came into effect after an economic crisis for the last decade. It was aimed at improving consumer protection, increasing corporate governance, transparency, and disclosure.

Apart from the federal laws stated-above, here are other laws that regulations securities transactions in the United States.

  • Securities Exchange Act of 1934
  • Investment Adviser Act of 1940
  • JOBS Act of 2012
  • Rules and Regulations for Securities and Exchange Commission

Federal Commodities Fraud Laws

Most state-involved commodity frauds are charged under 18 U.S Code section 1348. This statute specifically addresses issues related to both securities and commodities fraud.

Under section one of this statute, it is illegal to participate in a scheme intended to defraud any person in relation to any commodity meant for future delivery, or an option on a commodity for future delivery.

Section two of the same statute makes it illegal to use false or fraudulent pretenses or material representations to gain money in relation to the purchase of commodities.

Penalties for Securities Fraud

Similar to the laws that apply in securities exchange, anyone involved in securities fraud can be prosecuted under federal or state laws. Let’s look at the penalties that apply in both federal and state prosecution.

California Penalties for Securities Fraud

In California, a security fraud is a wobbler, meaning that one can be prosecuted with a misdemeanor or a felony. This means that you can get sentenced to huge fines or prison service.

If you are involved in a willful sale or offering of securities without complying with the qualification requirement provided by the state, you will be facing:

  • A maximum fine of $1,000,000
  • 16 months, two years or three years services in county jail

If you are involved in a willful manipulation of the market by making a false or misleading statement about a transaction, engage in insider trading, you will face steeper penalties. This includes:

  • A maximum fine of $10,000,000
  • Two, three, or five years sentence in county jail

Penalties under Federal Securities Fraud Laws

Securities fraud does not apply only as California crime, but can also be a federal crime. When one is prosecuted for a federal crime, he or she will be facing federal charges. The Securities and Exchange Commission( SEC) first investigates the fraud cases before the Department of Justice is involved.

Federal penalties are usually harsher compared to state laws and might involve a couple of other consequences. A perpetrator can be charged with both civil penalties such as restrictions and fines and criminal penalties like prison terms.

  1. Federal Fines

Securities fraud can involve high fines, which depends on the circumstances of the case. Fines related to insider training might go up to $5 million while other fines can be as low as $10,000.

  1. Imprisonment

A conviction for securities fraud can also lead to a prison sentence. Any sentence for federal securities might result in five years of federal prison sentence per offense committed.

  1. Probation

There is also a possibility of facing probation after a security fraud, especially when there is an instance that did not turn to a financial loss. Probation for such offense might last for many years and can go up to five years. The probationer is required to comply with several regulations imposed by the court. Such requirements involve submitting to a drug test, paying all the fines, and restitution.

  1. Restitution

Since securities fraud involves different parties such as investors, employees, and clients, the court might make the perpetrator repay all the losses that result from the offense. The offender might be asked to refund all the money lost as a result of the fraudulent activities. This should be done in addition to the imposed fines.

Federal Penalties for Commodities Fraud

Under 18 U.S Code Section 1348, penalties for commodities fraud include imprisonment for a maximum of twenty-five years.

Under 7 U.S Code Section 13, one can face a maximum of ten years in prison and a maximum fine of $1 million for the manipulation and attempting the price of a commodity.

Legal Defenses for Securities and Commodities Fraud in California

Once you hire an attorney, he or she should be able to offer relevant legal interventions to help you dismiss the case or reduce it to a lesser charge. The best response that an attorney would make is employing appropriate legal defenses that will help in your case. Here are a few arguments that would help against your securities and commodities fraud accusation.

Insufficient Evidence

The prosecutor must prove that a defendant did not commit fraud. After the prosecution team has established this requirement, it would be hard for the accused to verify that the evidence is insufficient. However, if the defendant shows that he or she was not liable for the fraud or the purported information does not add up to a legible fraud, this might be a suitable legal defense for your case.

Please note, the judge will consider this legal defense if the jury does not find you reasonably guilty.

Lack of Intent to Commit the Fraud

Security and commodity fraud involves an action that led to the deceiving someone or an entity. Therefore, there must be the intention to deceive another person to make the offense credible enough. The prosecution team should prove the intent to deceive as an element of fraud.

Non- deceitful Statements

Not all deceiving or false statements are fraudulent. For the misleading statement to constitute a fraudulent statement, it should exist as a fact rather than an assurance to do something in the future. Also, if the expression of the opinion does not attain the level of fraud, it is considered as a non-fraudulent statement and can work as your defense once you prove it,


Entrapment occurs when law enforcement compels someone to commit security fraud. The crime should be something that the person did not have any intent to commit. It can be hard to demonstrate this legal defense since being presented by the chance to commit an offense is not referred to as entrapment.

Wrongful Arrest

Sometimes you might be arrested for a security fraud due to false allegations. This involves people with anger, revenge, and jealousy against you. It might be uncommon to find a relationship between securities and commodities fraud and wrongful arrest, but it can be a suitable legal defense if you can prove it to the court.

Find a Los Angeles Criminal Attorney Near Me

Securities and commodities fraud can significantly affect your life and business. That’s why you should hire a professional criminal attorney to help you with your accusations. A professional attorney should have the resources and experience needed to deliver excellent services. Over the years, Los Angeles Criminal Attorney has been offering credible legal services to its clients. For more information about our services, contact us at 423-333-0943, and schedule a consultation with us.