A jury in a federal court convicted a former hedge fund manager of three out of eight counts related to securities fraud in early August 2017. The government had charged the defendant with multiple counts related to alleged defrauding of investors and misuse of corporate funds, as well as conspiracy to commit various fraudulent acts. United States v. Shkreli, No. 1:15-cr-00637, superseding indictment (E.D.N.Y., Jun. 3, 2016). The case is notable in part because of the high degree of infamy gained by the defendant for reasons unrelated to this case. The securities and wire fraud charges in this case added to the defendant’s unpopularity, presenting challenges for the defense team.
The Securities Exchange Act of 1934 regulates the trading of various securities, particularly corporate stocks. It prohibits “any manipulative or deceptive device or contrivance” connected to “the purchase or sale of any security.” 15 U.S.C. § 78j(b). This broad phrasing has been applied to a wide range of actions deemed fraudulent by securities regulators and prosecutors. The statute allows criminal prosecution for “willful” violations, allowing penalties for individuals of up to 20 years’ imprisonment and a fine of up to $5 million. Id. at § 78ff(a).
Proving the required elements of securities fraud in a federal or Texas criminal case can be very difficult, but federal law also allows the government to charge a person with conspiracy to commit an offense. 18 U.S.C. § 371. A conspiracy charge requires evidence that two or more persons, which could include individuals or certain organizations, conspired to commit an offense and that the defendant took an “overt act” in furtherance of the conspiracy. If the underlying offense is a felony, the conspiracy statute provides for imprisonment of up to five years.