Securities are defined as instruments with a value that are bought and sold in financial and investment markets. Examples include stocks (shares), bonds, option, debentures, etc. New Jersey has Uniform Securities Laws that are enforced by the Bureau of Securities. The Bureau's regulation of the securities markets seeks to protect investors.
The Bureau is responsible for investigating allegations of investment fraud according to the Uniform Securities Laws. It also oversees those who sell securities including the registration of brokers, dealers, and investment advisers. They also are involved in educating investors regarding the markets so that they make wise financial decisions.
New Jersey Uniform Securities Law
The initial laws were implemented in 1967 and have been updated and amended, most notably in 1997. The U.S. Department of Justice is the federal entity that oversees security enforcement at the state level.
Fraud Data in the U.S. for 2018
- Approximately 406 people were charged with some form of economic fraud
- 230 people pled guilty
- 38 convictions occurred in a trial
- There were 10 corporate criminal actions of enforcement
- The total amount of fines, penalties, forfeiture, and restitution exceeded $1 billion
Defining Fraud
The term fraud refers to any “promise, representation, misrepresentation, or omission” that is intentionally made by an investment adviser that is detrimental to clients or buyers. It may involve words or acts that fail to properly disclose facts. Fraud may involve making claims regarding future results or outcomes that exceed practical or reasonable expectations.
It may involve some attempt to make a trade that will generate a “security, commission, fee or gross profit” that is not reasonable, outrageously exorbitant or violates the law. In this context, fraud is a broad term that describes behavior that involves deceiving the public or a buyer of investments. It may be conducted using any “artifice, device, or scheme” to unlawfully obtain a financial benefit.
Unlawful Activities (49:3-52)
New Jersey law prohibits committing any acts of a fraudulent nature associated with security-related transactions. This includes acts that seek to mislead someone either through false statements or intentionally omitting critical facts. All security transactions require that each buyer is provided a prospectus that contains the provisions of the Securities Act of 1933.
Prohibited Acts for Investment Advisers (49:3-53)
An investment adviser is prohibited from participating in an activity that the Securities and Exchange Commission (SEC) defines as being “dishonest or unethical.” It is unlawful for anyone in an investment adviser role to engage in transactions without providing certain disclosures in writing. No transaction may be made without the proper consent of all those parties to a contract.
All parties to a contract must be notified in a “reasonable time” of any changes made by an investment adviser. Unless authorized, a broker, dealer or investment adviser is prohibited from making contractual transactions unless they disclose in writing that they will “not be compensated based on a share of capital gains” or funds that appreciate.
Penalties and Violations (49:3-70)
Those who intentionally (purposely) violate the laws through action that mislead someone through false statements or intentionally omitting critical facts may be charged with a crime of the second or third degree. When the violation involves a monetary value that exceeds $75,000, the crime is charged as a second-degree offense. When the violation involves less than $75,000, it is charged as a third-degree offense.
When these violations are “recklessly” committed rather than purposely, the offender is charged with a fourth-degree offense. This means that the offense was not committed deliberately. Reckless acts are often committed with conscious disregard for risk.
Those who violate these provisions for the first-time are subject to a penalty of up to $10,000. Any second or subsequent violation may be subject to a penalty of up to $20,000. The Bureau of Securities will be responsible for recovery and collection.
What are Ponzi Schemes?
Ponzi schemes are fraudulent plots that attract investors using false and misleading claims. These schemes are based on continuously obtaining funds from new investors by creating a false impression that earlier investors have earned large returns. These schemes ultimately collapse when the flow of funds from new investors slows.
The SEC employs a “whistleblower” program that offers monetary incentives to those who report investment fraud. Whistleblowers also typically do not have their identity disclosed.
Participating in Pyramid Promotional Schemes (2C:20-39)
A leader of a pyramid promotional scheme is someone involved in a conspiracy with others acting as a facilitator, originator, financier or overseer. These schemes offer an opportunity to receive earnings as a result of recruiting new paying participants. These structures do not involve selling any product or service.
A leader of a scheme may be charged with a second-degree offense and be fined up to $250,000. An individual is considered a recruiter by persuading or inducing others to participate. A recruiter may be charged with a fourth-degree offense. The accused may be exonerated through proving by a preponderance of the evidence that:
- Those participating can receive compensation through sales of products or services.
- The scheme does not involve “inventory loading.”
- The Federal Trade Commission described this as requiring an individual to buy an excessive amount of inventory to be a distributor. The term excessive is defined as a quantity that they are unlikely to be able to sell or consume in a “reasonable” timeframe.
- The scheme involves an “inventory repurchase program” that allows those participating as distributors to return unused inventory. Those returning the inventory must receive at least 90% of their money back.
Grading for These Offenses in New Jersey
|
Level of Offense |
Maximum Incarceration |
Maximum Fine |
|
Second Degree |
5 to 10 years |
Up to $150,000 |
|
Third Degree |
3 to 5 years |
Up to $15,000 |
|
Fourth Degree |
18 months |
Up to $10,000 |
Experienced Defense Lawyer for Allegations of Investment Fraud
Over the last decade since the financial crisis, federal and state agencies have been aggressively investigating any allegations of wrongdoing. Many agents who investigate these matters become overzealous and move hastily without regard for the rights of the accused. Attorney Joseph D. Lento provides effective defense representation for clients accused of these and other types of white-collar crime. For a confidential consultation, contact the office today at (888) 535-3686.
