White-collar crimes are not solved overnight. States may investigate alleged fraudsters for years before a ruling is made. Victims may not see restitution for decades.
This is how the case involving Heartland Energy Development Corporation (HEDC) is playing out. The state has been investigating the company for alleged crimes dating back to 2002, and the story is not over yet.
After a judge ruled the company did violate Colorado security rules, they claimed they would file an appeal and keep fighting back.
Securities fraud cases are not as cut-and-dried as an assault or theft. If you have been accused of securities fraud or other white collar crimes, know you have a long battle ahead.
How Can You Get Charged With Securities Fraud?
In most securities fraud cases, lying to investors lands you with charges. Investors make a decision based on the information given about the company’s partnerships, goals, and projected outcomes.
If that information is false or misleading, investors may hand over their money when they wouldn’t otherwise. The case of HEDC involves a long list of alleged lies, including:
- Downplaying a key business partner’s role to avoid addressing an SEC injunction
- Failing to disclose 27,000 dry holes in the oil and gas company’s drilling area
- Withholding information about the costs of drilling
Investors who put money toward the project claimed to have lost millions. Complaints were lodged about the company in 2009.
“Lying to investors for personal gain” is the broadest description of securities fraud in Colorado, and these claims were included in a larger list of companies found committing these crimes throughout Colorado.
Other common securities fraud crimes include Ponzi and pyramid schemes, third-party misrepresentation, and insider trading.
Ponzi Schemes vs. Pyramid Schemes
When you think of securities fraud, two terms might come to mind: Ponzi schemes and pyramid schemes. Both are commonly used by businesses who lie to investors.
Ponzi schemes continue to reach out to new investors and use the new money to pay back the initial investors usually in part. The cycle continues on and on until the company has depleted its resources and can no longer pay anyone back.
Pyramid schemes are slightly different. They also rely on a growing network of investors to stay afloat. However, investors in pyramid schemes are often given the duty of recruiting more people to “join the team” and invest in the company.
These investors believe recruiting enough people will grow “their business.”
Third-Party Misrepresentation
Were you aware, individuals don’t actually have to have a business to be accused of securities fraud? They may decide to buy up a large amount of stock that belongs to a small business.
Once the stock has been purchased, the individual could make false claims about the business to drive stock prices and get investors interested in the company.
When the stock price is high enough, the individual sells their shares. Then, they “take the money and run,” so to speak.
This and other strategies like it are classified as cases of third-party misrepresentation.
Insider Trading
Ever see the movie Trading Places? How about the more current, Wall Street: Money Never Sleeps or Inside Job? These are the dramas we tend to think of when we hear the term, “insider trading.”
Essentially, if you learn confidential information about a company before it is released to the public, and choose to trade the stock based on that prior to becoming public knowledge, this is securities fraud classified as insider trading.
Penalties for Securities Fraud
In the movie Wall Street, insider trading puts Gordon Gekko in jail. In 2009, Bernie Madoff was sentenced to 150 years in prison for organizing the largest Ponzi scheme in history.
Prosecutors in the HEDC case have planned to ask the company to repay over $65 million to investors who lost money due to the company’s alleged lies.
These are hefty penalties.
When convicted of white-collar crimes, the penalty is meant to match the damage done to investors. If your investors collectively lost out on a few thousand dollars, penalties will not be as severe as Madoff’s. Investors lost billions in his Ponzi scheme.
So if you are personally accused of securities fraud, you are unlikely to face 150 years behind bars. In fact, with the right securities fraud defense, there may not be a conviction at all.
There Are Ways to Defend Against Securities Fraud Charges
It’s one thing to outright lie about a company with the knowledge that the information is false and only being shared for personal gain. It’s another thing to share information that you thought was true and helpful to investors.
Securities fraud allegations or charges are not convictions. A prosecutor will need to prove that you had knowledge that lies were being spread or information was being withheld for personal gain. Simply not knowing information about a business is not enough to put you in jail.
Talk to a Colorado criminal defense attorney about ways you can fight securities fraud charges and avoid the fate of Gordon Gekko or Bernie Madoff.
About the Author:
Kimberly Diego is a criminal defense attorney in Denver practicing at The Law Office of Kimberly Diego. She obtained her undergraduate degree from Georgetown University and her law degree at the University of Colorado. She was named one of Super Lawyers’ “Rising Stars of 2012” and “Top 100 Trial Lawyers in Colorado” for 2012 and 2013 by The National Trial Lawyers. Both honors are limited to a small percentage of practicing attorneys in each state. She has also been recognized for her work in domestic violence cases.
