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Investment Fraud

The focus of many white-collar criminal offenses is fraud. However, fraud itself is not a crime, it is simply a “concept” that is an integral aspect of several criminal statutes. Fraud is at the core of a variety of federal criminal statutes: Mail Fraud, Wire Fraud, Bank Fraud, Investment/Securities Fraud (including insider trading), Insurance Fraud, Medicare Fraud, Healthcare Fraud, Tax Fraud, Computer Fraud, Bankruptcy Fraud, Citizenship Fraud and Social Security Fraud/Benefits Fraud just to name a few.

The past decade has witnessed an increasing number of white-collar prosecutions leading to significant sentences:
 

  • Sholam Weiss, was sentenced in 2000 to 845 years in prison for looting a life insurance company.
  • Bernard Ebbers, the former Chief Executive of MCI Worldcom was sentenced in 2005 to twenty-five (25) years in prison for sham accounting practices leading to the downfall of MCI Worldcom.
  • Jeffrey Skilling, former CEO of Enron Corp., was originally sentenced in 2006 to twenty-four (24) years in prison for securities fraud. The sentence was later reduced to approximately fourteen (14) years.
  • Joseph Nachio, former CEO of Qwest Communications was sentenced to ten (10) years in prison for various securities offences.
  • Samual Israel, a former executive of the now defunct Bayou hedge fund, was sentenced to twenty years (20) in prison for investment fraud.
  • Phillip R. Bennet, former CEO of Refco, Inc., was sentenced in 2008 to sixteen (16) years in prison for securities fraud.
  • Bernard Maddoff, the modern poster-child of investment fraud, was sentenced to 150 years in prison in June 2009.
  • Allen Stanford, the former CEO of Stanford Bank, was sentenced to 112 years in prison for securities fraud.
  • Brett Depue, a Nevada and Arizona businessman, was sentenced to nearly twenty-two (22) years in prison for mortgage fraud.
  • Leon Benzer, a former construction boss who controld various homeowner associations, was sentenced to fifteen (15) years in prison for various mail and wire fraud offenses.

According to the United States Sentencing Commission, fraud crimes represented the third largest portion (10.5 percent) of federal criminal cases in 2012. Financial losses in these cases ranged from $0 to well over $6 billion, with the median loss at $150,546.

There are dozens of fraud-related crimes that may be prosecuted under federal law. Some of the most common types of federal fraud crimes are described below, along with the punishment authorized upon a conviction.
 

Bank Fraud (18 U.S.C. § 1344)

You can be prosecuted for bank fraud under federal law if you knowingly use or attempt to use a scheme:

  • To defraud a financial institution; or
  • To fraudulently obtain money, credit, securities or other property from a financial institution by false pretenses or misrepresentation.

If convicted, you face up to 30 years in federal prison, a fine of up to $1 million, or both.
 

Bankruptcy Fraud (18 U.S.C. § 157)

You can be prosecuted for bankruptcy fraud if you devise, intend to devise, execute, conceal or attempt to execute or conceal a scheme to defraud (a creditor, for example) by using bankruptcy court to carry out your crime, such as:

  • Filing a petition, including a fraudulent involuntary petition under Chapter 11 of the United States Code;
  • Filing a document in a proceeding under Chapter 11; or
  • Making a false or fraudulent representation, claim, or promise concerning a proceeding under Chapter 11.

Bankruptcy fraud is punishable by up to five (5) years in federal prison, a fine of up to $250,000 ($500,000 for an organization), or both.
 

Citizenship Fraud (18 U.S.C. § 911)

If are not a United States citizen and you falsely and willfully represent yourself as one, you can be punished by up to three (3) years imprisonment, a fine of up to $250,000, or both.
 

Computer Fraud (18 U.S.C. § 1030)

Federal law defines computer fraud as intentionally accessing a computer without authorization or in excess of your authorized use to obtain any of the following:

  • Information contained in a financial record of a financial institution, or of a card issuer or contained in a file of a consumer reporting agency on a consumer;
  • Information from any department or agency of the United States; or
  • Information from any protected computer;

Using a computer to knowingly, with intent to defraud, obtain anything of value worth more than $5,000 in a one-year period also constitutes computer fraud under federal law.

A conviction for computer fraud can be punished by up to 10 years in prison, a fine of up to $250,000 for an individual ($500,000 for an organization), or both. A second or subsequent conviction doubles the sentence to up to 20 years imprisonment.
 

Identity Theft Fraud (18 U.S.C. §§ 1028, 1028A)

Identity theft involves knowingly and without lawful authority producing, transferring, or possessing with intent to unlawfully use an identification document, authentication feature, or a false identification document. Examples of identity include state-issued birth certificates and driver licenses, U.S. Social Security cards and U.S. passports.

A conviction for identity theft fraud carries up to 15 years in a federal prison, a fine of up to $250,000 ($500,000 for an organization), or both.

Identity theft carries up to 20 years imprisonment if you commit identity theft while:

  • Facilitating a drug trafficking crime;
  • In connection with a crime of violence; or
  • After a prior conviction for identity theft;

Additionally, identity theft carries up to 30 years’ imprisonment if committed to facilitate an act of domestic or international terrorism.
 

Mail and Wire Fraud (18 U.S.C. § 1343)

Mail fraud involves using the United States Postal Service or a private mail carrier, while wire fraud involves using telephone, fax, internet, radio, television or any interstate or international wire communication as a part of a scheme to defraud. Because of the broad nature of these laws, mail and wire fraud are commonly charged in a wide range of cases.

Convictions for either mail or wire fraud carry up to 20 years imprisonment, a fine of up to $1 million, or both.
 

Mortgage/Loan Modification Fraud

Mortgage fraud under federal law requires intent to misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth. Mortgage fraud is prosecuted as wire, mail or bank fraud and money laundering at the federal level.

An agent of the lender who misleads or deceives a consumer can also be prosecuted for what is commonly known as “predatory lending.”

A conviction for mortgage fraud can be punished by up to 30 years imprisonment.
 

Securities Fraud (18 U.S.C. § 1348)

Securities and commodities markets are regulated by the Securities and Exchange Commission (SEC); however, the SEC and the Department of Justice (DOJ) routinely bring charges at the same time. Examples of securities fraud include Ponzi or pyramid schemes, investment schemes, broker embezzlement, and foreign currency fraud. Additionally, if you trade stock or other securities using information that is not available to the public, you can be prosecuted for what is commonly known as “insider trading.”

A conviction for securities fraud carries up to 25 years imprisonment, a fine of up to $250,000 ($500,000 for an organization), or both.
 

Tax Fraud (26 U.S.C. § 7201, et seq.)

Tax fraud involves a taxpayer attempts to evade or avoid paying federal income taxes. Examples of tax fraud include overestimating business expenses, underreporting income or even not filing a tax return.

Tax Evasion and Tax Avoidance (26 U.S.C. § 7203)

Tax evasion involves willfully attempting to evade any tax imposed pursuant to 26 U.S.C. § 7201. A conviction for tax evasion carries up to 5 years in federal prison, a fine up to $100,000 ($500,000 in the case of a corporation), or both.

Tax avoidance involves failing to file a federal tax return when you owe the IRS money is a misdemeanor crime. (26 U.S.C. § 7203) All individuals are obligated to pay their taxes, make a return, keep records and supply required income information under federal law. A conviction for tax avoidance carries up to one year in federal prison, a fine up to $25,000 ($100,000 in the case of a corporation), or both.

Supervision and Collateral Consequences

There is no parole in the federal system. The Sentencing Reform Act of 1984 abolished parole. Federal law requires that a person convicted of a federal offense serve a minimum of 85 percent of his/her sentence before being eligible for release. In addition to the penalties described above, each offense carries a term of supervised release (the federal equivalent of probation) after completion of any term of imprisonment.

Additionally, almost all fraud convictions carry mandatory restitution orders, which are valid for twenty (20) years after the date of conviction or completion of the sentence, whichever is later.

Finally, federal fraud convictions can lead to certain “collateral consequences,” including loss of professional licenses, for instance, if you are a doctor, stockbroker or attorney, and can lead to deportation for non-U.S. citizens.

Federal law requires that you serve a minimum of 85 percent of your sentence before you are eligible for release.
 
Why Attorney Nicholas Wooldridge?

In the wake of the financial crisis, President Obama established the interagency Financial Fraud Enforcement Task Force to “wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.” The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.

Attorney Nicholas Wooldridge has decades of experience in federal court across the United States successfully defending clients facing federal fraud-related charges. Hiring Attorney Nicholas Wooldridge to represent you is your best chance to avoid the most serious consequences of a federal conviction including decades in prison, enormous fines, restitution orders and possible deportation.

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