Securities Litigation and Enforcement: What You Need to Know
Friday, March 12, 2021


Securities litigation is a broad term referring to the federal and state regulation and enforcement of securities laws.  The Securities and Exchange Commission (“SEC”) is the main federal agency responsible for regulating the sale, purchase, reporting, and registration of securities.  The SEC’s mission is to take enforcement action under the federal securities laws to protect investors and maintain efficient markets.  Any conduct or effects that injure U.S. investors and capital markets falls within the authority of the SEC.

At the federal level, civil enforcement proceedings for violations of the securities laws are undertaken by the SEC and its staff.  If criminal activity is suspected, the SEC may proceed with the Department of Justice (“DOJ”) to investigate the case as a parallel proceeding or may simply refer the case to the DOJ.  An investigation may lead to severe consequences—whether civil or criminal—and can involve penalties, fines, jail time, permanent injunction, loss of license, loss of ability to do business with the government, disgorgement orders, and irreparable reputational harm.  In addition to understanding SEC regulation and securities litigation, it is also important to understand how to respond to such an investigation.

Common Areas of Securities Litigation 

Individuals and companies suspected of harming capital markets, investors, or the integrity of the U.S. free-market system can face liability under many federal statutes, including the following:

  • The Securities Act of 1933;

  • The Exchange Act of 1934;

  • The Investment Advisers Act of 1940;

  • The Investment Company Act of 1940;

  • Sarbanes Oxley Act of 2002 (“SOX”);

  • Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”);

  • The Racketeer Influenced and Corrupt Organizations Act (“RICO”); and

  • The Foreign Corrupt Practices Act (“FCPA”).

Below is a list of the most litigated issues of securities law:

Internal Compliance Policy

Companies that do not maintain an effective and robust compliance policy throughout their business may be more susceptible to internal frauds, deceit, and other forms of misconduct.  Therefore, the strength of a company’s compliance policy is oftentimes the source of securities law violations and subsequent investigations and litigation.

Corporate Transactions and M&A Litigation

Corporate transactions—especially those large in value—can be a heavily investigated area for the SEC and other federal agencies.  Within this category includes cases involving hostile takeovers, poison pills, proxy, and cross-border transactions.

Bribery and Corruption Issues

Securities litigation sometimes involves allegations of violations of the Foreign Corrupt Practices Act (“FCPA”).  The FCPA contains two important provisions: (1) the anti-bribery provisions, and (2) the accounting and recordkeeping provisions.  Broadly, it prohibits bribing foreign officials to obtain or retain business and requires that companies maintain adequate books, records, and internal controls.  If bribery or corruption is suspected, the SEC may bring the DOJ and FBI into the investigation.

Internal Corporate and Shareholder Matters

Corporate governance issues are often deeply intertwined with securities litigation.  This intersection can involve derivative liability, shareholder suits, corporate waste, and director or executive breaches of fiduciary duty.

Cryptocurrency Crimes

Cryptocurrencies are digital assets that have increasingly become popular in the last decade—both for individual investment and company use.  Many crypto crimes are committed using initial coin offering (“ICOs”).  Typically, crypto fraud occurs when criminals use deceitful practices to induce individuals to transfer their cryptocurrencies, crypto assets, or other digital currencies to them.  Despite the popularity of cryptocurrencies, they are inconsistently regulated.

Falsified Financial Statements of a Company

Falsified financial statements involve fraud on a company’s statements including their balance sheet or income statement and is typically perpetrated by inflating earnings and assets or by decreasing expenses and liabilities.  Sub-categories within this offense include thefts, kickbacks, check kiting, embezzlement, and misappropriation.

White Collar Crimes

White-collar crimes are committed by individuals for purposes of financial gain.  These crimes do not involve violence and instead focus on misrepresentation, abuse of power, and breaches of fiduciary duty.  Examples of white-collar crimes include money laundering, forgery, racketeering, tax fraud, tax evasion, counterfeiting, and economic espionage. 

Internal SEC Investigations 

As a part of its investigations, the SEC # uses many tools to gather evidence on the defendant(s), one of which is the subpoena.  A subpoena is used by the SEC to request various documents and demand testimony relating to the matter under investigation.  Other agencies such as the DOJ, FBI, or CFTC may be involved as well.

Stock Fraud Issues

Stock fraud is a broad offense and refers to manipulative and deceptive practices to induce investors into buying or selling shares.  Such information is based on false information and generally causes significant losses to the affected investors and profits to the fraudsters.  Examples include unregistered initial public offerings (“IPOs”), Ponzi schemes, microcap fraud, and the classic pump-and-dump schemes.

Accounting Standards and Accounting Liability 

The SEC is also responsible for investigating accounting issues within public companies in order to ensure fair and accurate financial reporting.  For instance, securities litigation can sometimes involve issues of accounting fraud and lead to liability under Public Company Accounting Oversight Board (“PCAOB”) standards or the Dodd-Frank Act.

The above list is not all-inclusive but represents the most litigated areas by the government and private parties.

Securities litigation encompasses a broad range of issues that often intersect with other areas such as accounting, cross-border transactions, antitrust, or bankruptcy.  It is important for business owners and executives to keep in mind that the same illegal conduct could expose you to both civil and criminal liability and therefore also involve criminal penalties and jail time.  Enforcement agencies—mainly the SEC—often shares the details of cases with other federal agencies where criminal activity is suspect.  The best defense you can take in such circumstances is to retain an attorney experienced in complex federal litigation and securities regulation.  – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

How to Respond to a Federal Investigation Involving Securities Laws

Sometimes the best defense against a protracted federal investigation is prompt action.  Below are critical steps to undertake as soon as a federal investigation is initiated or suspected against you and/or your company:

  • Retain an experienced federal defense attorney in securities litigation.

  • Brainstorm what the SEC or other federal agency is asking of you and start accumulating the required documentation.

  • Do not discuss the details of your case with third parties and refrain from social media activity that references your federal case.

  • Follow all terms, requests, and deadlines in the federal subpoena.

  • Be courteous and respectful towards your attorney, opposing counsel, and the court.

  • Maintain an attitude of open communication, cooperation, and negotiation.

As the world grapples with new innovations with securities such as initial coin offerings (“ICOs”) and initial exchange offerings (“IEOs”), increased scrutiny by the SEC and other federal agencies will remain a top priority.  It is important to keep the above points in mind, especially the step to hire a federal attorney.  There are often steps an attorney can take early in the investigative process to get the case dismissed or to lessen the severity of the charges.  An attorney can assist with a variety of tasks, including internal corporate investigations, independent audits, discovery, and representation at trial.


Securities litigation is complex, time-consuming, and demands the services of an experienced securities law attorney.  The SEC takes violations of the law very seriously and is increasingly eager to investigate individuals and companies who are suspected of engaging in illegal conduct.  While the SEC traditionally regulates the more common areas of securities litigation such as stock fraud, it is beginning to also scrutinize more novel areas including cryptocurrencies and IEOs.  In addition to penalties, injunctions, and disgorgement orders, if the conduct under investigation also violates criminal securities law provisions, the defendant may face criminal penalties and jail time.  It is important to take steps as soon as possible in your defense to protect your reputation and future.


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