It’s critical to have a skilled commodities attorney even if you have not been charged so that you can properly navigate the complex laws in this area.
The securities and commodities markers are important pieces of the economy in the United States, with generations of corporations and investors relying on them to generate income. Of course, this has left an opening for fraud, abuse, and misrepresentation to occur. With a number of federal laws surrounding this practice, it’s important to be aware of commodities fraud and how it can occur, especially if you are ever accused of taking part.
Commodities and securities are often talked about in the same manner, as they operate similarly. Investors may purchase stocks, bonds, debt, or interest in an organization- this is known as a security. A commodity is the purchase of natural resources, agricultural products, or other tangible items as a means of investing. Purchasing securities is a way of possessing a portion of ownership in a company, while purchasing commodities is buying goods themselves before they actually exist. When a buyer agrees to purchase commodities, they are promised units of a good at a set price at a later date.
Securities fraud is any occurrence of an intentionally false, misleading, or fraudulent statement about the stock of a company or its value. Based on that information, another person would make a decision about trading securities or commodities. Commodities fraud is defined as the sale or purported sale of a commodity through illegal means. This may or may not involve securities fraud.
Commodities fraud can be very simple, but most cases are extremely complex and involve in-depth knowledge of financial systems. Here is one hypothetical case:
The defendant purports to offer futures on valuable gems that will be sold on the greater commodity market. In doing so, he offers a price substantially below market, which attracts the attention of a buyer. However, the defendant has no connection to the gem market and no intention of following through on the contracts as agreed; he is simply hoping to receive payment.
If this were to be discovered and reported, the defendant would be charged with defrauding the victim in connection with commodity futures, even if money has not yet exchanged hands. If the money had been paid, the defendant would also be guilty of obtaining money by false pretenses.
A commodity fraud scheme can take many forms, including false promises, market manipulation, or dishonest trading practices. The end goal is almost always to make money, and these schemes often involve brokers, banks, and traders.
There are a wide array of commodities sold on exchanges, but the FBI identifies two main markets responsible for commodity fraud cases.
The Forex, or foreign exchange, market is commonly involved in cases where brokers will entice investors with false promises and high-pressure sales tactics, then “churning” the client’s money. Churning is when investments are designed not to make money but to maximize commissions and provide financial benefits to the broker and trading firm. Brokers may also divert money a client invests for their own personal use, then create false statements to reflect investments into the foreign currency market.
The other most common market impacted is the precious metals market. In these cases, investors are talked into purchasing gold, silver, and rare Earth through false promises. Funds are then embezzled for personal use and investment records are falsified, allowing brokers and investors to profit.
Any time high-pressure tactics are used, false or misleading statements are made, funds are embezzled, or markets are manipulated, there is the potential for a charge.
There are several federal statutes that regulate the stock and commodities markets, with two main laws passed in 1933 and 1934, on the heels of the Great Depression.
The Securities Act of 1933 provides rules for trading and dispersal of information. This can include how investors receive information about trading decisions and public companies, as well as prohibit deceit, misrepresentation, and false statements in trading. This act also includes requirements for the registration of securities.
The Securities Exchange Act of 1934 then created the most powerful federal agency surrounding securities and stock trading. The Securities and Exchange Commission, or SEC, has authority over every part of the market, including all the major players: brokers, hedge funds, transfer agents, clearing agencies, and trading commissions.
Further, 18 U.S. Code 1348 contains the provisions for federal criminalization of these forms of fraud. This statute makes it a crime for one person to create and execute a scheme or artifice to defraud another person involving securities trading. It also makes it a crime to use false or fraudulent pretenses to obtain money or property in connection with the purchase or sale of any commodity.
Depending on the nature of the charges, penalties for commodities fraud can vary.
Most cases are prosecuted under 18 U.S. Code 1348, which specifically addresses these crimes. Per this code, penalties can include up to 25 years of imprisonment along with a fine. Additionally, 7 U.S. Code Section 13 also allows for up to 10 years in prison and an additional fine of $1 million for manipulating or attempting to manipulate the price of a commodity.
It is very common for a defendant to face a multi-count indictment, including charges of mail fraud, wire fraud, and embezzlement in addition to crimes of commodity fraud.
Most cases will take into account the calculation of the loss amount or the intended loss amount.
If you find yourself under investigation or having been charged with commodities fraud, the most important step you can take is to find a commodity fraud attorney with experience in the field.
Fraud crimes are usually prosecuted aggressively by the government, leading to severe consequences in many cases. However, the government has the burden of proof to show you did commit fraud beyond a reasonable doubt. A seasoned attorney will be able to craft a case that proves your innocence.
By evaluating your circumstances, a lawyer will determine if it can be argued that you had no knowledge of the laws, you had honest and good faith belief that your statements were true, or even that evidence obtained against you was illegally captured. A lawyer will also guide you through the investigation and court process, advising the best steps you can take to work toward a favorable outcome.
Even if you have not been charged, obtaining a lawyer during an investigation can be helpful and allow you to take proactive steps as part of your defense.