Securities fraud under 18 USC § 1348, adopted in 2002 as part of the Sarbanes-Oxley Act, was modeled on the mail and wire fraud statutes. According to its legislative history, the purpose of the statute was to expand the range of conduct proscribed by existing federal securities laws to include other illegal transactions involving securities. Specifically, Title 18 “[wa]s intended to provide needed enforcement flexibility in the context of publicly traded companies to protect shareholders and prospective shareholders against all the types of schemes and frauds which inventive criminals may devise in the future.”1
Generally, an individual is liable under Section 1348 if the government can prove that the person:
- was involved in a scheme or artifice to obtain money or property
- with an intent to defraud and
- there is a nexus to a security.
Involvement in Scheme to Defraud
The government must show that the defendant participated in a scheme to defraud a person or to obtain money or property by materially false and fraudulent pretenses, representations, or promises.2
Intent to Defraud
The government must prove that the defendant acted intentionally, deliberately, and voluntarily, rather than by mistake, accident, or carelessness. As with the wire fraud statute, the government must show that the defendant acted with the intent to deprive another person of something of value. In United States v. Blaszczak, the government was required to prove that the defendants acted with the intent to deprive a federal agency of something of value (material, non-public information, "MNPI") by trading on the agency’s information or converting it to their own use.3
Nexus to a Security
Finally, the government must prove that the scheme to defraud was connected to the purchase or sale of securities of a company with a class of securities registered under Section 12 of the Securities Exchange Act of 1934, 15 USC § 78l.4
1 148 Cong. Rec. S7421 (daily ed. July 26, 2002), available here.
2 18 USC § 1348.
3 See Tr. of Jury Charge Proc., United States v. Blaszczak, No. 1-17-cr-00357 (LAK) (S.D.N.Y. Apr. 27, 2018) at 3970:2-10.
4 18 USC § 1348.