John T. Floyd is Board Certified in Criminal Law by the Texas Board of Legal Specialization. He has over twenty years’ experience representing individuals and business under investigation by state and federal authorities for financial crimes, including securities fraud, and other regulatory violations that include the possibility of criminal sanctions.
The securities industry in Texas is governed by the Texas Securities Act. Regulations for the securities industry are located in Title 19 of the Texas Civil Statutes, more commonly known as the Blue Sky Law.
The term “security” is considered a “term of art” under the law.
It is a felony to engage in fraud during the course of selling, purchasing, or inviting people to sell or purchase securities. Under Texas law, a traditional security is an investment medium where the purchase money for an ownership interest in an enterprise is used by the enterprise to make money without significant participation by the purchaser.
Most often the term security simply means either an ownership in a company, such as a stock, or loaner’s interest in either a company or a public project, such as corporate or municipal bonds. There are also securities relating to the right to collect revenue from a mine or oil rig.
“The term ‘security‘ is defined broadly to include a wide array of investments such as stocks, bonds, notes, debentures, limited partnership interests, oil and gas interests, and investment contracts. Generally, an “investment contract” is created when a person invests something of value (usually, money) in a common enterprise with the expectation of a return (e.g., dividends or increased capital) to come through the managerial efforts of someone other than the investor.”
The definition of “security” found in Section 581.4(A) of the Texas Securities Act does not include every form of security that may exist. A security may exist, therefore, even if there is no written document.
Art. 581.4(F) defines “fraud” under the Texas Securities Act to include “an intentional failure to disclose a material fact.”
Neither Texas law nor federal law defines the term “material fact.” The U.S. Supreme Court dealt with the Securities Exchange Act and found that “there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
Texas courts follow this definition of materiality. Kirk v. State, 611 S.W. 2d 148, 151 (Tex. App. – El Paso 1981, no writ).
There are five common acts leading to prosecution for securities fraud in Texas:
These allegations generally fall into three main types of criminal security fraud in Texas:
There is a five-year statute of limitation under Texas’s securities fraud law from the date the offense was committed. This time includes the last act in committed in furtherance of the fraud. An individual cannot be charged if the State does not present an indictment within the prescribed time limitation.
There are many factual and legal defenses that can be raised when confronted with a securities fraud charge. They include, but are not limited to:
The law permits the State Securities Board of Texas to conduct investigations into the sale of securities, notes, limited partnership interests, commercial paper, oil and gas investments, and investment contracts. It is the Board’s responsibility to detect and prevent violations of the Texas Securities Act, such as frauds involving the sale of securities and investments.
If the Board determines that criminal wrongdoing has occurred, it can refer the case to the Texas Attorney General Office for civil action or to the local district attorney or the U.S. Attorney’s Office for possible criminal prosecution.
The elements the State must prove to establish a securities fraud conviction under the Texas Securities Act are:
If a defendant has been issued a “cease and desist” order that they stop performing fraudulent activities dealing with securities and violates that order, he or she may be charged with a state jail felony which is punishable by a jail term up to two years in a state prison and/or a fine up to $5,000.00.
Fraud charges dramatically impact an individual’s professional reputation and business, his personal and family life, and poses a real threat to a serious prison. If you or someone you know is under investigation or has been charged with securities fraud you need an experienced criminal defense lawyer who has successfully represented clients in investigations conducted by the Texas Attorney General’s Office and the State Securities Board.
Contact the John T. Floyd Law Firm today to schedule a consultation.
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