Federal securities fraud charges

What does the law make illegal?

A "security" includes stocks, bonds, investment contracts and similar investments. Several federal laws make fraud involving securities a crime. In fiscal year 2025, the one most often a statute of conviction was section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)), together with the SEC rule written under it, Rule 10b-5 (17 C.F.R. § 240.10b-5). Section 10(b) itself does not set a punishment. A willful violation becomes a crime through the Exchange Act's penalty section, 15 U.S.C. § 78ff(a).

Rule 10b-5 makes it unlawful, in connection with the purchase or sale of any security, to:

• use any device, scheme or artifice to defraud;
• make an untrue statement of a material fact, or leave out a material fact needed to keep what was said from being misleading; or
• engage in any act, practice or course of business that operates as a fraud or deceit on any person.

A fact is "material" if it is the kind of information a reasonable investor would consider important. Other laws reach the same kind of conduct from different angles: 18 U.S.C. § 1348, a fraud statute added in 2002, and section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q(a)), which covers fraud in the offer or sale of securities. Each is explained in the statutes section below.

Insider trading

No federal statute defines insider trading. It is prosecuted as a form of securities fraud under section 10(b) and Rule 10b-5. In general, it means trading on material, nonpublic information in breach of a duty of trust or confidence, or passing that information to someone else who trades. In United States v. O'Hagan, 521 U.S. 642 (1997), the Supreme Court upheld the "misappropriation" theory: a person who trades on information taken in breach of a duty owed to the source of that information can be convicted, even if he does not work for the company whose stock he trades. O'Hagan was a lawyer whose firm represented a company planning a takeover bid; he bought the target company's stock and options before the bid became public.

Conspiracy and attempt

An agreement to commit securities fraud can be charged as a conspiracy. A conspiracy or attempt to violate § 1348 carries the same penalties as § 1348 itself (18 U.S.C. § 1349). A conspiracy to violate the Exchange Act can be charged under the general conspiracy law, 18 U.S.C. § 371, which has a 5-year maximum. See our federal conspiracy page.

What are the penalties?

• Mandatory minimum: none. The judge can sentence anywhere up to the maximum, guided by the Sentencing Guidelines and 18 U.S.C. § 3553(a).
• Fines: for any felony, the general fine law allows up to $250,000 for a person, or twice the gross gain or loss if that is more (18 U.S.C. § 3571(b), (d)). The $5,000,000 cap in § 78ff(a) is higher still.
• Restitution and forfeiture: judges generally must order restitution to identifiable victims of fraud (18 U.S.C. § 3663A), and the government can seek forfeiture of proceeds (18 U.S.C. § 981(a)(1)(C)).
• Supervised release: up to 3 years after a 20-year or 5-year offense (Class C and D felonies) and up to 5 years after a 25-year § 1348 offense (a Class B felony) (18 U.S.C. §§ 3559(a), 3583(b)).
• Other consequences: an SEC case can bring separate money penalties and bars from serving as an officer or director or working in the securities industry.

How long does the government have to charge it?

Six years from the offense for a "securities fraud offense," which the law defines to include § 1348, § 78ff(a), § 77x and conspiracies or attempts to violate them (18 U.S.C. § 3301). The general federal limit for most other crimes is 5 years (18 U.S.C. § 3282).

How does sentencing work for this charge?

The Sentencing Commission's Statutory Index (Appendix A) assigns most securities fraud to USSG §2B1.1, the general fraud guideline, and insider trading under § 78j to USSG §2B1.4.

• Fraud (§2B1.1): the base offense level is 7 when the statute of conviction has a maximum of 20 years or more, as § 78ff(a) and § 1348 do, and 6 otherwise. Levels are then added from the loss table, plus other increases such as the number of victims and sophisticated means.
• Securities professionals and insiders (§2B1.1(b)(20)): 4 levels are added if the offense involved a securities law violation and the person was an officer or director of a public company, a registered broker or dealer or someone associated with one, or an investment adviser or someone associated with one.
• Insider trading (§2B1.4): the base offense level is 8. If the gain from the offense was more than $6,500, levels are added from the §2B1.1 loss table based on the gain. An "organized scheme" to trade on inside information raises the level to at least 14.
• Acceptance of responsibility: usually 2 or 3 levels off for a timely guilty plea (USSG §3E1.1).

The guidelines are advisory. The judge must calculate them correctly and then decide the sentence after weighing the factors in 18 U.S.C. § 3553(a). How loss and gain are measured in a securities case can be the most contested issue at sentencing.

Pending at the Supreme Court. In Beaird v. United States, No. 25-5343, set for argument on October 13, 2026, the Court agreed to decide whether Stinson v. United States (1993) still states the rule for how much weight courts must give the Guidelines’ commentary, the notes that follow each guideline. The answer could affect rules on this page that come from commentary rather than from the guideline text itself.

Guideline numbers on this page are from the Guidelines Manual in effect since November 1, 2025, which no longer uses “departures”: the judge calculates the range, then weighs the factors in 18 U.S.C. § 3553(a). For more depth, see How the federal Sentencing Guidelines work, at Sentencing.net, a Criminal Center site.

Statutes covered on this page

Each federal law this page covers, listed by how often it was a statute of conviction in fiscal year 2025 (U.S. Sentencing Commission data). For each one: the official section heading, what the government must prove, the penalties, and the sentencing guideline the Commission's Statutory Index assigns to it. See all statutes by title and section.

• 15 U.S.C. § 78j(b)
• 15 U.S.C. § 77q(a)
• 18 U.S.C. § 1348

How do these cases usually start and move?

Many securities cases start with market surveillance, a tip, a whistleblower, an internal company review or an SEC inquiry. The FBI investigates the criminal side, often alongside SEC staff. Investigators gather trading records, phone and message records, and emails, often by grand jury subpoena. Some people first learn of a case when the SEC asks for documents or testimony; others when agents knock on the door or a target letter arrives (Justice Manual 9-11.151).

What to do now

• Talk with a criminal defense lawyer before giving SEC testimony or speaking with agents. Lying to a federal agent is its own crime (18 U.S.C. § 1001).
• Keep records, devices and accounts as they are. Deleting messages or altering documents after learning of an investigation can be charged as obstruction.
• Write down every deadline on a subpoena or letter, and get advice before responding.

The usual stages of a federal case

1. 1Investigation. Agents gather records and interview witnesses, often using grand jury subpoenas. Someone the prosecutor views as a "target" may get a target letter before an indictment; a "subject" is anyone whose conduct is within the scope of the grand jury's investigation (Justice Manual 9-11.151, 9-11.153).
2. 2Charges. A federal felony is usually charged by indictment: a grand jury decides in private whether there is probable cause (Fed. R. Crim. P. 6, 7). Some cases start with an arrest on a criminal complaint.
3. 3First appearance and detention. After an arrest, the person goes before a magistrate judge without unnecessary delay (Fed. R. Crim. P. 5). The judge decides whether they are released or held until trial (18 U.S.C. § 3142).
4. 4Evidence and motions. The government must turn over certain evidence (Fed. R. Crim. P. 16). The defense can ask the court to suppress evidence or dismiss charges (Fed. R. Crim. P. 12).
5. 5Plea or trial. Many federal cases end in a guilty plea, which the judge must find knowing and voluntary (Fed. R. Crim. P. 11). At trial, the government must prove every element beyond a reasonable doubt, and a jury verdict must be unanimous (Fed. R. Crim. P. 31(a)).
6. 6Sentencing. A probation officer writes a presentence report, and each side can object in writing within 14 days of receiving it (Fed. R. Crim. P. 32). The judge then decides the sentence under 18 U.S.C. § 3553(a).

More on what to do at each stage: Facing federal charges? What to do now.

What defense issues come up in these cases?

• Willfulness and good faith. Did the person know the conduct was wrongful, or was it a mistake, a judgment call or an honest reading of a complex rule? Reliance on lawyers, accountants or compliance staff can matter.
• Materiality. Was the statement or omission the kind a reasonable investor would consider important, or was it puffery or information the market already had?
• "In connection with." Was the alleged fraud actually tied to buying or selling a security, or to an offer or sale under § 17(a)?
• Insider trading proof. Was the information material and nonpublic? Did the person owe or breach a duty? Did the trade happen because of the information, or for other documented reasons?
• Loss or gain at sentencing. How was the loss or gain measured, and did market events unrelated to the alleged fraud drive the numbers?
• Parallel proceedings. What was said or produced in the SEC matter, and how does it affect the criminal case?
• Time limits. Was the case brought within the 6-year limit in 18 U.S.C. § 3301?

Every case turns on its own facts. These are issues to look at, not predictions about how any case will turn out.

What happens after a conviction?

• Appeal. A notice of appeal is usually due within 14 days after the judgment is entered (Fed. R. App. P. 4(b)(1)(A)). Many plea agreements waive the right to appeal, but in Hunter v. United States (2026) the Supreme Court held that a waiver can’t be enforced when doing so would cause a miscarriage of justice, a high bar. See how federal criminal appeals work and federal appeals at Sentencing.net.
• A § 2255 motion. A motion asking the sentencing court to vacate, set aside or correct the sentence, for example for ineffective assistance of counsel. It is usually due within one year after the conviction becomes final (28 U.S.C. § 2255(f)). See 2255motion.com.
• Compassionate release. A motion asking the judge to reduce a prison sentence for extraordinary and compelling reasons, filed after the person asks the warden and either exhausts BOP appeals or waits 30 days (18 U.S.C. § 3582(c)(1)(A)). It can’t be used to attack the validity of the conviction itself (Fernandez v. United States (2026)). See CompassionateRelease.com.
• Clemency. The President can pardon a federal offense or commute (shorten) a federal sentence (U.S. Const. art. II, § 2). See Clemency.com.