Recent enforcement actions by the SEC, or U.S. Securities and Exchange Commission, have spotlighted things like crypto and other alternative data. In 2021 alone, the SEC reported a 7% increase in enforcement actions, totaling $1 billion in awards. Along with that, there’s been a massive explosion in the alternative data industry. In 2020, the industry was valued at $1.72 billion and may climb to a shocking $70 billion by 2028. With these kinds of seismic shifts in the industry, it’s no wonder that there’s been a noticeable impact on securities fraud and alternative data enforcement.
With the recent public interest in cryptocurrency, blockchain technology, and NFTs, the SEC has adjusted its enforcement strategies. These new technologies are prone to scams, fraud, and other types of misconduct. In just one recent high-profile case, scammers stole more than $1.7 million in NFTs in an apparent phishing attack.
Another way that crypto has been on the radar of the SEC is in Ponzi schemes. Investment scams are nothing new and have been going on for years. It’s common for scam artists to lure investors into investing their money with “little to no risk,” only for that money to be diverted into the scammer’s account. What’s new here is crypto and other virtual currency.
Securities Fraud and Alternative Data Excitement is Exploited
For many new investors, cryptocurrency can seem like an exciting new prospect. It’s that same excitement that is then used by fraudsters to encourage investors to put money in before the window of opportunity closes. Those who would not fall for a traditional Ponzi scheme might still be at risk of being victimized in a crypto Ponzi scheme. Investors are less skeptical of an opportunity when it involves something new or cutting-edge.
In one recent case, the organizer of a Ponzi scheme advertised a “Bitcoin investment opportunity” in an online forum. Investors were promised that they would receive up to 7% interest per week and that their investments would be used to generate returns. Instead, Bitcoins invested were used to pay investors and exchanged into dollars to pay the organizer’s expenses.
What is Alternative Data?
Alternative data is becoming increasingly popular in investment decision-making. Simply put, this is when a company incorporates large volumes of data that are found outside their public filings. This has been expected as data itself has only increased in availability. Typically, data analysts working on investment funds will pull from a variety of data sources. This could range from data on commercial transactions to information about human behavior, and all used to inform investment decisions in trading securities.
Along with crypto Ponzi schemes and related enforcement actions, there’s been an uptick in SEC interest regarding alternative data. The SEC had shown interest in alternative data before, but it wasn’t until very recently that it had taken its first enforcement action in that field.
Securities Fraud and Alternative Data Issues
The use of alternative data itself isn’t illegal, but it’s become quite common for it to be used during the commission of other crimes. It often occurs when companies and executives misrepresent their data sources. Another similar issue comes when executives misrepresent how data is collected or how that data is provided to subscribers.
Along with misrepresentations with alternative data and fraud schemes with crypto, the SEC has several other charges it prosecutes, including:
- Filing False Quarterly Or Annual Reports
- Investment Advisor Misconduct
- Insider Trading
- Improper Investments
- Misrepresentation To Investors
- Stock Embezzlement
- Manipulations With Stock Options To Executives
- Making False Promises Of Exaggerated Returns On Investments
- Inappropriate Use Of Offshore Accounts
- Making False Press Releases
- Inflating Reported Assets
As you might expect, this list is by no means exhaustive but instead represents some of the most common charges the SEC tends to pursue.
What Could Happen if I’m Faced With Charges?
Long-term consequences include fines or jail time for a securities fraud conviction. There are also some more immediate effects as well. You could face severe monetary penalties and fines, injunctive relief, and the confiscation of any illegal funds. You could also be prohibited from serving as an officer in a public company. These consequences by themselves can be severe, and that’s before considering the prison sentencing that could come along with that.
The sobering fact here is that there are no limits to who can be tried and convicted of securities fraud. There are some common categories of people who will tend to be charged. Some of those individuals include executives accused of insider trading, investment brokers who are being investigated for misrepresenting financial products, executives suspected of making false accounting entries, and people who give some type of investment advice or sell securities without a license.
Most Investigations Aren’t Criminal at First
The critical thing to keep in mind is that most SEC investigations are not criminal from the outset, and they often begin as civil cases that then progress as evidence is collected. Another essential thing to note is that the SEC isn’t the only body investigating or enforcing these charges. It’s common for the SEC to pass cases to the Department of Justice, so defendants must get the proper legal representation to help with their issues.
Guidance on Securities Fraud and Alternative Data
With decades of combined experience in the field of securities fraud and enforcement, the Norman Spencer Law Group is just the legal firm for you. No issue is too big or small for us, too complex or straightforward. We’re available whenever and wherever we’re needed, and our dedicated and skilled team is just a click or call away.