Guide to Securities Fraud Cases in Boston

Boston: Securities Fraud Overview

Navigating Securities Fraud Cases in Massachusetts

The Boston offices of the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have emerged as nationwide leaders in targeting and prosecuting allegations of securities fraud. Moreover, these aggressive federal agencies have not confined themselves to entities and individuals located in Massachusetts; rather, they have targeted executives and corporations who operate nationwide and even internationally. As a result, it is critical to understand who the players are, what types of behavior they target, and how to defend oneself because anyone entangled in securities fraud allegations will face a daunting array of legal, reputational, and professional challenges.

his analysis explores the varying types of securities fraud cases litigated in Massachusetts’s federal and state courts, the statutory frameworks at play, and the pivotal role of sophisticated securities fraud lawyers in safeguarding clients’ interests.

Securities Fraud: District of Massachusetts (Boston) Perspective

We have created other pages that provide a detailed overview of securities fraud, the statutes used and the regulatory framework. As explained, securities fraud embodies a wide spectrum of deceptive practices within the domain of securities trading, management, and reporting. Among the most frequently prosecuted forms in Massachusetts are:

• Insider Trading: Leveraging non-public, material information for personal or third-party gain in securities transactions.

• Material Misrepresentation and Omissions: The bread and butter of securities fraud, this typically involves the dissemination of inaccurate information or deliberate non-disclosure of information, involving companies, that distorts investor decision-making.

• Market Manipulation: The orchestration of artificial price shifts to deceive market participants. Recently, federal prosecutors have expanded beyond stocks and have begun to target individuals and companies engaged in crypto market manipulation.

• Pump and Dump Schemes: Federal regulators in Boston have long targeted individuals in the micro-cap space for prosecution, ensnaring many traders and shell-company operators based in Canada.

The regulatory architecture underpinning securities fraud enforcement is anchored in federal statutes such as the Securities Exchange Act of 1934 and SEC Rule 10b-5. However, prosecutors frequently bring “securities” charges under the wire and mail fraud statutes, as well as 18 USC 1348, which is the “new” securities fraud statute created by Sarbanes-Oxley. Again, please review our securities fraud overview for more information. Massachusetts supplements these frameworks with its Uniform Securities Act, affording the Massachusetts Securities Division (MSD) broad investigative and prosecutorial mandates.

Federal Regulatory and Court Framework and Massachusetts Case Studies

People being investigated and charged with securities fraud will overwhelmingly be investigated by federal agencies and as such, cases will wind up in federal court in either Boston or Springfield. Recent cases exemplify the breadth of federal enforcement actions in Massachusetts:

• TelexFree Ponzi Scheme (2014): Based in Marlborough, TelexFree perpetuated one of the largest pyramid schemes in recent history, defrauding thousands of immigrant investors. The DOJ filed criminal charges against its founders, and the SEC pursued civil remedies, culminating in criminal convictions, asset forfeitures, significant restitution awards, and a six-year prison sentence for its leader.

• Vladislav Klyushin Insider Trading: A Russian national hacked into computer networks located in the United States and stole confidential and proprietary information about upcoming company earnings. He, together with many others, then traded on that information. Although he received a lengthy prison sentenced, he was later sent back to Russia in a prisoner exchange.

• State Street Corporation Foreign Exchange Fraud (2017): Boston’s State Street Corporation covertly overcharged institutional clients on foreign exchange transactions. The SEC imposed penalties exceeding $64 million, while the DOJ’s parallel proceedings secured corporate remediation commitments and a deferred prosecution agreement.

• Trillium Capital Management Securities Fraud: In a fairly innovative fraud, the defendant, between October 2022 and April 2023, bought approximately 300,000 shares, as well as other options contracts, for shares in Getty Images, a visual media company publicly traded on the New York Stock Exchange under the ticker symbol GETY. Murray then attempted to use Trillium Capital to pressure Getty Images to change its business strategy and to add Murray to Getty Images’ board of directors. When those efforts failed, Murray used Trillium Capital to launch a fake takeover bid of Getty Images for the purposes of driving up the trading price of Getty Images’ stock so that Murray could sell the shares he owned at the artificially inflated price. On Friday, April 21, 2023, GETY shares closed at a trading price of $5.06 per share. On Monday, April 24, 2023, prior to the market opening, Murray caused the publication of a press release in which Trillium Capital made a proposal to acquire Getty Images for “$10 per share.” When the market opened, GETY shares traded at $7.88 per share, nearly 56 percent above the prior closing price. Murray then sold all the GETY shares he owned within less than one hour for approximately $1,486,467.

• Silverton Pump and Dump Scheme (Microcap Securities): Roger Knox, the head of “asset manager” Silverton, a Swiss entity, was arrested and later convicted of running a massive operation to support pump and dump operations of penny stocks.

Commonwealth of Massachusetts: Specific Securities Fraud Cases and the Role of the Massachusetts Securities Division

The Massachusetts Uniform Securities Act grants expansive powers to the Massachusetts Securities Division in addressing securities-related violations on the non-federal level. Many of these settlements are “no admit no deny” settlements, as the MSD has a reluctance to actively litigate cases. Key state-level cases illustrate the MSD’s enforcement priorities:

• TradeStation Crypto (2024): This crypto-exchange was fined for operating an unlicensed crypto exchange in the District of Massachusetts:

• Morgan Stanley Offloading First Republic Shares: Morgan Stanley was fined for failing to stop insider trading involving the sell-off of First Republic Shares.

• MassMutual Supervision Failures: The MSD imposed multimillion-dollar penalties on MassMutual for its inadequate oversight of agents who marketed unsuitable financial products to elderly investors. This case underscored the regulatory emphasis on protecting vulnerable populations.

• Broker-Dealer Technical Violations: The MSD is the de facto state agency for fining broker dealers who fail to comply with state securities regulations. As examples, Webull was fined $500,000 for inadequate compliance; another broker-dealer was fined $2.5 million for predatory sales practices; and, crypto exchange Nexo Capital entered into a settlement for operating an unregistered exchange.

These examples underscore Massachusetts’s state regulators dual focus: mitigating systemic risk in financial markets and safeguarding individual investors from predatory practices.

Actors in the Securities Fraud Ecosystem

In summary, the prosecution, adjudication, and defense of securities fraud claims involve multifaceted collaboration among:

• Federal Agencies:

  • SEC: Civil enforcement of federal securities statutes, emphasizing investor protection and market integrity.

  • DOJ: Prosecution of criminal securities fraud cases, often involving conspiracy or financial malfeasance.

  • FBI: Advanced investigative techniques, including data analytics and forensic accounting, to uncover fraudulent schemes. The FBI generally takes the lead amongst federal law enforcement for going after securities fraud.

• State Authorities:

  • The MSD’s targeted enforcement bolsters federal initiatives and reinforces localized protections against fraud.

• Private Litigants:

  • Parallel civil suits by defrauded investors can yield compensatory damages, often complementing regulatory fines and penalties.

• Whistleblowers:

  • Facilitated by statutory protections and financial incentives, whistleblowers serve as critical informants, particularly under the SEC’s Whistleblower Program.

Defensive Strategies in Complex Securities Fraud Allegations

Retaining an experienced securities attorney is necessary when under investigation or facing charges. Each case will vary by the facts, but among the most effective approaches are:

• Challenging Scienter: Establishing the absence of deliberate intent to deceive or manipulate.

• Reliance on Legal Counsel: Demonstrating that actions were guided by professional advice negates culpability.

• Materiality Disputes: Undermining claims that alleged misstatements or omissions materially impacted investor decisions, meaning that a reasonable investor would not find them important.

• Statutory Limitations: Asserting time-barred enforcement as a procedural defense.

Emerging Trends in Massachusetts Securities Fraud Enforcement

The evolving landscape of securities fraud enforcement demands that industry participants and lawyers keep up on new enforcement trends:

• Data-Driven Enforcement: Regulatory agencies, such as the SEC or FINRA, increasingly employ AI to detect anomalies indicative of fraud.

• Heightened Insider Trading Oversight: Renewed focus on detecting illicit trading among corporate insiders.

• Crypto: Every regulator has increased its emphasize on prosecuting and charging crypto offenses - everything from failing to register as an exchange to crypto-based Ponzi schemes. Recently, Massachusetts federal prosecutors charged nearly 20 people for market manipulation in the crypto markets.

How Dynamis Can Help

Massachusetts prosecutors and regulators are leaders in bringing securities fraud cases against individuals and companies who operate nationwide and worldwide. When choosing counsel for a securities fraud case or investigation, it is critical to pick the best securities fraud defense attorney, and Boston SEC lawyer, for your matter, as well as attorneys who know the local landscape and players. Dynamis, with prominent securities fraud attorneys located in Boston and nationwide, is a premiere white-collar defense firm that has the local knowledge at the federal and state level to help individuals navigate difficult securities fraud cases.

For expert legal advice, contact Dynamis LLP, attorneys Eric Rosen, Michael Homer or email whitecollar@dynamisllp.com today. We’re here to guide you through every step of your case.