Texas Government Code Offenses 4007.203 – Securities Fraud
WHAT IS SECURITIES FRAUD IN TEXAS?
The Texas law against securities fraud prohibits the use of fraud or fraudulent practices in connection with the sale or offer of securities.
- What is a security? Texas Government Code Section 4001.068 explains the term “security” includes:
- a limited partner interest in a limited partnership;
- a share;
- a stock;
- a treasury stock;
- a stock certificate under a voting trust agreement;
- a collateral trust certificate;
- an equipment trust certificate;
- a preorganization certificate or receipt;
- a subscription or reorganization certificate;
- a note, bond, debenture, mortgage certificate, or other evidence of indebtedness;
- any form of commercial paper;
- a certificate in or under a profit sharing or participation agreement;
- a certificate or instrument representing an interest in or under an oil, gas, or mining lease, fee, or title;
- a certificate or instrument representing or secured by an interest in any of the capital, property, assets, profits, or earnings of a company;
- an investment contract; and
- any other instrument commonly known as a security, regardless of whether the instrument is similar to another instrument listed in this subsection.
“Security” does not include an insurance policy, endowment policy, annuity contract, or optional annuity contract, or any contract or agreement in relation to and in consequence of any such policy or contract, issued by an insurance company subject to the supervision or control of the Texas Department of Insurance when the form of such policy or contract has been filed with the department as required by law.
WHAT IS THE SECURITIES FRAUD LAW IN TEXAS?
(a) A person commits an offense if:
(1) the person directly or indirectly:
(A) engages in any fraud or fraudulent practice;
(B) employs any device, scheme, or artifice to defraud;
(C) knowingly makes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; or
(D) engages in any act, practice, or course of business that operates or will operate as a fraud or deceit on any person; and
(2) the applicable conduct is committed in connection with:
(A) the sale of, the offering for sale or delivery of, the purchase of, the offer to purchase, invitation of offers to purchase, invitations of offers to sell, or dealing in any other manner in any security, regardless of whether the transaction or security is exempt under Chapter 4005; or
(B) the rendering of services as an investment adviser or an investment adviser representative.
(b) An offense under this section is:
(1) a felony of the third degree, if the amount involved in the offense is less than $10,000;
(2) a felony of the second degree, if the amount involved in the offense is $10,000 or more but less than $100,000; or
(3) a felony of the first degree, if the amount involved is $100,000 or more.
(c) An indictment for an offense under this section may be brought only before the fifth anniversary of the date the offense was committed.
WHAT IS THE PENALTY CLASS FOR SECURITIES FRAUD IN TEXAS?
The penalty classification for securities fraud depends on the amount involved in the fraudulent activity. If the amount involved is:
- Less than $10,000:
- third degree felony, punishable by two to ten years in prison;
- $10,000 or more but less than $100,000:
- second degree felony, punishable by two to 20 years in prison;
- $100,000 or more:
- first degree felony, punishable by five to 99 years or life in prison.
WHAT IS THE PUNISHMENT RANGE FOR SECURITIES FRAUD IN TEXAS?
The punishment range for securities fraud increases with the amount involved in the fraudulent activity:
- Third degree felony, if the amount is less than $10,000:
- two to ten years in prison, maximum fine of $10,000;
- Second degree felony, if the amount is $10,000 or more but less than $300,000:
- two to 20 years in prison, maximum fine of $10,000;
- First degree felony, if the amount is $100,000 or more:
- five to 99 years or life in prison, maximum fine of $10,000.
WHAT ARE THE PENALTIES FOR SECURITIES FRAUD IN TEXAS?
A person charged with securities fraud may be eligible for probation after a conviction, or deferred adjudication without a conviction, for a period not to exceed ten years.
WHAT ARE THE DEFENSES TO SECURITIES FRAUD IN TEXAS?
The statute does not specifically authorize defenses to securities fraud. A person accused thereof may assert any of the justification defenses, or attempt to negate at least one of the elements the State must prove at trial.
- Texas mistake-of-fact defense: can a person be convicted of securities fraud for making a mistake? Yes, depending on the circumstances. Texas Penal Code Section 8.02 permits a defense to criminal conduct if the accused mistakenly but reasonably formed a belief about a fact that negated the mental culpability required to commit the offense.In Murchison v. State, the defendants formed a holding company and investment banking securities broker/dealer subsidiary, and sold debentures to investors. They used the proceeds of the debentures to buy securities issued by the U.S. Treasury. By 1994, the investment banking company had substantial operating losses every month. They began engaging in illegal “bond parking,” and misrepresented their losses and selling subordinated debentures, which caused people to lose money.
The defendants argued they didn’t know “bond parking” was illegal, but were nevertheless convicted of securities fraud. The appellate court affirmed, holding their alleged ignorance of the law was not a defense. The defendants knew they were operating at a loss, and the testimony showed they failed to disclose that and other material facts to investors.
WHAT IS THE STATUTE OF LIMITATIONS FOR SECURITIES FRAUD IN TEXAS?
The limitation period for securities fraud is five years.
SECURITIES FRAUD IN TEXAS
The purpose of the Texas Securities Act is to require sellers of securities to be truthful and provide investors with all material facts, allowing them to make informed decisions. An omitted fact is material if there is a substantial likelihood that it would have assumed actual significance in the deliberations of a reasonable investor, in that it would have been viewed by the reasonable investor as significantly altering the total mix of available information used in deciding whether to invest.
TEXAS SECURITIES FRAUD COURT CASES
The case law regarding securities fraud in Texas further illustrates the requirement of an omission of material fact, and explains the beginning of the limitations period.
- In Foster v. State, the defendant sold security interests in land to investors for drilling, testing, and completing an oil and gas well. He failed to disclose that he spent investors’ funds on person expenses unrelated to the investment, and that he had prior court orders and legal prohibitions against him related to prior business dealings. He also failed to actually obtain rights to lease the land in the first place. The defendant was convicted of securities fraud based on his omissions of material facts, and the appellate court affirmed.
- In Baxter v. Gardere Wynne Sewell LLP, the plaintiffs sent money to an investment advisor in the early 1990s to be invested in conservative, liquid investments. The advisor mishandled their money, then hired the defendant to help hide assets to avoid SEC regulations. The advisor collapsed in 1998, and proceedings began, but the defendant withheld 27 boxes of documents revealing his complicity until 2002. Plaintiffs sued him the same month, but the trial court granted summary judgment based on limitations.The plaintiffs appealed, arguing the discovery rule delayed accrual of injury until they knew or should have known about the defendant’s fraudulent concealment for purposes of a claim under the Texas Security Act. The appellate court disagreed, holding the plaintiffs knew of their injury in 1998, and should have known that the advisor had hired someone, even though they did not know of the defendant’s specific existence.
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WE FIGHT FOR DISMISSAL
WE FIGHT FOR DISMISSAL
DRIVING WHILE INTOXICATED .15
Driving facts involved failing to maintain a single lane and speeding. Client refused breath test and forced law enforcement to obtain search warrant for blood. Blood test result was not used after challenge from Defense, and State waived and abandoned charge.
DRIVING UNDER THE INFLUENCE
Client was a college student, worried about the collateral consequences of an alcohol offense. After negotiation and review of the traffic stop, the case was dismissed. Client received no criminal conviction. The charge was later expunged and deleted from client’s record.
DRIVING WHILE INTOXICATED .15+
Client was involved in minor accident. Client was at fault in accident. A young executive, client was concerned that a criminal conviction for DWI would result in termination. After review of the traffic stop, it was clear the officer lacked probable cause for arrest. State eventually dismissed DWI charge. Client received no criminal conviction.
Client, a military veteran, was facing up to one year in jail. State could not prove intoxication by alcohol, and was prepared to proceed on loss of use by marijuana. After challenging the State to prove that marijuana was ingested at or near time of driving, and that marijuana impaired client’s driving, the State dismissed the case on the day of trial.
DRIVING UNDER THE INFLUENCE
Driving facts involved a false claim by police that taillight was out. After challenging the reasonable suspicion for the traffic stop, the State was forced to dismiss the case when video did not match police report. Client has since expunged arrest, and has no criminal record.
DRIVING UNDER THE INFLUENCE
Client is a public school teacher and faced immediate termination upon conviction. The facts of the case were bad. State was unwilling to budge in negotiation, and matter was set for trial – the last shot at avoiding a conviction and preserving client’s livelihood. State was forced to dismiss on day of trial. Client has no criminal record, and has since expunged the DWI arrest.
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