NRS 90.650 is the Nevada fraud law that makes securities fraud a category B felony. Fraudulent securities practices are any actions that compel investors to decide whether or not to buy stocks or commodities based on false information.
The Nevada penalties for committing securities fraud include:
- 1 – 20 years in State Prison and/or up to $500,000 in fines,
- victim restitution, and
- reimbursement costs to the Nevada Attorney General’s Office
Depending on the circumstances of the case, defendants can be prosecuted in Nevada federal court in addition to — or instead of — state court.
It may be possible to get criminal charges reduced or dismissed through a plea bargain. The most common defense is that the defendant had no “intent to defraud.”
In this article, our Las Vegas criminal defense attorneys discuss the Nevada crime of securities fraud under NRS 90.650:
The financial crisis of 2008 caused a major crackdown on securities fraud.
1. Legal definition
Also called “stock fraud” and “investment fraud,” securities fraud in Nevada is generating false information to induce investors to buy or sell stocks. Nevada’s six main securities fraud crimes are:
- NRS 90.570: The fraudulent offer, sale, or purchase of securities
- NRS 90.575: The violation of fiduciary duties by broker-dealers, sales representatives, and investment advisers
- NRS 90.580: Manipulating the stock market
- NRS 90.590: Illegal transactions by investment advisors
- NRS 90.605: False representations in stock fraud investigations or proceedings, including offering false evidence or destroying evidence
- NRS 90.610: Making unlawful representations concerning licensing
Securities fraud is a very serious crime in Nevada. In the wake of the financial crisis of 2008, authorities have stepped up oversight of stockbrokers, accountants, promoters, and traders. Common scenarios of securities fraud include the following:
- A broker creating a fake account
- A public company insider buying or selling the company’s stock based on non-publicly-disclosed information (“insider trading”)
- A broker investing client funds in risky ventures without disclosing the risk factor to the client (“unsuitability”)
- A broker trading client funds without their permission (“unauthorized trades”)
- A broker selling or buying securities to obtain an extra commission for themselves (“churning”)
- A broker putting all or most of a client’s funds into one investment instead of spreading it out to lessen the risk (“over-concentration”)1
Securities fraud also violates federal law, though prosecutors typically choose to file charges in either state or federal court depending on the details of the case.2 Sometimes, federal law preempts state law.3 Learn more about the federal crime of securities fraud.
2. Penalties
Violating any provision of NRS 90 is a category B felony, carrying:
- one to twenty (1 – 20) years in prison, and/or
- up to $500,000 in fines
Additionally, the defendant will be ordered to pay restitution as well as the costs incurred by the Nevada Attorney General’s Office in the case. This amount is doubled if the victim was at least 60 years old or physically or mentally disabled.
Note that defendants convicted of violating a regulation or order may not be imprisoned if they can prove they had no knowledge of the regulation or order.4
2.1. Federal penalties
Federal punishments for securities fraud turn on the particular crime the defendant was convicted of:
Insider trading (15 U.S.C. 79j) carries up to 20 years in Federal Prison and/or $5,000,000 in fines.
Both “fraudulent registration of securities” (15 U.S.C. 77q) and the “sale of unregistered securities” (15 U.S.C. 77e) carry up to five years in prison and/or $10,000 in fines.
Corporate officers who commit fraudulent reporting in violation of the Sarbanes Oxley Act of 2002 (18 U.S.C. 1348) face up to 25 years in prison and/or a fine. And certifying a false report carries up to 20 years in prison and/or $5,000,000 in fines.
3. Fighting charges
The most common defense to charges punished under NRS 90.650 is that the defendant had no fraudulent intent. Securities-related actions the defendant carried out by accident or mistake or a genuine misunderstanding are not fraud.
Evidence that may help show that the defendant had no criminal intent includes:
- written communications such as emails and text messages from the defendant;
- witnesses who heard or saw the defendant making the transaction at issue;
- video or audio recordings of the defendant;
- a paper trail that suggests the defendant’s intent
Whether in Nevada state or federal court, prosecutors have the burden to prove guilt beyond a reasonable doubt. As long as the prosecutors fall short of that standard, charges of fraudulent securities practices should not stand.
4. Deportation f
Securities fraud could be a deportable offense in Nevada depending on the case.5 Non-citizens who have been arrested for any NRS 90 violation are advised to retain experienced immigration and criminal defense attorneys right away:
It may be possible to get the charges dismissed or reduced to offenses that pose no threat to the defendants’ legal status.
5. Sealing records
A conviction under NRS 90.650 may be sealed five (5) years after the case closes. However, the defendant can pursue a record seal immediately if the charge gets dismissed.6 Learn more about Nevada record seal rules.
Legal References
- NRS 90.570 Offer, sale and purchase. In connection with the offer to sell, sale, offer to purchase or purchase of a security, a person shall not, directly or indirectly:1. Employ any device, scheme or artifice to defraud;2. Make an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made not misleading in the light of the circumstances under which they are made; or3. Engage in an act, practice or course of business which operates or would operate as a fraud or deceit upon a person.NRS 90.575 Fiduciary duty of broker-dealers, sales representatives, investment advisers and representatives of investment advisers; regulations.1. A broker-dealer, sales representative, investment adviser or representative of an investment adviser shall not violate the fiduciary duty toward a client imposed by NRS 628A.020.2. The Administrator may by regulation:(a) Define or exclude an act, practice or course of business of a broker-dealer, sales representative, investment adviser or representative of an investment adviser as a violation of the fiduciary duty toward a client imposed by NRS 628A.020; and
(b) Prescribe means reasonably designed to prevent broker-dealers, sales representatives, investment advisers and representatives of investment advisers from engaging in acts, practices and courses of business defined as a violation of such fiduciary duty.
NRS 90.580 Manipulation of market.
1. Without limiting the general applicability of NRS 90.570, a person shall not:
(a) Quote a fictitious price with respect to a security;
(b) Effect a transaction in a security which involves no change in the beneficial ownership of the security for the purpose of creating a false or misleading appearance of active trading in a security or with respect to the market for the security;
(c) Enter an order for the purchase of a security with the knowledge that an order of substantially the same size and at substantially the same time and price for the sale of the security has been or will be entered by or for the same or affiliated person for the purpose of creating a false or misleading appearance of active trading in a security or with respect to the market for the security;
(d) Enter an order for the sale of a security with knowledge that an order of substantially the same size and at substantially the same time and price for the purchase of the security has been or will be entered by or for the same or affiliated person for the purpose of creating a false or misleading appearance of active trading in a security or with respect to the market for the security;
(e) Employ any other deceptive or fraudulent device, scheme or artifice to manipulate the market in a security; or
(f) Put off, circulate or publish any false or misleading writing, statement or intelligence regarding a security that is publicly traded.
2. Transactions effected in compliance with, or conduct which does not violate, the applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission thereunder are not violations of subsection 1.
NRS 90.590 Prohibited transactions by investment advisers and representatives of investment advisers. It is unlawful for an investment adviser, representative of an investment adviser or other person who represents an investment adviser in performing an act that requires licensing as an investment adviser under this chapter, directly or indirectly, to:
1. Employ a device, scheme or artifice to defraud a client; or
2. Engage in an act, practice or course of business that operates or would operate as a fraud or deceit upon a client.
NRS 90.600 Misleading filings. It is unlawful for a person to make or cause to be made, in a record filed with the Administrator or in a proceeding under this chapter a statement that the person knows or has reasonable grounds to know is, at the time and in the light of the circumstances under which it is made, false or misleading in a material respect.
Overview of Nevada Securities Law, Nevada Secretary of State.
- See Strong v. Cochran, 2017 U.S. Dist. LEXIS 170073 (D. Utah Oct. 13, 2017).(Lexis: “Unlike federal securities claims, in order to succeed on claims under Utah, California, and Nevada law, a trustee did not have to allege investor reliance on a material misstatement, that any defendant acted with a particular mental state, or that any defendant personally made the alleged misstatement or omission; rather, he sufficiently pled the elements of the state claims by laying out each omission and material misstatement from the private placement memoranda (PPMs), stating the date of each PPM, and alleging that defendants were officers, directors, or individuals similarly situated of debtor LLC. The trustee went beyond group pleading by giving examples of each defendant’s participation in drafting, dissemination, and use of the PPM.”).
- See Nanopierce Techs., Inc. v. Depository Trust & Clearing Corp., 123 Nev. 362, 168 P.3d 73, 123 Nev. Adv. Rep. 38 (2007)(Lexis: “State law challenges to the operation and representations of a stock borrow program were preempted by 15 U.S.C.S. § 78q-1, because imposing state requirements would have frustrated Congress’s objectives with respect to the national clearing and settling regulatory scheme.”).
- NRS 90.650 Criminal penalties.1. A person who willfully violates:(a) A provision of this chapter, except NRS 90.600, or who violates NRS 90.600 knowing that the statement made is false or misleading in any material respect;(b) A regulation adopted pursuant to this chapter; or(c) An order denying, suspending or revoking the effectiveness of registration or an order to cease and desist issued by the Administrator pursuant to this chapter,–> is guilty of a category B felony and shall be punished by imprisonment in the state prison for a minimum term of not less than 1 year and a maximum term of not more than 20 years, or by a fine of not more than $500,000, or by both fine and imprisonment, for each violation. In addition to any other penalty, the court shall order the person to pay restitution and may order the person to repay the costs of investigation and prosecution incurred by the Division and the Office of the Attorney General. If the violation was committed against an older person or vulnerable person, any restitution and costs of investigation and prosecution imposed by the court must be in an amount equal to twice the amount that would otherwise have been imposed by the court. Money recovered for reimbursement of the costs of investigation and prosecution must be deposited with the State Treasurer for credit to the State General Fund.2. A person convicted of violating a regulation or order under this chapter may be fined, but must not be imprisoned, if the person proves lack of knowledge of the regulation or order.3. This chapter does not limit the power of the State to punish a person for conduct which constitutes a crime under other law.
4. As used in this section:
(a) “Older person” has the meaning ascribed to it in NRS 200.5092.
(b) “Vulnerable person” has the meaning ascribed to it in NRS 200.5092.
- See Sui v. INS, 250 F.3d 105 (2d Cir. 2011).
- NRS 179.245; NRS 179.255.