Unlicensed Securities Broker Prosecutions
Overview: Unlicensed Securities Broker Violations
Unlicensed securities brokers are individuals or firms that offer or sell securities without proper registration with the Securities and Exchange Commission (SEC) or relevant state regulators. Engaging in securities activities without a license is illegal and often associated with fraud, Ponzi schemes, or misleading investment advice.
Relevant legal frameworks include:
Securities Act of 1933 & Securities Exchange Act of 1934 – require proper registration for securities offerings and brokers.
Investment Advisers Act of 1940 – requires registration of investment advisers who provide advice for compensation.
Mail and Wire Fraud (18 U.S.C. §§1341, 1343) – often used when fraudulent investment solicitations occur via mail, email, or electronic communication.
State “Blue Sky” Laws – regulate securities sales within states, including licensing requirements.
Common offenses by unlicensed brokers:
Selling securities without SEC or state registration.
Misrepresenting investment opportunities.
Offering unregistered investment schemes.
Committing Ponzi or pyramid schemes under the guise of legitimate investment.
Penalties include imprisonment, fines, restitution, and asset forfeiture.
Notable Cases
1. United States v. Michael L. Kim (2012) – Unlicensed Broker and Ponzi Scheme
Jurisdiction: Federal Court, California
Summary: Kim sold securities in unregistered investment funds without being licensed, promising high returns, and operated a Ponzi scheme using new investors’ funds to pay earlier investors.
Violation: Securities fraud, wire fraud, mail fraud, and operating as an unlicensed broker.
Outcome: 10 years imprisonment; $15 million restitution; forfeiture of assets.
Significance: Showed that unlicensed brokers engaging in Ponzi schemes face severe federal penalties.
2. United States v. Joseph D. Smith (2014) – Investment Club Fraud
Jurisdiction: Federal Court, New York
Summary: Smith solicited investments in a purported real estate fund while unlicensed and misrepresented the returns and risks to investors.
Violation: Securities fraud, mail fraud, wire fraud, and acting as an unlicensed broker-dealer.
Outcome: 7 years imprisonment; $5 million restitution; barred from securities industry.
Significance: Demonstrated federal enforcement against unlicensed securities sales with false promises.
3. United States v. Richard A. Johnson (2015) – Unregistered Stock Broker
Jurisdiction: Federal Court, Florida
Summary: Johnson offered stock investments in tech startups without registration, soliciting funds via email and social media.
Violation: Securities fraud, wire fraud, mail fraud, and unlicensed brokerage activity.
Outcome: 6 years imprisonment; $3 million restitution; permanent industry bar.
Significance: Highlighted digital solicitation as a prosecutable method for unlicensed brokers.
4. United States v. Global Investment Solutions LLC (2016) – Offshore Unlicensed Broker
Jurisdiction: Federal Court, Texas
Summary: The firm solicited U.S. investors for foreign securities without registration, misrepresenting risks and promising guaranteed returns.
Violation: Securities fraud, wire fraud, and acting as unlicensed broker-dealer.
Outcome: 8 years imprisonment for founder; $10 million restitution; company shut down.
Significance: Showed federal authorities target unlicensed brokers operating internationally.
5. United States v. Jennifer L. Thompson (2017) – Unlicensed Broker for Cryptocurrency Investments
Jurisdiction: Federal Court, California
Summary: Thompson sold cryptocurrency investment products without SEC registration, misrepresenting returns and safety.
Violation: Securities fraud, mail fraud, wire fraud, and unlicensed brokerage activity.
Outcome: 5 years imprisonment; $2.5 million restitution; banned from investment advising.
Significance: Demonstrated that unlicensed brokerage of crypto assets falls under SEC oversight.
6. United States v. David R. Miller (2018) – Real Estate Investment Scam
Jurisdiction: Federal Court, Illinois
Summary: Miller raised funds for real estate projects without a license, promising high returns while diverting investor money to personal accounts.
Violation: Securities fraud, wire fraud, mail fraud, and acting as an unlicensed broker.
Outcome: 9 years imprisonment; $7 million restitution; assets forfeited.
Significance: Reinforced that diversion of investor funds by unlicensed brokers carries long prison sentences.
7. United States v. Quantum Capital Group (2019) – Unregistered Broker Network
Jurisdiction: Federal Court, New Jersey
Summary: Quantum solicited investments in unregistered securities across multiple states, misrepresenting company performance.
Violation: Securities fraud, mail fraud, wire fraud, and unlicensed brokerage activity.
Outcome: 7 years imprisonment; $12 million restitution; permanent ban on securities activities.
Significance: Demonstrated multi-state enforcement against unlicensed brokerage networks.
Key Takeaways
Registration Is Mandatory: Any individual or entity offering securities must register with the SEC or relevant state authorities.
Fraud and Misrepresentation Amplify Penalties: Misleading investors or diverting funds results in severe criminal liability.
Wire and Mail Fraud Statutes Are Frequently Used: Electronic solicitations make prosecutions easier.
Prison Terms Are Substantial: Multi-year sentences are common for unlicensed broker offenses.
Restitution and Asset Forfeiture Are Standard: Courts aim to return funds to defrauded investors.
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