Not all SEC cases go criminal. That’s important to understand. However, some
do. And the reasons why an SEC case can be referred to the criminal authorities,
typically to the Department of Justice, is for a few reasons. There’s a few
factors that the SEC will consider in making that decision. The first
typically is the nature and quality of the evidence. How compelling and
convincing is that evidence? The reason the criminal authorities have to prove
their case beyond a reasonable doubt which is a much higher standard than the
SEC civil proof which is by a prepoundonderance of the evidence meaning 51 to 49% just a little bit more
than not. The quality of the evidence is a critical factor. The second, how much
money is involved? How large of a fraud, for example, is it? If it’s a few
hundred,000 versus a few hundred million, that makes a difference.
Obviously, the larger the potential losses, the more significant criminal
interest likely exists. Another key factor is the individual investors who
have been harmed. Who are they? If they are elderly, retirees,
or particularly vulnerable victims, that is a critical factor that the SEC will
1:541 minute, 54 secondstake into account when determining whether to refer it criminally. Finally,
if the individual who is being investigated by the SEC has a prior
history of securities violations, is a recidivist as it is known, that increases dramatically the chances of a
referral to the criminal authorities under the reasoning that if that individual did not get the message in
the first case, they perhaps don’t take serious seriously enough the SEC’s
enforcement powers and thus it should be referred for criminal prosecution.