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Criminal Liability – Securities Exchange Act of 1934

49. What is criminal liability under the 1934 Act?

The ’34 Act provides for criminal sanctions for willful violations of its statutes or corresponding regulations. More specifically, it imposes liability for false, material misstatement in applications, reports, documents, and registration statements. Individuals face up to a 25-year sentence and business entities face fines of up to $25 million. Many professionals (accountants) have been found guilty for failure to disclose information. The common defense for this criminal charge is a lack of intent to deceive or defraud.

•    Note: Most criminal prosecutions occur under Section 10(b) or Rule 10(b)(5).

•    Discussion: How do you feel about the possibility of criminal liability for violation of the securities laws? Should these penalties be reserved for intentional deceit? Why or why not?

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