Under 18 U.S.C. § 1348, securities and commodities fraud is a federal crime that carries up to 25 years in prison for knowingly executing, or attempting to execute, a scheme to defraud in connection with certain publicly traded securities or with commodity futures and options. Congress added the statute in 2002 through the Sarbanes-Oxley Act and modeled it on the mail and wire fraud laws, but with fewer technical hurdles for prosecutors and a higher ceiling on punishment.
The Two Types of Fraud the Statute Covers
Section 1348 reaches two categories of conduct. The first is any scheme to defraud a person in connection with a covered security or commodity. The second is any scheme to obtain money or property, by false or misleading representations, in connection with the purchase or sale of a covered security or commodity.1Office of the Law Revision Counsel. 18 U.S. Code 1348 – Securities and Commodities Fraud
The distinction matters at trial. Under the first prong, prosecutors don’t have to show that anyone actually bought or sold anything. Under the second, the fraud has to be tied to an actual purchase or sale. Neither prong requires the government to prove the scheme succeeded or that any victim lost money. The crime is executing the scheme.
Which Securities and Commodities Are Covered
The statute is narrower than the general federal definition of a “security.” It applies only to securities of issuers that have a class of securities registered under Section 12 of the Securities Exchange Act of 1934, or that are required to file reports under Section 15(d) of that Act.1Office of the Law Revision Counsel. 18 U.S. Code 1348 – Securities and Commodities Fraud In practice, that means publicly traded companies and certain other SEC reporting companies. Fraud involving purely private company stock generally falls outside § 1348, though prosecutors can still reach it through wire fraud or other statutes.
On the commodities side, coverage extends to any commodity for future delivery and any option on such a commodity. That takes in futures contracts on oil, wheat, metals, and other goods traded on futures exchanges.
What Prosecutors Have to Prove
A conviction requires proof beyond a reasonable doubt that the defendant knowingly executed, or attempted to execute, a scheme to defraud, and that the scheme was connected to a covered security or commodity.
Knowingly
The statute uses the word “knowingly,” meaning the defendant acted with awareness that the conduct was fraudulent.1Office of the Law Revision Counsel. 18 U.S. Code 1348 – Securities and Commodities Fraud It does not use “willfully,” which some other federal criminal statutes require. The government still has to prove intent to deceive or cheat. Honest mistakes and good-faith errors in judgment are not enough.
A Scheme or Artifice
Prosecutors have to identify a specific fraudulent plan. That usually means material misrepresentations, misleading omissions, or deceptive practices. Sophistication is not required. Any deliberate course of conduct designed to deceive can qualify, and because the statute expressly covers attempts, the government can charge a defendant who never finished carrying the plan out.
In Connection With a Covered Security or Commodity
The scheme has to bear some connection to a covered security or commodity. Courts read the phrase broadly, consistent with how similar language is applied elsewhere in the securities laws. The defendant does not need to have personally traded. Feeding others fraudulent information or manipulating the price of a publicly traded stock can satisfy this element.
Penalties on Conviction
Prison
The maximum sentence is 25 years in federal prison.1Office of the Law Revision Counsel. 18 U.S. Code 1348 – Securities and Commodities Fraud There is no mandatory minimum. A judge has discretion anywhere from probation up to the statutory ceiling, but the actual sentence in most cases is driven by the federal sentencing guidelines.
Fines
Section 1348 does not set its own fine amount, so the general federal fines statute controls. The default maximum is $250,000 for an individual felony conviction and $500,000 for an organization. An alternative provision lets the court impose a fine of up to twice the gross gain to the defendant or twice the gross loss to victims, whichever is greater.2Office of the Law Revision Counsel. 18 U.S. Code 3571 – Sentence of Fine In a large fraud case, that alternative can produce a fine many multiples of the default.
Restitution
Restitution to identifiable victims is mandatory in fraud offenses causing measurable monetary loss.3Office of the Law Revision Counsel. 18 U.S. Code 3663A – Mandatory Restitution to Victims of Certain Crimes Restitution is ordered on top of any fine and prison sentence, not instead of them. In securities cases, restitution figures can run into the hundreds of millions.
How Sentencing Actually Works
The 25-year ceiling is rarely the number that matters. Federal judges calculate a recommended range under the U.S. Sentencing Guidelines, and securities fraud falls under Guideline Section 2B1.1. That section starts from a base offense level and adds increases tied to the characteristics of the offense.
The biggest driver by far is the dollar amount of loss. The guidelines use a tiered loss table: a $10,000 fraud produces a modest bump, while a loss above $400 million can add 30 levels to the base offense level and push the recommended range deep into double-digit years.4United States Sentencing Commission. USSG 2B1.1 – Larceny, Embezzlement, and Other Forms of Theft Enhancements also apply when the defendant held a position of trust in the financial industry, such as an officer or director of a publicly traded company, a registered broker-dealer, or an investment adviser. Number of victims, use of sophisticated means, and obstruction of justice each add levels of their own.
Why Prosecutors Often Prefer § 1348 to Wire Fraud
Congress modeled § 1348 on mail fraud (§ 1341) and wire fraud (§ 1343), but the differences give prosecutors real advantages in securities cases. Section 1348 does not require proof that the defendant used the mail or an interstate wire communication in furtherance of the scheme. That eliminates a technical element that can otherwise trip up mail and wire fraud counts. The connection to a covered security or commodity replaces the jurisdictional hook.
The maximum sentence is also higher in most cases. Mail and wire fraud carry a 20-year ceiling, rising to 30 years only when a financial institution is affected. Section 1348 carries 25 years regardless.1Office of the Law Revision Counsel. 18 U.S. Code 1348 – Securities and Commodities Fraud In complex financial fraud cases, prosecutors commonly charge both § 1348 and wire fraud, giving jurors more than one path to conviction.
Conspiracy and Attempt
Attempted violations are covered by the text of § 1348 itself. Conspiracy is handled by 18 U.S.C. § 1349, which makes it a crime to conspire to commit any fraud offense in the same chapter and sets the penalty at the same level as the completed offense, up to 25 years.5Office of the Law Revision Counsel. 18 U.S. Code 1349 – Attempt and Conspiracy
Conspiracy charges are common in these prosecutions because securities schemes typically involve more than one person. The government has to prove that two or more people agreed to carry out the fraudulent scheme and that at least one took some step toward executing it. Each conspirator can also be held responsible at sentencing for reasonably foreseeable acts of the others, which often expands the loss figure that drives the guidelines calculation.
Statute of Limitations
Section 1348 is subject to the general five-year federal criminal limitations period. It is not among the offenses listed in 18 U.S.C. § 3293, which extends the period to ten years for certain financial institution crimes such as bank fraud.6Office of the Law Revision Counsel. 18 U.S. Code 3293 – Financial Institution Offenses So prosecutors generally have five years to bring charges.
The clock is not always as clean as it sounds. Many schemes span years, and courts look at when the last act in furtherance of the scheme occurred, not when the scheme started. In a conspiracy, the period runs from the last overt act by any conspirator. Prosecutors also sometimes pair § 1348 with wire fraud counts that affect a financial institution specifically to reach the ten-year window available there.
Common Defenses
The knowledge element is where most defenses live. If the defendant genuinely believed the representations were true, or did not understand the conduct was fraudulent, the government cannot prove “knowingly.” A good-faith defense does not require proving innocence. It requires raising enough doubt about the defendant’s state of mind that the jury cannot find the element beyond a reasonable doubt.
Reliance on professional advice is a related and often powerful theory. A defendant who fully disclosed the relevant facts to an attorney, accountant, or compliance officer and then followed that professional’s guidance can argue there was no fraudulent intent. Full disclosure is the pivot. If the defendant withheld material information from the adviser, the defense collapses.
Other lines of defense include challenging the “in connection with” element by arguing the conduct had no meaningful link to a covered security or commodity, disputing the government’s loss calculations at sentencing, and arguing that alleged misrepresentations were opinions or forward-looking statements rather than statements of fact.
Parallel Civil and Regulatory Exposure
A criminal case under § 1348 rarely stands alone. The SEC and CFTC typically pursue civil enforcement actions on the same underlying conduct. SEC actions can produce disgorgement of profits, civil monetary penalties, and injunctions against future violations. CFTC actions produce similar remedies for commodities fraud, including restitution and trading bans.
The SEC can also seek to bar a defendant from serving as an officer or director of any publicly traded company. Sarbanes-Oxley lowered the standard for imposing that bar from “substantial unfitness” to “unfitness,” which makes it easier to obtain. The SEC typically asks for either a five-year bar or a permanent one.
Defrauded investors often file private civil suits for damages on top of all of that. A criminal conviction under § 1348 can be used as evidence in those civil proceedings, which makes it very hard for the defendant to contest liability. Between criminal penalties, regulatory sanctions, and civil judgments, the total financial exposure in a § 1348 case can far exceed the criminal fine on its own.