Securities regulation has become ever more complicated in recent years. The financial crisis of 2008 prompted a series of reforms passed by Congress in a bill known as the Dodd-Frank Act.

Dodd-Frank touches a host of topics, including insider trading, Ponzi schemes and many more. Given the complexity of the legislation, the nuts and bolts of implementation and enforcement are still being worked out.

At its core, however, securities regulation revolves around concerns about fraud. If people do not have a reasonable assurance that their money is safe from fraudulent schemes, they will be less likely to invest it in stocks and other investment vehicles. And if people are reluctant to invest, businesses may not have access to the capital they need to expand their operations.

Federal authorities therefore investigate suspicions of securities fraud aggressively. In a recent St. Louis securities fraud case, a trader has pleaded guilty to fraud charges after soliciting money from investors who included family members, friends and neighbors.

The 61-man from suburban St. Louis was accused of defrauding those investors of about $2.5 million over a period of 16 years. He has not yet been sentenced.

Not surprisingly, the man promised high rates of return on the money investors entrusted to him. But prosecutors say he did not actually invest it. In many instances, they say, he converted the money to his own personal use.

The trader did pass along some of the money to investors, presenting it as if it were profits. But the money was not from profits, it was new investors. In other words, it was a classic Ponzi scheme.

Source: “Securities Trader Pleads Guilty in Fraud Scheme,” CBS St. Louis, 12-14-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our St. Louis white-collar crime defense page.