The Rule of 5 and 3

The only thing blander than my posts about a pair of fat shoes (which I need to return to the store) and my impending liquid diet has to be my geekdom enjoying studying all things financial in the world of legal finance.

 

Under the Uniform Securities Act (USA for short – yes, really), the statue of limitations for criminal penalties is five years, the maximum fine is $5,000, and maximum sentence for prison is 3 years. 5-5-3. For civil penalties, the statue of limitation is either two years from the discovery of the offense or 3 years after the act occurred. 2-3. The fines are worse on the civil side. Under the Securities Act of 1933 (more three’s), a person that purchased a security based on a false or misleading statement of a material fact or omission can sue:

 

• Every person that signed the registration form
• All directors of the security issuer
• All their attorneys
• And their accountants (although presumably not your attorney’s accountants. Probably just the security issuer’s accountants)
• The appraisers
• The underwriters
• A parent company
• AND Everyone and their Mom for your court fees, attorney fees, and the cost of the security OR the current market value of the security, whichever is greater.

Here is what I learned today: Crime pays. Committing fraud doesn’t. As long as you don’t mind three years in a federal minimum security prison (and really, your sentence will most likely be reduced if you are a high-profile criminal like Martha Stewart on her insider trading charge), $5000 penalty, and the revocation of your securities license from here into eternity, a criminal charge is the way to go. Basically, make sure the profit from your crime is large enough to sustain you after you get out of prison, and after the civil litigation which will almost certainly ensue, because you most likely won’t be able to get a job and the talk show circuit only pays so much. Just keep that in mind That’s the rule of 5 and 3.