An internet fraudster, a repeat offender, has recently been charged[ii] with “fraud and related activity in connection with computers”[iii] in connection with a financial crime – fraudulent currency trading through phishing.[iv] The defendant obtained the passwords to another person’s internet account and then used that person’s account to trade foreign currency. Interestingly, the indictment[v] uniquely charges the fraudster with a computer crime. The fact pattern, however, raises the interesting question of whether the defendant could have been charged under the Securities and Exchange Acts of 1933[vi] and/or 1934[vii].
The threshold question is whether trading in foreign currency is trading in “a security” and, if so, under what circumstances. The Securities and Exchange Acts define “security” broadly.[viii] Though cash itself is not a security,[ix] Ponzi schemes have been found to be a “security”[x] in the context of currency trading. Furthermore, foreign currency options are a security.[xi] The SEC has charged currency fraud under Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.[xii] Is there a theory which can bring currency trading into the Securities and Exchange Acts? (more…)