What's federal criminal sanctions for committing internet-investment fraud?

The Department of Justice (DOJ), through the Computer Crime and Intellectual Property Division of the Untied States Attorneys Office (CCIPS), has used a variety of federal statutes to prosecute Internet crimes. The majority of these statutes were enacted prior to the expansion of computer use, or they have been amended to enable federal prosecutors to use these statutes against computer crimes.

The DOJ has an array of statutes at its disposal to prosecute Internet investment fraud. Many of the statutes DOJ uses have been part of the United States Code for many years and are applicable to criminal conducts no matter the forum used to commit the crime.

Sentencing for convictions under federal criminal statutes has been governed since 1987 by the Federal Sentencing Guidelines (“Guidelines”) These Guidelines are designed to reduce the discretion of the sentencing judge by forcing him to impose a sentence within a range that usually spans between six to twelve months for crimes calling for a maximum sentence up to five years; ten to fifteen months for crimes which call for a maximum sentence up to ten years; and greater ranges for more serious crimes.

Federal parole was abolished when the Guidelines were adopted. The sentencing range for a crime is based on the seriousness of the offense as defined by Congress, called the offense level, and the offender’s criminal history. However, sentences for fraud crimes are greatly affected by what are referred to in the Guidelines as specific offense characteristics. For example, the offense level for most fraud convictions begins at level six which would make a first offender eligible for probation. If, however, the fraud resulted in a loss to the victim(s) of more than US$70,000, the offense level is increased eight levels. If there were more than ten victims, the offense level goes up two more levels. If the fraud was committed through the use of email, then another two levels are added. What began as an offense level of six is now an offense level of eighteen. The sentencing range for a first offender with an offense level of eighteen is 27 to 33 months in prison. This is only one example of the almost infinite number of possibilities about how these Guidelines work; in general, the greater the financial consequences to the victim(s), the greater the penal consequences to the offender.

When an Internet investment scam is prosecuted under the federal fraud statutes what are the range of penalties?
The range of penalties varies based on a number of factors. The most critical factor is the victims’ loss. If the victim’s loss was less than $5,000 and the offender has no previous criminal record a probationary term can be imposed. However, even one prior conviction would result in a few months in prison. If the victims lost more than $70,000 then the offender could serve anywhere from fifteen to 46 months in prison, depending on the offender’s prior record. If the total loss was more than $1,000,000 than the period of incarceration would be from 41 to 105 months, depending on the offender’s prior record. The penalties increase if greater amounts of money are involved.

In 1998 Congress amended the Guidelines so that any investment scam originating outside the United States would result in a minimum prison sentence of ten to 37 months and increasing from there depending on the victim’s loss.

Are the penalties substantially different for prosecutions under the specific computer fraud statute?
No. The computer fraud statute references the same sentencing guideline as the regular fraud statute, 18 U.S.C.S. Appx. § 2B1.1. Yet, 18 U.S.C.S. §1030 does authorize civil suits by the victim’s of computer fraud.

Can Internet investment scams be prosecuted under the Racketeering and Corrupt Influences Act (RICO) and if so, what are the penalties?
Yes. The definition of racketeering includes any criminal act related to wire fraud, bank fraud or securities fraud. If an offender is convicted of racketeering the sentence range will be a minimum of thirty to 78 months in prison.

What if the offender is also accused with laundering the proceeds of the Internet scam?
The federal money laundering statute, 18 U.S.C.S. § 1956, specifically applies to computer fraud. The sentencing court must impose a civil penalty of $10,000 or the amount of the fraud, whichever is greater. In addition, the criminal penalty for a conviction for laundering Internet investment scam money is based on the offense level of the underlying fraud, as described above, plus eight offense levels; which mean the underlying fraud sentence could be increased from six to 24 months.

Are there potential civil penalties for Internet investment scams?
The most common monetary penalties that can be potentially imposed as part of a criminal conviction are discussed above. However, there are separate sources of civil penalties that can be imposed for violations of the Securities Exchange Act and other related acts. The Securities and Exchange Act authorizes civil suits by victims against the perpetrators of securities fraud. The SEC often goes to federal court and seeks civil penalties. These penalties, which are independent of any sought under criminal statutes, can range from $5,000 to $100,000 or “the gross amount of any pecuniary gain.”

Ira Piltz, Greenpoint Technologies