Mail Fraud and Securities Fraud—Jack Summers

Jack Summers, who lured nearly 900 investors into a failed indoor fish farming venture, was sentenced to forty months in federal prison, and ordered to pay more than $14.5 million in restitution.^[1] The indoor fish farm was billed as a way that investors could become rich and also help starving children in Africa; by perfecting indoor farming methods, Mr. Summers claimed, fish could be raised anywhere in the world without fear of external factors like birds or weather.^[2] The operation never made a profit, but the factors that resulted in Mr. Summers’ conviction for mail fraud, securities fraud, and selling unregistered securities^[3] were: he failed to tell his investors that he hadn’t registered the stock he was selling; a judge had long ago barred him from selling stock; he had been convicted in Mississippi in 1989 for diverting corporate funds from a fish farm there; and he had declared personal bankruptcy in 1992.^[4] Had the investors known about Mr. Summers’ background, they would have been hesitant to invest in his plan.^[5]

Mail Fraud
Mail fraud is covered by 18 U.S.C. § 1341. It is a crime under this section for a person to devise a scheme or artifice to defraud, or to obtain money by false pretenses, and use the mails to further that scheme.

Violating section 1341 can be punished by a fine, imprisonment for up to 20 years or both. If a financial institution is impacted by the fraud, the person can be fined up to $1,000,000, imprisoned for up to 30 years, or both.

Securities Fraud
Securities fraud is covered by 15 U.S.C. § 77q, which states that it is unlawful for any person to offer or sell any securities by the use of any means of interstate communication or transportation, including the mails, in order to employ a scheme to defraud,^[6] to obtain money by omitting material information,^[7] or to engage in a course of business that would operate as a fraud on the purchaser.^[8]

The punishment for violating this section is a fine of no more than $10,000, imprisonment for up to five years, or both.^[9] However, under the U.S. Sentencing Guidelines, a violation of section 77q is subject to an enhanced sentence.^[10]

Selling Unregistered Securities
Selling unregistered securities is covered by 15 U.S.C. § 77e(a). Under section 77e(a), it is unlawful for a person to make use of any means or instrument of interstate commerce or of the mails to sell a security which has not been registered,^[11] or to deliver through the mail a security which has not been registered.^[12]

The punishment for violating this section is a fine of no more than $10,000, imprisonment for up to five years, or both.^[13] However, under the U.S. Sentencing Guidelines, a violation of section 77e is subject to an enhanced sentence.^[14]

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[1] John Shiffman, Into the Soup—and Federal Prison—in Fish Fraud, Philadelphia Inquirer, Sept. 15, 2005, available here.
[2] Id.
[3] Emmaus, Pa., Fish Farm Entrepeneur Faces Secntencing for Fraud, Morning Call, Jul. 14, 2005, available here.
[4] Shiffman.
[5] Id.
[6] 15 U.S.C. § 77q(a)(1).
[7] Id. § 77q(a)(2).
[8] Id. § 77q(a)(3).
[9] Id. § 77x.
[10] 18 U.S.C. Appx. § 2B1.1.
[11] 15 U.S.C. § 77e(a)(1).
[12] Id. § 77e(a)(2).
[13] Id. § 77x.
[14] 18 U.S.C. Appx. § 2B1.1.