18 U.S.C. § 1348: How Federal Securities Fraud Is Charged — and What the Ostin Indictment Shows

How Federal Securities Fraud Is Charged: 18 U.S.C. § 1348

Federal securities fraud prosecutions rest on a statute that reaches schemes against both investors and the integrity of the markets themselves: 18 U.S.C. § 1348, added by the Sarbanes-Oxley Act on July 30, 2002 (Pub. L. 107–204, § 807(a)) and expanded to commodities by amendment on May 20, 2009 (Pub. L. 111–21).

The statute is built on a single opening clause — "Whoever knowingly executes, or attempts to execute, a scheme or artifice—" — followed by two prongs. The first reaches a scheme "to defraud any person" in connection with any commodity for future delivery, any option on a commodity for future delivery, or any security of an issuer registered under section 12 of the Securities Exchange Act of 1934 or required to file reports under section 15(d) of that Act. The second reaches a scheme "to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property" in connection with the purchase or sale of those same instruments.

The penalty provision is direct: a person convicted under § 1348 "shall be fined under this title, or imprisoned not more than 25 years, or both."

A Live Indictment Shows the Statute in Action

United States v. Yan Zhao and Lai Kui Sen, Court Docket No. 1:25-CR-259, is assigned to the U.S. District Court for the Eastern District of Virginia, Albert V. Bryan U.S. Courthouse in Alexandria, before Judge Michael S. Nachmanoff. On September 10, 2025, Yan Zhao — also known as "Hank Shi," "Hank Shu," "Altman," and "Bob" — was charged alongside Lai Kui Sen. The Department of Justice describes the defendants this way: "According to the indictment, Lai Kui Sen is the co-CEO of OST, and Yan Zhao is a financial advisor. OST is a Cayman Islands company with its principal operations in China, that claimed to be a manufacturer of display modules used in consumer electronics."

The alleged scheme, as summarized by the Department of Justice, worked in stages. First, Sen and Zhao allegedly provided "a group of fifteen co-conspirators with tens of millions of OST shares through two non-bona fide securities transactions" — shares those investors received "either heavily discounted or for no remuneration." Second, the indictment alleges that on April 15, 2025, a fraudulent campaign began to artificially inflate the price of OST stock. Third, the shares were sold into that inflated market.

The result, in the government's account: "Ultimately, according to the indictment, unwitting investors suffered significant losses when, on June 26, 2025, OST lost over $950 million in market capitalization, representing over 94% of its value."

What Practitioners Should Note

The Ostin allegations track both prongs of § 1348: a scheme to defraud in connection with a security of an issuer required to report under the Securities Exchange Act, and money or property — the shares and their proceeds — obtained through the alleged false pretenses. An indictment is an accusation, not proof; the defendants are presumed innocent unless proven guilty. But the case is a working illustration of how the statute's "scheme or artifice" language maps onto alleged market manipulation, from the creation of the inflated price to the losses that followed its collapse.

Primary sources

• 18 U.S. Code § 1348 — Securities and commodities fraud (Cornell Law School, Legal Information Institute) — "Whoever knowingly executes, or attempts to execute, a scheme or artifice—" … "shall be fined under this title, or imprisoned not more than 25 years, or both."
• United States v. Yan Zhao and Lai Kui Sen — U.S. Department of Justice, Criminal Division case page — "According to the indictment, Lai Kui Sen is the co-CEO of OST, and Yan Zhao is a financial advisor."