Securities fraud, also known as stock fraud or investment fraud, generally involves deceptive practices in the stock, bond and commodities markets. For example, you could be a securities fraud victim if a person or entity intentionally gave you false information or omitted vital information to induce you to make an investment decision. Anyone who invests their money, whether through the use of a brokerage account or stockbroker or otherwise, could be a securities fraud victim.
Securities fraud is both a state and federal violation that can potentially lead to civil and criminal cases against the defendant. Our securities fraud lawyers at Nix Patterson assist victims of securities fraud in obtaining damages from people and entities responsible for their financial losses.
Many different actors commit securities fraud, and their goal is usually simple: Make money by deceiving and using investors. This type of fraud can be committed by one person, such as a financial advisor or stockbroker. It also can be accomplished by a corporation, investment bank, brokerage firm, or a combination of entities and individuals. The targets are often inexperienced or unsophisticated investors with no idea fraud was committed.
Other investors also can commit securities fraud, especially market manipulation and insider trading. In these matters, an individual investor may be the fraudster instead of the victim. Because of the nefarious actions of one person, the entire stock market could be affected, and many other investors could suffer losses.
The SEC is the primary federal body charged with policing securities fraud. However, the SEC receives criticism for being too reactionary and not doing enough to prevent fraud. For instance, corporate-level securities fraud got national coverage in the early 2000s when the Enron and Worldcom scandals defrauded thousands of investors. The Bernie Madoff scandal is another example where the SEC was harshly criticized for missing the signs of massive securities fraud.
Some of the most common types of securities fraud include those listed below.
Misappropriation of funds is a significant risk for people who invest their money through financial advisors and stockbrokers. Fund misappropriation can involve both securities and cash in your accounts. A related type of securities fraud involves financial professionals misdirecting a worker’s retirement plan contributions to another account.
Investors are entitled to truthful financial and other information necessary to make informed investment decisions. However, if a company or individual provides misleading or false information about an investment opportunity, or if the broker gives you misleading information about a security, these could be examples of securities fraud.
This wide range of financial schemes purports to ensure high returns and low risk. If the opportunity sounds too good to be true, it almost certainly is.
Insider trading means financial and securities professionals using material non-public (or “inside”) information to profit from investment decisions, such as buying or selling stock in a company that the insider has secret information about. Corporate insiders can include accountants, executives, board members, and attorneys, all of whom can reap a financial windfall when using insider information. For example, the SEC recently filed charges against a Goldman Sachs worker who made trades with insider information before major corporate moves were made.
In the US, securities must be registered absent an applicable registration exemption. For instance, exempt private placements are tightly restricted and can only be sold to a maximum of 35 accredited investors.
Unfortunately, offering unregistered securities in US markets is becoming more common. Recent examples are promoting unregistered initial coin offerings (or ICOs) and other types of equity interests, such as stock or shares, being marketed in unregistered sales.
Another type of securities fraud is offering improper investment advice, engaging in unauthorized trading, and charging unnecessarily high fees.
In a Ponzi scheme, investors are told their funds will go to a legitimate investment opportunity. But the funds are used to pay off earlier investors. Or, the money is simply embezzled. Ponzi schemes eventually fall apart when there is a market downturn, and there aren’t enough investors to support the required payouts. The Bernie Madoff case is probably the most infamous Ponzi scheme in world history.
If you think you are a securities fraud victim, please do the following:
Note that filing a complaint with the SEC and FINRA doesn’t mean you will get your money back, but it’s an essential part of the process if you want to be compensated.
The case could go through arbitration as a fraud victim, but it can sometimes be filed in federal court, depending on the case factors. Some of the factors that determine how the case proceeds are:
However the case proceeds, the first step is to collect all documentation of the alleged fraud and talk to an attorney immediately.
There were 1,510 securities fraud cases investigated by the FBI in 2009. At the time, 175 FBI agents worked only on securities and commodities fraud. While there are primary law enforcement resources dedicated to combating securities fraud, investors can take steps to protect their assets and point out fraudulent activities:
If you suspect you’re a victim of securities fraud, you don’t have to go through it alone. Nix Patterson is well-versed in securities and investment fraud and is ready to fight for your rights. Contact us today for a complimentary consultation about your potential securities fraud case.
Nix Patterson only works on a contingency fee basis. Our clients pay us nothing unless we win. Schedule a free consultation today.
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