Securities Fraud

 Securities fraud is the act of lying or sharing insider information about a company or its stock value to influence other people’s investment decisions. While this may seem straightforward, the actual practice of prosecuting or defending a person who is charged with securities fraud is complex.  Securities fraud charges cover a wide range of acts that a person can commit and often coincide with an SEC civil action or investigation. 

Below are a few common examples of securities fraud:

Ponzi Schemes

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors.   Ponzi scheme organizers often promise high returns with little or no risk. Instead, they use money from new investors to pay earlier investors and may steal some of the money for themselves.  With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Market Manipulation

Market manipulation occurs when an officer or director of a corporation does not accurately report the business’s financial information to its shareholders. This inaccurate report can artificially raise the value of the company’s stock and may urge investors to buy shares of an ailing company. If the company then goes bankrupt, the people who bought shares based on false information lose their entire investment.

“Pump And Dump” Schemes

“Pump and dump” schemes are a prevalent type of third-party misrepresentation that occur when a third-party gives out false information about the stock market, a company or an industry.  In a “pump and dump” scheme, a person will find an unknown company with affordable stock and buy many shares. That person will then send out false information about the company to encourage others to buy the stock, which then drives up the price. Once the price of the stock is high enough, the person sells, or dumps, their shares for a profit, devaluing the stock.

Insider Trading

Insider trading is a type of securities fraud that involves the trading of a corporation’s securities (stocks, bonds or stock options) by corporate insiders such as officers, key employees, directors or holders of more than 10 percent of the firm’s shares. Insider trading is illegal when an insider buys or sells a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.

Examples of insider trading include:

• Corporate officers, directors and employees who trade the corporation’s securities after learning of significant, confidential corporate developments
• Friends, business associates and family members of corporate insiders who trade securities after receiving information
• Employees of law, banking and brokerage firms who have secret insider information about a corporation, who then trade securities after receiving confidential information
• Government employees who learn insider information because of their job

The criminal penalties for all forms of securities fraud are severe. Call us at 561-932-1690 to schedule your free consultation.