Securities fraud, also known as “stock fraud” or “investment fraud,” is a deceptive practice related to the stock or commodities markets and designed to induce investors to buy or sell on the basis of false information. This often results in financial losses and is a violation of securities laws. Securities fraud can include theft from investors (embezzlement by stockbrokers), insider trading, stock manipulation, misstatements on a company's financial reports, or lying to corporate auditors.
Generally, the Securities and Exchange commission polices acts of securities fraud. However, it is often criticized for being more a reactionary body than one that actively prevents misconduct. For example, securities fraud by high level corporate officials became a subject of wide national attention during the early 2000's, when scandals such as Enron/Arthur Andersen and Worldcom brought attention to these legal issues. Similar issues were feared during the economic downturn and the sub-prime lending scandals, and found in the Ponzi schemes of Bernie Madoff.
Of course, part of the problem is the myriad form that securities fraud can take:
Dummy Corporation Schemes
Dummy corporation schemes allow fraudsters to create the illusion of being an existing corporation with a similar name to a real entity. The fraudsters then sell securities in the dummy corporation by misleading the investor into thinking that they are buying shares in the real corporation.
Internet Fraud
Internet fraudsters often use so-called “pump-and-dump” schemes, in which false information is pumped into the internet via chat rooms, emails, etc.,in order to artificially inflate stock prices.. When the price reaches a certain level, the fraudster dumps their stock holdings to obtain the resulting profits before the other buyers realize the scheme and prices drop to their normal prices.
Insider Trading
There are two types of insider trading: trading of stock by corporate insiders who own certain substantial percentages of a corporation and trading stocks based on non-public, insider information about the company. While the first type is generally legal, provided certain regulatory requirements are met, the second is generally illegal given the distinct advantage it gives the insider over others in the market.
There are many other forms of securities fraud, such as microcap fraud, boiler rooms, Ponzi schemes, and “short and distort” practices. Unfortunately, as markets change, so too will the ways to commit securities fraud, meaning that despite heavy regulation the axiom of “buyer beware” must always apply to these kinds of transactions.
For more information about securities fraud, please visit the resources listed below. Additionally, if you need the assistance or guidance of an attorney experienced in securities fraud matters, please visit the “Law Firms” tab on the menu bar at the top of this page.
Generally, the Securities and Exchange commission polices acts of securities fraud. However, it is often criticized for being more a reactionary body than one that actively prevents misconduct. For example, securities fraud by high level corporate officials became a subject of wide national attention during the early 2000's, when scandals such as Enron/Arthur Andersen and Worldcom brought attention to these legal issues. Similar issues were feared during the economic downturn and the sub-prime lending scandals, and found in the Ponzi schemes of Bernie Madoff.
Of course, part of the problem is the myriad form that securities fraud can take:
Dummy Corporation Schemes
Dummy corporation schemes allow fraudsters to create the illusion of being an existing corporation with a similar name to a real entity. The fraudsters then sell securities in the dummy corporation by misleading the investor into thinking that they are buying shares in the real corporation.
Internet Fraud
Internet fraudsters often use so-called “pump-and-dump” schemes, in which false information is pumped into the internet via chat rooms, emails, etc.,in order to artificially inflate stock prices.. When the price reaches a certain level, the fraudster dumps their stock holdings to obtain the resulting profits before the other buyers realize the scheme and prices drop to their normal prices.
Insider Trading
There are two types of insider trading: trading of stock by corporate insiders who own certain substantial percentages of a corporation and trading stocks based on non-public, insider information about the company. While the first type is generally legal, provided certain regulatory requirements are met, the second is generally illegal given the distinct advantage it gives the insider over others in the market.
There are many other forms of securities fraud, such as microcap fraud, boiler rooms, Ponzi schemes, and “short and distort” practices. Unfortunately, as markets change, so too will the ways to commit securities fraud, meaning that despite heavy regulation the axiom of “buyer beware” must always apply to these kinds of transactions.
For more information about securities fraud, please visit the resources listed below. Additionally, if you need the assistance or guidance of an attorney experienced in securities fraud matters, please visit the “Law Firms” tab on the menu bar at the top of this page.
