What is Securities Fraud?

Securities fraud occurs when an individual, a financial advisor or investment firm attempts to sell an investor a security (stocks, bonds, derivatives, etc) based on false information.

Securities fraud can take many different specific forms, including embezzlement, forging documents, the manipulation of stock prices or the making of misrepresentations to investors.Victims of securities fraud often sustain tremendous financial losses. Fortunately, victims do have legal options available. Many laws, including Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, are designed to protect investors from fraud. If you believe that you or a family member has been the victim of securities fraud, please contact an experienced securities fraud lawyer today for immediate legal assistance.

What are Some Common Types of Securities Fraud?

• Corporate misconduct: Corporate officers and directors have a legal duty to accurately represent the state of their company to investors, regulators and the public. A corporation that makes false representations to current or prospective investors may be guilty of securities fraud.
• Insider trading: Corporate officers and directors are also guilty of securities fraud if they engage in any illegal insider trading. Using nonpublic information to make trades is prohibited by law in many different circumstances.
• Internet-based fraud: Increasingly, securities fraud schemes are perpetrated on the internet. For example, one common internet-based securities fraud scheme is known as a ‘pump and dump’. This type of fraud occurs when investors attempt to manipulate the price of a security upwards and then immediately sell off their remaining holdings causing a sharp price fall. This leaves the other unsuspecting investors with huge losses. Beyond ‘pump and dump’ penny stock fraud, there are many other internet-based securities fraud schemes that often take place, including e-mail spamming and phishing.
• Abusive short selling: Short selling is a practice that involves an investor selling a security that they do not actually own. In other words, the investor is selling a security that has been loaned to them. In this type of arrangement, the person engaging in a ‘short sale’ would make a profit when the price of that security goes down. In general, there is nothing wrong with short selling, and it is a common method used to manage risk. That being said, short selling can also be conducted in an abusive and fraudulent manner. For example, a complex process known as naked short selling has at times been used to manipulate the price of securities.
• Ponzi schemes: Ponzi schemes, often, though not always, involve securities fraud. The perpetrators of Ponzi schemes usually draw in investors by offering unusually impressive rates of return. Of course, the reason that they are able to offer such impressive ‘returns’ is because they are simply paying off their original investors with money taken in from new investors. A Ponzi scheme is a house of cards and when the scheme runs out of new victims, the whole thing will quickly collapse.

Were You the Victim of Securities Fraud?

The experienced investment fraud attorneys at the Sonn Law Group are standing by, ready to help. Our primary office is located in Miami and we serve securities fraud victims nationwide. To learn more about how we can help you recover the fair compensation you rightfully deserve, please give our team a call today at 1-844-689-5754.