Securities fraud refers to deceptive acts or practices that are used to scam people out of large sums of money. Fraudulent acts like making illegal investments or inflating stocks to force others to buy into them, only to sell right after, are considered securities fraud. Tricking investors while withholding information or not sharing the whole picture about an investment opportunity could result in severe legal consequences. If you want to protect yourself, your business, or others from securities fraud, here are some common schemes to look out for.
Misleading Financial Statements
Companies are required to submit different financial statements to the government, their financial department, and others in order to keep everything in check. Misleading documents that report overstated earnings or omit crucial assets are considered fraudulent. Hiding liabilities, overstating earnings, or minimizing assets can put a company and its investors at risk of large financial losses. Reporting all assets and money that a company has will improve its integrity and prevent securities fraud.
Failure To Disclose Risks
An insurance broker or financial advisor could omit important information from financial records that can show the risks of making a specific investment. Failure to disclose this information could result in damage to the health and longevity of a company. Securities fraud due to failure to disclose risks is often a big financial hit to an investor or a company. Any misleading information or withheld information about the investment someone is about to make could be considered fraud.
Insider Trading
The most common type of securities fraud is insider trading, which involves company insiders sharing non-public information that will help them sell or buy the company’s stock. Lawyers, board members, or company accountants who share this confidential information are guilty of securities fraud because it often gives them a step up in trading and buying stocks. Retail investors are often left in the dark and can experience financial losses when investing in a company’s stock.
Market Manipulation
Individuals who interfere with the natural flow of the stock or securities market can be guilty of securities fraud. Manipulation often looks like spreading misinformation about the company’s profits, spreading rumors about a company merger or acquisition, and talking down about a company’s performance to help lower their stock market price. Buying and selling rapidly can also be a form of market manipulation, making it difficult for typical investors to buy stocks at a fair price. Anything that tips the scales in favor of the individual to make the stock prices unfair constitutes securities fraud.
Affinity Scams
This specific type of fraud preys on identifiable groups and exploits their trust. A fraudulent individual may present an investment opportunity with exaggerated potential returns. They may also hide risks or potential drawbacks of the investment to make it appear favorable. These investments go right into the fraudster’s pocket, rather than investing in a company or stock. Affinity scammers may give some of the original investment back to the group to create an illusion of “returns,” but will ultimately steal the rest of the group’s investment.
Unregistered Securities
All securities must be registered in the United States in order for them to be sold or traded. Unless a special exemption is given, securities need to be registered in order to prevent fraud. Unregistered securities should be a major red flag for investors, as these are not controlled or reviewed by the SEC, meaning they could be worth less than your investment or a risky product. Unregistered securities could range from investments in a start-up to investments in a product stock.
What To Do If You Suspect Securities Fraud?
If you suspect securities fraud or think you have been a victim, it is important to report it to the SEC immediately. The Office of the Whistleblower may also be able to help you get some of your investment if the scam was over $1 million.
If you believe that you have caught a fraudulent scheme before it comes to fruition, work with your company’s lawyer or outside legal team to stop the scam from happening. Because company lawyers may also be a part of securities fraud, you may consider outsourcing if you suspect they are involved in fraud.
Attorneys from a trusted law firm can help you look for evidence and can protect you or your investors from losing money. The sooner you contact a legal expert, the lower the risk of financial ruin.
Legal Help From WW Partners
Our legal team is here to protect your investments, stocks, bonds, and other securities. WW Partners is proud to serve our local communities and businesses, providing them with comprehensive legal advice and litigation services. Don’t be a victim of securities fraud and ensure that your business is safe from insider trading or other fraudulent schemes. Reach out and get to know our lawyers today!