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Securities and Investment Fraud

Securities and investment fraud is any one of a number of deceptive practices in the stock and commodity markets.

Fraud typically occurs when individuals or corporations use deceit to falsely inflate stock values or lure money from investors. Fraud may also happen when people use unfair or “insider” knowledge to gain an upper hand in stock markets or other investments.

If you have been charged with investment fraud or are facing securities fraud charges, you can speak with a local criminal defense attorney about your case. Simply fill out the free case evaluation form on this page or call 877-445-1059 to set up your consultation today.

Securities Fraud Defined

Securities fraud may overlap with other areas of crime, such as tax evasion, embezzlement and business fraud.

Securities and investment fraud may be committed by:

  • Corporations
  • Private investors
  • Stock brokers
  • Financial advisers
  • Accountants

There are several common types of securities fraud, but they all share a few similar characteristics. In each instance, there is a manipulation of information for financial gain.

This may be through misrepresentation ‒ such as inflating a company’s profits or fabricating a stock-selling business out of thin air ‒ or making financial moves in public markets before major news is announced.

Types of securities and investment fraud:

  • “Pump and dump.” This is the tactic of exaggerating or over-inflating the value of stock so it can be sold at a high price. The perpetrators then dump the stock, it loses value and investors lose their money.
  • Corporate fraud. Corporate fraud may overlap with certain elements of tax evasion and embezzlement, but certain actions may be considered securities fraud. Securities fraud would occur if, for example, a corporation adjusted its accounting practices, exaggerated profits or de-emphasized losses to artificially inflate stock price.
  • Misinformation.. A type of communications fraud, this is where a corporation releases false or exaggerated information online, sometimes through forums or social media Web sites, to “pump” up the perception of the company and inflate stock value.
  • Insider trading. The trading of public stocks or other securities based on non-public knowledge. Example: Your CEO-friend tells you his company’s marquee product will be recalled. No announcement has been made by the public. Expecting the stock to tumble, you sell your shares. When the announcement is made the stock does fall and you save a significant amount of money.
  • Microcap fraud and “boiler rooms.” As made famous in the movie “Boiler Room,” these are centralized areas of people pushing, typically over the telephone, sales of a financial product. Often, they are pushing the sale of microcap or “penny stocks.” These are stocks from small companies that are not yet on a major exchange. Sometimes, they may even sell stock in non-existent companies. Boiler rooms may use high pressure and dishonest sales tactics to push people to give up their money. Perpetrators may keep the money without investing, or use “pump and dump” tactics.
  • Mutual fund abuse. Mutual fund brokers may manipulate funds or structure sales in a manner that puts their interests above a client’s.
  • Short selling. Certain forms of short selling may be illegal. Short selling is an investment when the seller believes the price of a stock will go down.
  • Ponzi schemes. These have gained fame recently after it was revealed that Bernard Madoff had swindled billions of dollars in investment scams from charities, athletes, politicians, movie stars and other celebrities. Ponzi schemes promise high returns through investment. In actuality, the big returns seen in the short term, which are used to entice investors to spend more money, aren’t returns on investments, but rather investment money given by other victims to the head of the scam. The head of such a scheme keeps money that is meant to be invested.

Securities and Investment Fraud Penalties

Securities and investment violations are investigated by the Securities and Exchange Commission. The SEC can investigate individuals or corporations if they suspect a violation of laws and regulations.

Violating securities laws can result in criminal and civil penalties and charges.

The SEC has the power to file charges several years after the violations occurred or were discovered. The lengthy statute of limitations means that you may want to seek the counsel of a criminal defense attorney even if it has been several years since any violations occurred.

The penalties for securities fraud conviction vary, and they may be levied against individuals and corporation.

Often, judges use a point system to determine the magnitude of the violations. This takes into account:

  • Number of victims;
  • Amount of money lost; and
  • Overall damage caused.

Once this is determined, the punishments may include:

  • Prison time;
  • Fines; and
  • Repayment of lost money or property.

The SEC may also hand out sanctions that restrict an offender from involvement in future business actions.

Individuals and corporations may receive separate punishments for their respective roles in securities fraud. For example, the CEO of a business violating securities laws may receive prison time while a corporation would be punished with a fine.

The SEC is capable of handing out some hefty punishments for corporations. WorldCom was fined $750 million for accounting fraud while Adelphia Communications faced fines of $715 million for earnings manipulation.

Securities Fraud Charges? Speak With a Criminal Defense Lawyer Today!

If you think you or your company may be involved in illegal business practices that are in violation of securities regulations, you may want to speak with a criminal defense attorney. If you think your actions might be illegal, get answers while protecting your criminal rights.

Charges don’t guarantee convictions. A criminal defense lawyer can answer questions about your case and explain the charges against you and what options are available. To speak with a lawyer near you about securities and investment fraud charges, simply fill out our free case evaluation form or call toll-free 877-445-1059.

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The above summary of white collar crimes is by no means all-inclusive and is not intended to provide legal advice. Laws may have changed since our last update. For the latest information on white collar crimes, speak to a criminal defense attorney in your area.


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