What is Securities Fraud?

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Securities fraud consists of deceiving investors through illegal activities and manipulation of financial markets. Some of the most common types of fraudulent activity are stock fraud, Ponzi schemes, insider trading, and high yield investment fraud, among others.

Stock fraud occurs when a stockbroker or other person convinces an investor to buy stock by giving information that is deceptive or incorrect. False information may be included in the financial statement submitted to the Securities and Exchange Commission (SEC).
Insider trading is another way stock fraud is committed. Stock is bought or sold based on information that is not available to the public. When investors benefit from insider information to buy or sell stocks, they are participating in stock fraud.
A Ponzi scheme uses money that has been collected from new investors to pay the high rates of return that was earlier promised to other investors. When investors receive payouts, it looks like a legitimate company, but actually, the money collected from the new investors is the only source of money.
High yield investments are basically too good to be true. They offer a high rate of return with almost no risk. They usually involve securities, real estate, commodities and precious metals. These offers are unsolicited and the perpetrator will contact the investor by phone, email or in person.
Another kind of fraud is the creation of a dummy corporation that has a similar name as a genuine company. The people perpetrating the fraud sell securities in the dummy corporation by misleading investors into believing they are buying shares of the genuine company.

It is estimated that securities and commodities fraud involves close to 40 billion dollars annually. The trading volume grew dramatically during the 1990s which also included more fraud by executives, shareholders and investors. This has a devastating impact on these markets in general and eventually on the whole economy.

There are many laws that prohibit deceptive or inaccurate practices to convince investors to purchase the securities. A person who believes they have been tricked into buying worthless stocks can take legal action against the stockbroker or person who sold them the stock. Stockbrokers who are convicted of committing fraud will have their license to trade securities revoked.

Stock fraud can be pursued through a civil lawsuit, and if they win the case, they will be awarded a monetary judgment. If criminal charges are filed against a stockbroker and he or she is convicted, they may face imprisonment or probation. For these reasons, it is advisable that a qualified criminal fraud lawyer be retained if charged with securities fraud.

Securities Fraud in the United States

In the U.S., the sale and transfer of securities is regulated by the U.S. Securities and Exchange Commission (SEC). There are severe criminal penalties for security fraud violations. There are also civil fines imposed on people convicted or securities fraud by the SEC and the Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD). The Securities Exchange Act is a U.S. federal law and gives investors a way to recover losses and attorney’s fees.

Securities fraud is becoming more and more complex with complicated investment schemes and globalization. The internet also gives wide access to unsuspecting individuals. People over 50 years old are the most often victimized by perpetrators of security fraud.

International companies are also subject to securities fraud litigation. Suits can be filed in the U.S. as well as other countries. These suits are often settled out of court, because these cases are extremely complex and can take years to resolve.

Peter J. Scuderi is an experienced Philadelphia criminal lawyer specializing in crimes such as forgery, identity theft, fraud, and embezzlement. He also publishes his own criminal defense blog.