Securities Fraud Awareness and Prevention

In order to protect yourself from securities fraud, you first have to know what it is. Securities frauds happen when an individual or a company makes a false statement about another company or the value its stock, and if others make a certain financial decision based on that false information. Securities fraud cases are very delicate. If you aren’t familiarized with securities regulation, you may have a hard time grasping securities fraud. Due to that fact, in order to protect your assets from fraud, you have to hire a knowledgeable and well-experienced financial advisor and a securities fraud lawyer to assist you. Learn how to recognize fraud and protect yourself.

Types of Securities Fraud

Securities fraud is actually a broad area that covers a range of illegal activities that have one thing in common – the deception of investors or manipulation of the financial market. Securities frauds include schemes (Ponzi, pyramid and advanced fee schemes). Common types of financial scams also are broker embezzlement, late day trading, foreign investor fraud and so on.

Securities Fraud by the Corporation Itself

A widespread type of securities fraud is when a director of a company fails to precisely and accurately report the business’ financial information to its shareholders. Not providing the necessary financial information and the company’s expenses may result in cause profits to look larger than they are. If a company has large profits, and the worth of the company’s stocks raises, investors will be encouraged to buy more shares. However, if an investor buys stocks from an unreliable, unhealthy company, if it goes bankrupt, the investor will completely lose their investment.  

Insider Trading

Insider trading occurs when a person that has confidential information about a company’s financial state uses it to make certain financial decisions. These financial decisions can include whether to buy or sell the stock before the information is revealed to the public. To make things more clear, we will illustrate this with an example. A corporate accountant notices that a particular company is losing money and will soon go bankrupt. If he sells his stock before notifying the board, he has committed insider trading.

Third Party Misrepresentation

If a third party gives false information about the stock market or a particular company, he has committed a third party misrepresentation securities fraud. This type of fraud is also known as “pump and dump” schemes. In the scheme, a person will find a small, unknown company with cheap stock and buy large amounts of its shares. Then, the person will encourage other investors to buy the stock and send them out false information. When the price of the stock becomes high enough, the perpetrator will sell his parts for a profit.

Identify the Warning Signs

If you notice any of the following warning signs of securities fraud, check the offer with your trusted financial advisor or a securities fraud attorney. Report scams as soon as they occur – file a complaint with the Securities and Exchange Commission or contact a local law enforcement agency. Whenever you are considering an investment opportunity, you have to be very careful not to come across a scam artist.

  •    The offers seems too good to be true
  •    The seller uses high-pressure sales tactics
  •    The investment offer is unsolicited
  •    The seller asks for personal information (for example) credit card information over the phone or internet

Protect Yourself from Securities Fraud

Even though federal and state governments give their best to prevent securities fraud, you should consider protecting yourself and your assets from financial crimes by hiring a securities fraud lawyer. Have in mind, that even if you are a large player in the stock market, without understanding securities law regulations, you may have a hard time separating truth from fiction. However, a lawyer can help you recognize the warning signs of securities fraud. If you need protection, or if you are charged for a securities fraud yourself, contact a criminal defense attorney experienced in white collar crimes as soon as possible. A qualified attorney will assess your case and help you reach the most favorable outcome in the case.