An Overview of Securities Fraud

There are a number of laws, rules, and regulations in place that are intended to protect investors.  Unfortunately, however, it is not uncommon for these laws to be violated. Below is an overview of the most common types of securities fraud.

• Unsuitability – Unsuitability is a subset of securities fraud and refers to situations in which financial advisors make investment recommendations to their clients that are inconsistent with the client’s investor profile.  Establishing a claim for unsuitability involves demonstrating that investments made were inappropriate given a specific investor’s goals, financial situation, and instructions to his or her stockbroker.

• Misrepresentation and omission – Misrepresentation and omission claims arise when investors are intentionally given false or incomplete information by a broker or securities firm in order to convince a client to invest in a particular security.

• Insider trading – Insider trading is a form of financial fraud in which individuals with inside knowledge about an organization use this information to make stock trades. Acting on this type of knowledge is prohibited by law and can result in civil liability and criminal charges.

• Market manipulation – Market manipulation is a form of fraud that occurs when actions are taken to give investors false impressions of securities.

• Churning – Churning is an unlawful technique used by stockbrokers to increase their commissions. It occurs when a broker engages in unnecessary trading on a client’s account.

• Financial statement fraud – In order for investors and stakeholders to make rational and informed decisions, it is important that they are presented with accurate financial statements. However, companies sometimes prepare and file fraudulent statements in an effort to hide information from investors and the general public. This type of activity is most common when an organization goes public, i.e., when it offers shares of its stock for sale to the general public.

• Unauthorized trading – Generally speaking, financial advisors are required to obtain permission before trading securities in an investor’s account. Trades made without this permission are considered unauthorized. Unauthorized trading also occurs when a stockbroker executes trades in contradiction of his or her client’s instructions.

• Misappropriation – Misappropriation occurs when a broker or other financial professional illegally appropriates client funds.

Investor Representation Attorney

At SIMMS LAW, P.A., one of our primary focuses is the representation of investors—including those investors who believe they have been the victims of financial fraud. Unfortunately, securities fraud has been a part of the United States financial system since the advent of the stock market. For the retail investor, securities fraud typically occurs when a broker or financial advisor misrepresents the risks and key characteristics of an investment, causing the investor to purchase unsuitable security. At SIMMS LAW, we always take our clients’ concerns seriously and are aware of what is at stake when an investor suffers losses due to financial fraud. If you suspect that any suspicious activity has occurred in any of your investment accounts, or if you believe that you have been misled about the nature and risks of any of your investments, please contact us today for a free consultation.