When you are any type of investor, including a shareholder in a company, you know that investing comes with a certain degree of risk. Your investment is subject to the volatility of the markets, and while you hope you will make money, the possibility that you will lose money is always there.

What you don’t hope for is that the risk will come from the company you are investing in itself. Unfortunately, shareholders are sometimes victims of securities fraud committed by the companies they invest in. Securities fraud is a very broad term for different types of defrauding of investors, including withholding important information about the stock price.

If you’ve been a victim of this type of fraud, an attorney can help you file a securities class action lawsuit. Before you begin filing a lawsuit, you should understand if fraud is something that happened to you. Here is a detailed guide to securities fraud that can help you seek justice.

What Is Securities Fraud?

First, it’s important to establish a definition of securities fraud.

The FBI defines this type of fraud as “a wide range of illegal activities, all of which involve the deception of investors or the manipulation of financial markets.”

In plain English, this is any attempt by companies or other stakeholders to twist the markets for their own gain and make off with people’s hard-earned money. The targets are usually investors or potential investors. Fraudsters commit their scams by misrepresenting information about their company to investors. They use a variety of tactics to make people believe their companies are more successful than they are and that the investment will be more lucrative or more secure than it actually is.

There are many different types of securities fraud, which will be explained in more detail later so you can identify if you were a victim of one of these schemes.
The most important thing to remember is that securities fraud is a very serious crime. The federal government considers this type of white-collar crime a high priority as it affects the security of important markets. As such, it falls under the jurisdiction of massive agencies such as the FBI. It is in the government’s interest to punish perpetrators of fraud, so a lawsuit will have that impulse on its side.

Types of Investment Fraud

Is Securities Fraud the Same as Insider Trading?

Securities fraud is a very broad term that includes all investing “tactics” that involve violating the rules of the market or lying to investors. This includes insider trading. Insider trading is a type of securities fraud, but securities fraud is a much broader term that includes other types of fraud.

Insider trading is when people have access to confidential information that the general public, including other investors, don’t have access to. Then, investors with the benefit of this information act on the stock market for their own benefit. For example, an investor with insider knowledge that a company is about to declare bankruptcy might sell their stock a day before other investors and the general public find out, meaning that they make money instead of losing money.

Insider trading is considered fraud because it relies on lying to other investors. While certain insiders gain information that makes them money, other investors are allowed to continue losing money. Insider trading is common in corporate settings and even certain members of the government have been accused of this type of fraud.

If you suspect you’ve been left on the outside of insider trading, that is a form of securities fraud that can be subject to a class action lawsuit.

What Is Securities and Wire Fraud?

Securities and wire fraud is another common term you’ll come across when you are looking into different types of investor fraud. Like insider trading, wire fraud is a type of fraud that falls under the larger umbrella of securities fraud. Essentially, wire fraud relies on the use of telecommunications platforms or the Internet to spread fraudulent information. It gets this name because most communication travels through telephone or Internet wires.

Specifically, interstate or international wires have to be used for securities fraud to be classified as wire fraud. Wire fraud is a very serious crime that is a federal crime. Perpetrators can face decades in prison and thousands of dollars in fines—on top of any charge they might catch for securities fraud.
Not all wire fraud is considered securities fraud. For example, the classic Nigerian prince scam, where someone emails a victim pretending to be a Nigerian prince who just needs a small advance wired to them before returning a massive fortune, is an example of wire fraud. However, the two often overlap because fraudsters need telecommunications platforms to contact victims.

If the securities fraud you were a victim of relied on interstate communication, you could also be a victim of wire fraud. Ask your lawyer if it is possible to add a wire fraud charge to a class action lawsuit.

Why Do People Commit Securities Fraud?

If you’re naturally an honest person, it might be hard for you to understand why someone might commit securities fraud. It seems like a lot of work and a lot of risk to engage in when making money through legitimate means if you’re highly trained is easy enough on commodities markets.
There are a few reasons why people do commit securities fraud. The simplest answer is greed. Yes, it is possible to make money through legitimate means, but it is often much faster and more lucrative to steal other people’s hard-earned money through hard-earned means. It’s a lot easier to pretend you have a business that is a high-yield investment opportunity than take the years necessary to build such a lucrative business, after all.

Sometimes, people are pushed into committing fraud by toxic work or investment environments. Individual brokers are motivated by competition in the office around sales commissions. Or they think the fraud they are committing is temporary, that they are just dipping into investors’ money to pay back other debts and will return those funds eventually. The pressure to make money can justify a lot of things, and people soon get sucked into doing things they would never approve of otherwise.

Finally, normally good people find themselves in a situation where they stand to benefit, and their morals don’t withstand the pressure. For example, someone with sudden access to insider information may think it is just a quick buck to sell that information to others and never commit fraud again. Or people just follow others at the same company who are committing fraud.
Not everyone commits securities fraud because they always dreamed of taking money from retirees and other investors. However, everyone who commits securities fraud is committing a crime. The reasons and motivations ultimately don’t matter.

How Do You Prove Securities Fraud?

The problem with securities fraud is that they are easy to deny on the part of the perpetrator. Everyone knows that markets can be volatile, especially in turbulent economic times when economists are announcing an imminent recession. Investors can plead ignorance and say that any loss on the client’s part falls under the umbrella of expected losses when engaging with the markets.

First, the customer has to establish the motives behind the seller’s actions. They can prove intentionality or recklessness. A customer (or the customer’s attorney) has to prove that the seller intentionally misrepresented the stock with the goal of taking the client’s money.

Even if someone didn’t intentionally lie to investors with the goal of defrauding them, they can still be prosecuted for securities fraud if attorneys can prove that they acted recklessly. If the seller is found to have acted in a way that shows a lack of care for the wellbeing of others, for example, if they did not take the trouble to return money in an advanced fee scheme, they can still be found guilty of fraud.
The second part of proving securities fraud is that the customer or investor relied on said fraudulent information provided by the seller to make financial decisions, directly affecting their finances. There are a few ways to prove this reliance.

One is called the “fraud on the market theory,” where a customer or their lawyer has to prove that a seller’s misinformation affected the market price, which in turn affected the investor’s actions.

In some situations, the customer or investor does not have to prove reliance because it is reasonably assumed to be present. This situation usually comes up in fraud by omission cases, where a seller is accused of withholding information that might affect investors’ actions.

In these cases, the investor or customer does not have to prove reliance, but a court can use common sense to decide if the omission would affect an investor’s actions. For example, omitting that a CEO’s daughter is ill does not count as fraud, but omitting that the CEO is about to file for bankruptcy certainly does.

Finding a Securities Fraud Attorney

If you have reason to believe that you are a victim of securities fraud, find an attorney right away. You should not pursue legal action yourself since financial law is too convoluted for a single person, and you know that a fraudster will make sure to have the best lawyers and defenders on their payroll. When looking for an attorney, make sure to hire one that specializes in securities or investment fraud.

A good investment fraud attorney will probably recommend a class action lawsuit. A class action lawsuit is a lawsuit where a group of people hires attorneys to represent them as a collective. This group of people have one thing in common—they were victims of the same crime. Usually, in a securities fraud class action lawsuit, the lawsuit is filed by a group of investors and customers who all lost money in the same fraud and can prove that they were defrauded around the same time.

Class action lawsuits are a great option for securities fraud because investors who already lost money due to the fraud don’t have to spend depleted resources on retaining individual legal teams. Plus, your chances of success are higher when banding together with other investors. If the attorney can prove that multiple people were victims of the same fraud, it is a lot easier to prove that the defendant acted with intentionality or recklessness and that investors relied on this fraudulent information.

Securities Class Action Cases

If you have suffered financial loss due to information not being provided to you, chances are other investors have too, Class Action Cases are listed everyday. Visit this listing for the most up to date securities class action lawsuits.

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