Table Of Contents

Securities Fraud

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

Investment fraud is another term for securities fraud. There are many different types of securities fraud as scammers have evolved different tactics to try to make people part with their hard-earned money. Here are some of the most common types of fraud to look out for.

01 – High-Yield Investment Fraud

The premise of high-yield investment fraud is very simple. Sellers target investors with promises that they will make a lot of money, promising massive yields on their investment. The details range widely in these frauds. The deal can be about trading stock, commodities such as gold, and even real estate.
What unifies these frauds is that the terms are always too good to be true, but investors get so taken in by the promise of easy money that they don’t stop and investigate the details of the investment. They don’t stop and wonder why the seller is contacting them in the first place, as often, contact is established through unsolicited contact. By the time they realize it’s time to ask questions, it’s often too late.

02 – Ponzi Scheme

Ponzi schemes are one of the most well-known types of securities fraud, thanks to the massive fraud undertaken by Bernie Madoff. In a Ponzi scheme, investors are lured in with the promise of a lucrative enterprise. They get a small payoff immediately or soon after the investment, leading the investors to believe that the business is profitable and a more lucrative payout is on the way. In reality, the payoff only comes from money invested by other new investors who got taken in by the same story. There is no lucrative business with a bigger payoff coming. Once the scheme runs out of new investors, it also runs out of money, and the whole thing collapses. Ponzi schemes are very similar to classic pyramid schemes. In both scams, the fraud relies on a continual supply of new investors. However, with a pyramid scheme, there is no immediate payout. Instead, people are told they have to recruit new investors to make money. These new investors, in turn, have to recruit new investors, going on and on until there are no more people left and everyone realizes they were cheated.

03 – Advance Fee Schemes

Advance fee schemes are some of the simplest securities frauds. In this fraud, sellers contact investors with the promise of a high-yield investment. However, to make that investment happen, the investor needs to put up a small sum of money first. They can say this is the starting investment amount or that the money is necessary to pay off fees. Advance fee schemes rely on continuous contact. Usually, fraudsters will repeatedly contact investors, asking for just another small amount to cover brokerage fees or another investment. Eventually, investors realize that the return will never materialize.
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04 – Pump-and-Dump Schemes

New technologies are making it easier for investors to get into the market without going through traditional gatekeepers. However, they are also giving fraudsters new tools to part people from their hard-earned money. One of these new Internet-based frauds is the pump-and-dump scheme. Fraudsters engaging in this scheme lurk in Internet forums and chat rooms dedicated to investing. They spread information that is designed to get people to buy stock, or pump the market. The catch is that this information is usually false, inflating the perceived value and security of the stock or commodity. Once enough people buy the stock, the seller sells off massive amounts, “dumping” the stock and crashing the price. This leads investors to lose a lot of value. Some notorious cryptocurrency projects are examples of pump-and-dump schemes.

05 – Other Types of Investment Fraud

There are many other types of investment fraud that there is no time to explain in detail. These include: ● Foreign Currency (or Forex) Fraud ● Broker Embezzlement ● Hedge Fund Fraud ● Late Day Trading Regardless of the type of fraud you encounter, there are a few tell-tale signs you can look for. If the promise is too good to be true, if the seller is using very pushy tactics, or you can’t remember how they got your contact information, those are signs to be wary. If you suspect you’ve already been a victim of one of these types of fraud, it is important to inform yourself about your legal rights, including the potential to file a lawsuit.

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.

Final Thoughts

Securities or investment fraud is sadly a very common problem. Unethical sellers target investors with a variety of schemes that rely on spreading misinformation that affects the behavior of the market. Victims of security fraud can receive compensation and justice in the courts, but only when hiring an attorney. Usually, attorneys pursue class action lawsuits as those have higher chances of success.

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.


Deadlines in class action cases are very common. This is because the court system also words on deadlines. The first deadline in a Class Action Lawsuit is that of a Lead Plaintiff. This is usually an investor with the largest loss and that person represents all other investors in this case.


There are no out-of-pocket costs to join a class action. Attorney’s are awarded a cost by the courts after the case has been successfully decided on and investors have been awarded their loses.
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securitiesfraudlawsuit site

Securities Class Action Lawsuits

Joining a Securities Class Action Lawsuit, if you are an injured investor is the best way to seek damages from the investment you trusted.