“Securities fraud” is a legal term that covers a broad array of unlawful activities. One type of securities fraud that almost everyone has heard of is known as insider trading, for example, but there are many more.
Keep reading to learn about the different types of securities fraud that could result in civil and/or criminal allegations:
Insider trading happens when someone obtains inside information pertaining to a company’s activities. Someone might obtain this inside information through his or her personal involvement in the company or through an informant with inside information.
Perhaps, for example, the mother of a high-ranking CEO suddenly makes a cool million dollars off of a well-timed stock trade related to her son’s company. Or, perhaps the CEO sells stock shares of the company where he works in advance of negative news that causes those shares to plummet. These types of instances could inspire scrutiny from government regulators, who might choose to pursue an insider trading suit against the allegedly guilty party.
Misrepresentation and/or omission of material information
A misrepresentation or omission of material information violation may happen when someone offers the sale of investment to someone else. If the person who offers the sale of the investment knowingly misrepresents facts — lies or omits information — that is material to the investor’s decision-making process, this could constitute as a serious violation of securities laws.
Unsuitable investment recommendations and breaches of fiduciary duty
Some investment advisers and stockbrokers have a fiduciary obligation to their customers. This means that the advisers or stockbrokers must provide advice that reflects the best interests of their customers, and they must place the best interests of their customers ahead of their own.
If an adviser with a fiduciary obligation to his or her client makes a recommendation — or acts in a way — that falls out of sync with the client’s needs and goals, this could result in a legal violation and lawsuits against the adviser for breach of fiduciary duty and/or unsuitable investment recommendations.
If you were accused of any securities-related legal violation, make sure to understand your legal rights and options so that you can formulate a lawful and appropriate defense.