A Brief Overview of Securities Fraud
By Aaron Larson
In general terms, securities fraud involves the use of deceptive practices in the securities market. For most people, this means that they will be enticed to invest in securities, such as stocks and bonds, by statements or promises which are untrue or intentionally misleading. However, securities fraud can be committed not only by the issues of securities, or by securities traders and brokers, but also by individual investors.
Examples of securities fraud include:
Submitting false or incomplete information on filings with the Securities and Exchange Commission (SEC)
Including false information on a company financial statement
Insider trading - making securities trades based upon certain "inside information" not available to the general public.
Manipulating stock values
Conduct by securities brokers and dealers meant to mislead or defraud individual investors.
With the enormous popularity of the Internet, in recent years there has been significant growth in online securities fraud.
Acts of securities fraud may be crimes at both the state and federal level, and may also result in administrative action or civil suits by regulatory agencies such as the SEC. Penalties may include fines, restrictions on future trading activities, and orders of restitution to injured investors.
Additionally, acts of securities fraud by issuers of securities, or by brokers or dealers of securities, may result in their discipline by, or ejectment from, membership organizations or stock exchanges in which they participate.
Further, securities fraud may result in litigation or arbitration against securities brokers or dealers, in relation to their conduct with particular investors. Usually disputes with investors are resolved by arbitration, as most securities brokers and dealers have "arbitration clauses" in their contracts with their clients. Sometimes class action litigation may be commenced against those responsible for the fraud, in the name of the entire body of investors who were injured by the wrongful conduct.
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