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Understanding the basics of securities fraud

On Behalf of | Aug 31, 2016 | Uncategorized

Securities fraud is a white-collar crime that can encompass a variety of investments such as stocks, bank notes, bonds, investment contracts, and more.  It takes place when an individual, company or an organization buys, sells, or trades one of these instruments under false pretenses.

Specifically, those false pretenses can include the following:

Insider trading – If a person is associated with a company and has information that is not available to the general public and they try to profit by buying or selling a security, they have committed the offense of insider trading.  Some insider trading is permissible, but generally, if you have information that would materially change the price of a stock, you cannot use that information to trade securities.

Misrepresentation – To decide the current value of a security and what the probable value of that security will be in the future, investors must rely on honest and accurate information to properly assess risk.  When a person attempts to manipulate the price of a security by making deceptive statements or releasing false or deceptive information, they are guilty of misrepresentation.

Churning – A securities broker who convinces a client to engage in excessive trading to generate more fees and commissions is guilty of churning.  By law, brokers have a fiduciary duty to do what is in the best interests of their clients.  When the broker violates that duty, they are guilty of securities fraud.

The Security and Exchange commission is primarily responsible for prosecuting securities fraud, but each state also has separate laws governing securities as well.  However, most times security fraud is prosecuted as a federal offense.

Each securities fraud infraction has serious penalties attached to it, including prison and heavy fines.  If you are accused of a securities fraud crime, you need to speak with a securities fraud lawyer as soon as possible, especially before making any statements to police or SEC investigators.

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