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Understanding securities fraud

On Behalf of | Aug 1, 2022 | Criminal Defense

Security fraud may take place anywhere, including Texas, and may involve someone making a false statement regarding the value of a stock. It might also be about the company itself and causes the making of financial decisions by those who have information of which the public has no knowledge. Securities regulation looks hard at this type of activity.

False information is at the heart of action in fraud regarding securities. It might involve wrongdoing by the company, insider trading or third-party misrepresentation.

The company commits the fraud

An officer in the company does not give the correct information to its shareholders. The company may be unhealthy, but shareholders do not know this; it might raise the value of company stock because those buying or owning stock think everything is fine. In the event of bankruptcy by the company, those investors will lose everything, based on false investment information.

There is insider trading

Someone in the company hears or sees confidential information regarding the company. Using this information, they may make decisions on whether to buy or sell stock.

One example would be someone in the accounting office who spots that the company may be heading for bankruptcy. It is not yet announced to the company directors. This employee decides to sell all his stock in the company. He may be guilty of insider trading if he places the trade before notifying the company. White collar crimes, such as this, may seem innocent, but the SEC takes them seriously.

A third party misrepresents the company

This crime occurs when someone outside gives fraudulent information about a company or stock. The “Pump and Dump” scheme is a type of this. Someone finds a very cheap stock and buys a large amount of it. They then send out false information regarding the company, causing others to buy up shares. The value of the stock then rises, while the perpetrator of this scheme sells off their shares and walks away with a good profit.

Security fraud is a type of white-collar crime and has three components. The SEC takes this type of fraud, involving stock and transactions, very seriously.