Securities fraud is the criminal act of inducing investors to make purchase or sale decisions on the basis of false information, resulting in losses. These acts are violations of securities laws because of the deceptive practices using false or manipulative information by individuals who defraud investors of their hard earned money.
The following are some of the deceptive practices conducted by those who engage in securities fraud:
• Churning – this is the situation where a stockbroker sells or purchases securities to accrue excess commissions for their personal gain;
• Unsuitability – This occurs when a broker places funds of a client into investments that are riskier than the client can manage or through withholding information to the client regarding the high risks involved with a particular investment;
• Creation of Illegal Accounts – This occurs when a broker creates a false account or places a client’s funds into their own personal account or investment;
• Overconcentration – This occurs when a broker places a majority of a client’s funds in one specific investment rather than placing them in other sectors. When this specific investment falls through, the client could stand to lose their entire investment as a loss;
• Unauthorized Trades – This occurs when a broker does not obtain any permission from a client before trading the funds of the client. The exception to this is a written blanket authority provided by a client to the broker to make financial decisions in their stead;
• Pump and Dump – This occurs through the dissemination of false or fabricated information concerning a stock causing it to rise in value and then selling of the stock allowing those that sold the stock to earn profit while other purchasers to lose their investments;
• Insider Trading – This occurs when officers, key employees, directors or holders of a particular stock uses insider information or non-public information obtained from within the company to either manipulate stock prices or sell or purchase shares of stock;
• Boiler Room Tactics – This is the use of undue pressure upon clients to buy or sell stocks through telesales or other means. With the pressure, the price of the stock is manipulated and then the pump and dump scheme is perpetrated;
• Ponzi Schemes – This is an investment system where withdrawals are financed by subsequent investors rather than through proper investment activities. In this scheme, returns on investments are high, inducing many to invest their funds in order to reap supposed profits where the actual earnings were taken from other individuals who have invested in the fund;
Also covered under this criminal offense are promoters, accountants and other traders. Depending upon the factual circumstances of the case and the criminal history of the accused, the particular penalties imposable can include both prison time, fines and restitution of the funds of the victims.
The crime of securities fraud is a serious matter in California. Should you be or know anyone facing any of these charges, do reach out to the lawyers at the Law Offices of Ramiro J. Lluis for a free consultation today.