Securities fraud, also known as stock or investment fraud, is the practice of using false information to entice investors to part with their money. Securities fraud typically results in substantial losses to investors and violates a number of federal laws. If you’ve been accused of securities fraud, it’s imperative that you contact an experienced California defense lawyer from The Kavinoky Law Firm today to begin mounting an aggressive defense.
Securities fraud cases are almost always prosecuted by the federal government rather than state authorities. The consequences of a securities fraud conviction include large fines, restitution payments and sometimes even jail or prison time.
In addition to deceptive practices in the stock and commodity markets, securities fraud also includes outright theft from investors and misstatements on a public company’s financial reports. The term also encompasses a wide range of other actions, including insider trading and front-running and other illegal acts on the trading floor of a stock or commodities exchange.
Securities fraud can also include intentionally false information on a company’s financial statement and Securities and Exchange Commission (SEC) filings; lying to corporate auditors; insider trading; stock manipulation schemes, and embezzlement by stockbrokers.
Corporate Fraud
Corporate securities fraud often involves allegations of insider trading and/or of making false statements about a company’s financial performance. Fraud by high-level corporate officials at companies such as Enron, WorldCom, and Tyco have garnered enormous attention in recent years, and prompted federal officials to launch an “aggressive agenda” against corporate fraud. FBI Director Robert Muller predicted in April of 2008 that corporate fraud cases will increase because of the subprime mortgage crisis.
Internet Fraud
Internet fraud exists in many forms, including pump-and-dump schemes, in which false and/or fraudulent information is disseminated in chat rooms, forums, internet boards and via e-mail (spamming), with the purpose of causing a dramatic price increase in thinly traded stocks, or stocks of shell companies (the “pump”). When the price reaches a certain level, criminals immediately sell off their holdings of those stocks (the “dump”), realizing substantial profits before the stock price falls back to its usual low level. Any buyers of the stock who are unaware of the fraud become victims once the price falls.
The SEC reveals that Internet fraud resides in several forms, such as the following:
* Online investment newsletters that offer seemingly unbiased information free of charge about featured companies or recommending “stock picks of the month” are sometimes used for fraud.
* Bulletin boards that often contain fraudulent messages by hucksters.
* E-mail spam from perpetrators of fraud.
Insider Trading
Insider trading is the trading of a corporation’s stock or other security by corporate insiders that may include company officers, key employees, directors, or holders of more than ten percent of the firm’s shares. Some insider trading is illegal. In illegal insider trading, an insider or a related party trades based on non-public information obtained during the performance of the insider’s duties at the corporation, or otherwise misappropriated.
Microcap Fraud
In microcap fraud, stocks of small companies of under $250 million market capitalization are sold fraudulently to the public. Its prevalence has been estimated to run into billions of dollars each year. Microcap fraud includes pump-and-dump schemes involving “boiler rooms” and scams on the Internet. Many, but not all microcap stocks involved in frauds are penny stocks, which trade for less than $5 a share.
Accountant Fraud
In 2002, a wave of separate, but often related, accounting scandals became known to the public in the U.S. All of the leading public accounting firms—Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, PricewaterhouseCoopers— and others have admitted to or have been charged with negligence to identify and prevent the publication of falsified financial reports by their corporate clients, which had the effect of giving a misleading impression of their client companies’ financial status. In several cases, the monetary amounts of the fraud involved are in the billions of dollars.
Boiler Rooms
So-called boiler rooms are stock brokerages that put undue pressure on clients to trade using telesales, usually in pursuit of microcap fraud schemes. Some boiler rooms offer clients transactions fraudulently, such as those with an undisclosed profitable relationship to the brokerage. Securities sold in boiler rooms include commodities and private placements as well as microcap stocks.
Mutual-Fund Fraud
A number of major brokerages and mutual fund firms have been accused of various deceptive acts that disadvantage customers, including late-trading and market-timing. Various SEC rules were enacted to curtail this practice. Bank of America Capital Management was accused by the SEC of having undisclosed arrangements with customers to allow short-term trading
Short-Selling Abuses
Abusive short-selling, including certain types of “naked” short-selling, is also considered securities fraud because it can drive down stock prices. In abusive naked short-selling, stock is sold without being borrowed and without any intent to borrow. The practice of spreading false information about stocks, to drive down their prices, is called “short and distort.” During the takeover of The Bear Stearns Companies by J.P. Morgan Chase in March of 2008, reports swirled that shorts were spreading rumors to drive down Bear Stearns’ share price. Sen. Christopher Dodd, D-Conn., said this was more than rumors, and said, “This is about collusion.”
ARE YOU ACCUSED OF ENGAGING IN SOME
FORM OF SECURITIES FRAUD?
If you have been accused of engaging in any type of securities fraud, a skilled California attorney from The Kavinoky Law Firm can help. Being accused of – and, in the worst case, convicted – of securities fraud violations can jeopardize your entire future. Oftentimes securities fraud violations are considered to be crimes of moral turpitude, or extremely dishonest conduct. Obtaining job, education, financing, professional licensure, loans, etc., is extremely difficult after a securities fraud conviction, so it’s imperative to aggressively fight the charges. Contact a knowledgeable California defense lawyer from The Kavinoky Law Firm today for a free consultation
