What Is Securities Fraud?

Securities fraud refers to a range of unlawful activities in the financial markets that can deceive investors and manipulate stock prices. Under applicable federal laws, including, without limitation, the Securities Act of 1933 (15 U.S.C. § 77a, et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. § 78a, et seq.), securities fraud encompasses various deceptive practices to gain an unfair advantage in the market or misrepresent the value of securities. 

Examples of Securities Fraud and Other Types of Securities Violations follow:

  • Failing to register securities – Companies and individuals engaged in issuing or selling securities must adhere to strict registration and disclosure requirements. Failing to register securities or providing false, manipulative, or misleading information in the registration process constitutes securities law violations. Investors may suffer losses when they unknowingly invest in unregistered or otherwise improper securities. 
  • Misrepresentations and omissions – Companies and individuals may release false or misleading information about a security’s value, performance, risks, or other important factors—or they may omit material information—causing investors to make uninformed decisions and suffer financial losses.
  • Accounting fraud – Companies engage in accounting fraud by falsifying or otherwise manipulating financial statements to overstate their assets, revenues, or profits, understate their costs, or otherwise report figures that mislead investors.
  • Insider trading – Insider trading occurs when individuals with material, nonpublic information about a company’s financial health, performance, or other important issues use that information to buy or sell securities, taking advantage of their inside knowledge. Insider trading can result in liability, penalties, and imprisonment. It is serious.
  • Unsuitable investment advice – Financial advisors and brokers have a fiduciary duty to provide investment advice that is suitable for their clients’ financial goals, risk tolerance, and overall financial situation. Investors who receive unsuitable investment advice may face significant financial losses that could have been avoided with appropriate guidance.
  • Churning – Churning is a deceptive trading strategy by brokers who excessively buy and sell securities within a client’s account to generate commissions for themselves. This results in unnecessary fees and losses for the investor.
  • Unauthorized Trading – This type of violation occurs when a broker executes trades in a client’s account without obtaining proper authorization. This illegal practice can lead to excessive trading, unnecessary fees, and losses for investors. Brokers are required to obtain clear consent from clients before making trades on their behalf, and failure to do so could be violations of securities laws, rules, and regulations.
  • Overconcentration – This refers to a situation in which a broker or financial advisor excessively concentrates an investor’s portfolio into a single security or asset class without regard for diversification. This practice can expose investors to significant risks, especially if the concentrated asset experiences a decline in value.
  • Stock manipulation – Manipulative practices, such as “pump and dump” schemes, involve artificially inflating the price of securities through false or misleading statements or manipulative trading, only to sell off shares at a profit once the price has risen. This causes significant harm to other investors in those securities.
  • Violations of Regulation Best Interest (“Reg BI”) – Reg BI requires brokers and financial professionals to act in the best interests of their clients when making recommendations for securities transactions. Violations of Reg BI, such as prioritizing their own financial interests over those of their clients, can constitute securities fraud or other violations. Reg BI is designed to ensure that investors receive suitable advice and are not subject to conflicts of interest.
  • Ponzi schemes – In essence, Ponzi schemes involve enticing investors with promises of high returns, using funds from new investors to pay off earlier investors. Ponzi schemes collapse when there are not enough new investors to cover the returns owed to prior investors, there is insufficient capital to satisfy investors’ withdrawal requests, the schemes are revealed, or other triggers bring down the house of cards, resulting in significant losses to investors. Entities that have aided, abetted, or otherwise assisted Ponzi Schemes may also be liable.
  • Failure to supervise – Brokerage firms are responsible for supervising their employees to ensure compliance with securities laws, rules, and regulations. Failure to adequately supervise can result in misconduct within the firm, leading to securities fraud and violations. When a brokerage firm neglects its duty to supervise its brokers or fails to detect and address misconduct promptly, investors may suffer significant financial losses.


Legal Remedies for Securities Fraud

Investors who have fallen victim to securities fraud have legal remedies available to seek compensation for their losses. These remedies are designed to hold violators accountable and provide recourse to defrauded investors. Civil litigation can be pursued to recover damages. Class actions are a powerful tool for investors to recover losses. Another avenue for seeking recourse is through the Financial Industry Regulatory Authority (“FINRA”) arbitration process. 

Civil Litigation

Investors can pursue civil litigation against those responsible for securities fraud. Civil lawsuits can be filed in federal or state courts to seek damages for financial losses, including, without limitation, compensatory damages. Class actions are a particularly efficient and effective tool to use in suing for securities fraud. Our firm has a proven track record of success in litigating securities fraud cases. 

FINRA Arbitration

FINRA provides an arbitration forum for adjudicating and resolving disputes between investors and financial industry professionals, such as brokers and brokerage firms. Investors can file a claim seeking compensation for securities fraud, violations, or other types of misconduct. Arbitration offers several advantages, including a quicker resolution process and lower costs, compared to traditional litigation. Our experienced attorneys at Nematzadeh PLLC are well-versed in navigating the FINRA arbitration process and advocating for our clients’ rights.

How Our Firm Can Help

At Nematzadeh PLLC, we are dedicated to protecting the rights and interests of investors who have suffered losses due to securities fraud. Our approach is comprehensive and tailored to the unique circumstances of each case. We also have the capability to defend securities fraud actions. 

If you believe that you have been a victim of securities fraud or are being sued, turn to Nematzadeh PLLC. We have a proven track record of successfully representing a wide range of clients in securities fraud litigation and arbitration. Contact Nematzadeh PLLC by calling (646) 799-6729 or emailing lawyer@nematlawyers.com for a confidential, free consultation.