Securities are any assets which can be traded. For example, a financial instrument which represents some amount of financial value and takes the form of a certificate that grants the holder rights associated with the profit distributions of a business.
Securities may also refer to interests which involve an investment with the return exclusively or primarily dependent upon the efforts of some individual other than the investor. In general, the term securities refers to:
It may, however, also be used to refer to other types of investments and assets. The main categories of securities include:
- Debt-based securities, such as bonds and bank notes;
- Equity-based securities, such as common stock; and
- Derivative contract securities, such as futures and options.
Because of this, securities law governs a wide range of assets as well as businesses which an individual may own. In addition, securities law is commonly included under the broader category of finance law.
Finance law governs:
- Assets;
- Loans; and
- Other valuables of all kinds.
Securities law represents the numerous federal laws and regulations which govern the creation, sale, and purchase of security interests. These laws provide that all investors, whether they are private individuals or large institutions, should have access to basic facts related to an investment prior to purchasing it.
This can only be accomplished by the steady flow of accurate, comprehensive, and timely information which can help individuals make sound investment decisions. Securities are usually exchanged through securities markets.
Trading markets can be vulnerable to manipulative or unfair business practices, for example, securities fraud and insider trading. Due to these issues, securities markets are heavily regulated by both state and federal laws which are intended to protect investors from these practices.
The agency that is tasked with enforcing securities laws in the United States is the Securities and Exchange Commission, or SEC. The SEC is primarily tasked with protecting investors as well as maintaining the integrity of the securities markets by requiring public companies to disclose meaningful financial information to the public.
This is done so that security investments can be evaluated prior to their purchase.
What is Securities Fraud?
Securities fraud occurs when an individual or a business attempts to unlawfully manipulate the investment market using fraud to sell a security. There are numerous parties that may attempt to manipulate the market for profit, including:
- Forporations;
- Private investors;
- Financial advisors;
- Dealers;
- Brokers; and
- Analysts.
For example, the 2001 Enron case was sparked by deceptive accounting practices which significantly overvalued the company. This resulted in overinflated stock prices that were not known to investors and shareholders.
As noted above, securities fraud is prosecuted under administrative and civil actions brought by the SEC. Fraud that rises to the level of the Enron case may also be subject to criminal charges similar to those brought against Enron executives.
The Enron case is a classic case of corporate fraud. Corporate fraud occurs when a company deliberately conceals or chances information to appear successful when, in reality, they are not. Other examples of securities violations as well as securities litigation claims include:
- Market manipulation: This security violation occurs when a securities company, broker, or investor engages in any activity creating a false impression regarding the following related to
- a security:
- price;
- availability; or
- distribution;
- Insider trading: This security violation occurs when individuals with inside knowledge of a company’s stock activity use the information to gain a personal advantage on a trade;
- Breach of fiduciary duty: This security violation occurs when a trustee or broker manages another’s securities and has a conflict of interest that prevents them from remaining loyal to the beneficiary;
- Churning: This occurs when a broker engages in excessive trading to boost their sales commissions;
- This conduct is considered unethical and is prohibited by securities laws;
- Unauthorized trading: This occurs when a broker engages in trading against the wishes of the stockholder; or
- Malpractice or ineptitude: This security violation typically occurs when an individual holds themselves out to be a professional broker when, in reality, they are not.
What is Internet Securities Fraud?
Securities fraud, in general, involves the use of practices in the securities that are misleading, false, or deceptive. Internet securities fraud involves the use of websites and e-mail to perpetrate various schemes which are aimed at cheating individuals out of their investment funds. It is also referred to as online security fraud.
These newer forms of securities violations are increasing in number. Even experienced investors have fallen victim to these types of scams.
What are Some Common Types of Internet Securities Fraud?
There are numerous different types of internet securities frauds which are circulating on the Internet, including:
- Fictitious securities;
- Fake stock tips; and
- Identity-theft related fraud.
Fictitious securities involve the creation and presentation of investment opportunities that do not exist anywhere other than the Internet. They may promise outstanding return rates and are typically touted as risk-free investments.
These fictitious securities may appear on a website which looks very genuine and may even contain links to other websites supporting the investment opportunity. As individuals purchase shares of the product, the individuals who are responsible for the websites disappear, leaving the investors with no actual product.
Fake stock tips involve using SPAM e-mails to circulate fake tips and insider stock information which causes the value of some stocks to rise, allowing the scammers to reap profits on their existing stock shares. False investment advice may also be provided online using:
- Online forums;
- Chat rooms; and
- Bulletin boards.
Identity-theft related fraud scams are scams which use stock information simply as a front to obtain confidential information related to an individual’s identification. For example, a scammer may present a fraudulent document that allows them to obtain the individual’s address, social security number, and other personal information.
One of the main characteristics of an internet securities fraud operation is that it can often appear very professional in the way that it is presented. For example, a website may contain documents that appear legitimate and photographs that are related to the investment opportunity.
Because of this, it is important to exercise caution when researching investment leads online.
What are the Penalties for Internet Securities Fraud?
Typically, a victim of an online securities fraud will not face legal consequences if they unknowingly participated in a fraudulent investment scheme. On the other hand, a third party who knowingly participated in internet securities fraud may face legal consequences.
For example, if the individual participated in order to receive a cut of the profits. A party that is found responsible for an internet securities fraud scheme may face serious legal consequences, including hefty criminal fines and, in some cases, a jail or prison sentence.
The party may also face civil lawsuits from the victims who suffered an economic loss as a result of the fraud. In the majority of cases, internet securities fraud is perpetrated by a group of individuals rather than by one individual acting alone.
Therefore, it is possible for several individuals to be held legally responsible for the damages which were caused by an internet scheme.
Do I Need a Lawyer if I Have Legal Issues Involving Internet Securities Fraud?
Internet securities fraud has become the basis for many lawsuits in recent years. One of the main difficulties in prosecuting a party perpetrating an internet securities scheme is locating them after the scheme has terminated.
If you have any issues, questions, or concerns related to internet securities fraud, it may be helpful to consult with a securities lawyer. Your lawyer can assist you with compiling the necessary documents and evidence to prove your claim.
It may also be helpful to consult with a lawyer prior to making an investment to ensure that you are not being subjected to fraudulent practices.
