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Securities Fraud

Criminal Defense Attorney Alan BaumCriminal Defense Attorney Eric Chase

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Securities fraud can be described as deceptive practices in the commodity and stock markets. The Securities Act of 1933 and the Securities Exchange Act of 1934 prohibit the use of manipulative or deceptive devices, making false statements in order to increase market share, conspiracy and other acts of unfair market practices. Together, they are referred to as "securities fraud".

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Securities Fraud Defense Considerations

Like many other types of financial fraud, the web of offenders in securities fraud can include stockbrokers, promoters, traders, accountants, and lawyers. Professionals like these working together can defraud stockholders out of billions of dollars. Although the idea of boiler room schemes pushing worthless penny stocks upon unsuspecting victims comprises part of the problem, the SEC and federal courts have imposed both civil and criminal securities fraud sanctions upon diverse groups ranging from organized crime rings to high school students.

Types of Securities Fraud

The four most prevalent types of securities fraud include "churning", insider trading fraud, outsider trading, and "pump and dump" fraud.

Churning securities fraud refers to the buying and selling of stock in order to generate commissions for the stockbroker at the expense of client's profits.

Insider trading refers to the misappropriation of nonpublic information. While the original statutes made it illegal for employees to directly benefit from market-sensitive information, the definition of insider trading has been expanded to disallow sharing privileged information to a third party who might buy shares in the company.

Outsider trading evolved from insider trading laws. The United States Supreme Court first recognized a form of outsider trading as securities fraud in the 1997 case United States v. O'Hara. The court in that case applied what they called the "misappropriation theory." The misappropriation theory, "subjects individuals who trade on material, non-public information to prosecution, regardless of whether they worked for the company whose stock was being traded or otherwise owed the corporation's shareholders a fiduciary duty." While originally involving a strict interpretation of the Securities Exchange Act, decisions from securities fraud cases before O'Hara in the early eighties limited the criminal liability of outside traders to only those instances in which the outsider should have known that the information resulted from a breach in the first place.

One of the most common Internet securities fraud scams is one of the oldest investment schemes of all time: the "pump and dump" scam. Historically "pump and dump" schemes are run out of makeshift offices staffed with fast talking telemarketers that convince innocent investors to buy debatable stock. The high pressure sales tactics generate enough demand to push up the share price of stock. This phase of the scheme is known as, the "pump". The "dump" part of this type of securities fraud occurs when the price of the stock reaches a specific objective and the operation that was originally encouraging investors to buy, sells its shares for a significant profit. The sell-off will also lower demand and consequently the share price, leaving unsuspecting investors with a loss.

Using online investment newsletters positioned as being objective to the trade, and which promote the purchase of specific securities may constitute another form of investment fraud.

Retain a Securities Fraud Lawyer in Los Angeles

If you are facing potential securities fraud charges, it is critical that you use a legal defense team with specific experience and expertise dealing with securities fraud charges. Call us in Los Angeles at any time at (800) 209-4331 for a free, confidential initial consultation. Retaining an expert securities fraud lawyer in Los Angeles as quickly as possible is critical to obtaining the best results.

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