Securities Fraud 2017-02-08T20:02:44+00:00

Securities Fraud


Securities fraud is complex and multifaceted but basically persuades people to purchase or sell investments based on false or misleading information. These schemes are also known as investment fraud or stock fraud, and commonly involve the stock and commodities markets. What is common to all securities fraud is that investors normally lose all or most of their money.

Those involved in securities fraud can be corporations, stockbrokers, brokerage firms, investment banks, stock analysts or private investors. Corporate officers and/or board members may commit securities fraud by making misstatements on financial reports or Securities and Exchange Commission filings, engage in insider trading, falsely represent themselves to corporate auditors or manipulate stock prices.

Securities fraud has a devastating impact on the stock and commodity markets as well as the economy at large. Fraudulent mortgage backed securities, in which multiple home loans are bundled together and sold as a security, are thought to have played a major role in the 2008 financial crisis. All of the nation’s top investment banks (Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America, Citigroup) sold mortgage backed securities –  or related products whose performance depended on these securities – without telling investors that there was considerable risk that the investments would fail. These banks have many billions of dollars in fines and penalties for their deceptive practices.

It is estimated that civil securities fraud costs approximately $40 billion annually. Since the 1990’s, the internet has given more people access to stock and commodity markets, thus opening up more avenues for criminals to commit securities fraud. This type of fraud is far from a victimless crime.  Many individuals and families from varied economic backgrounds have lost their entire life’s savings due to federal securities fraud.

Securities Fraud Whistleblowers

Whistleblowers report securities fraud directly with the Securities and Exchange Commission (SEC), a federal enforcement and regulatory agency. Anyone with original information pertaining to a violation of securities law can be a whistleblower, provided they are not members, officers or employees of regulatory agencies, law enforcement agencies, the U.S. Department of Justice or the Public Company Accounting Oversight Board.

Individuals who file SEC whistleblower complaints may do so anonymously. Although all whistleblowers are well advised to be represented by an attorney skilled in these matters, those that choose to file anonymously must be represented by counsel. Although the confidentiality provided to SEC whistleblowers is the strongest of all federal whistleblower programs, the identity of a whistleblower will be disclosed if a reward is paid.

Under the provisions of the newly passed Dodd-Frank Wall Street Reform and Consumer Protection Act, SEC whistleblowers are eligible to receive 10 to 30 percent of all money recouped from SEC sanctions exceeding $1 million. Whistleblowers are also protected from corporate retaliation such as being fired, demoted, harassed, suspended, demoted or threatened in any way. Whistleblowers can file a civil suit to seek damages for any retaliatory action taken against them. If successful, compensation may include two times the whistleblower’s actual lost pay, reinstatement and payment of any legal fees.

Types of Securities Fraud

Securities fraud encompasses a wide range of fraudulent activity carried out by individuals and companies alike. The following are common forms of SEC fraud:

  • Ponzi Schemes
    A fraudulent investment fund that pays investors with their own money or money that is obtained from other investors rather than profits made through investments. Bernie Madoff was the operator of a Ponzi scheme that is considered to be the largest financial fraud in United States history. It is estimated that Madoff’s scheme cost investors about $64.8 billion in losses.
  • Insider Trading
    The trading of a company’s stock, bonds or other securities by company insiders or related parties using information that is not accessible to the public. If a company issues non-public information to any person, the SEC regulation Fair Disclosure requires the company to make that information available to the public. Martha Stewart was convicted of obstruction of justice and lying to investigators related to charges of insider trading.

This type of financial fraud occurs when accounting firms do not identify falsified financial records made by their clients. In many cases, these accountants assist their customers in falsifying their books and records using improper investment deductions or secreting income in a variety of ways. Many of the nation’s largest accounting firms have admitted to or been charged with negligence or willful misconduct due to their failure to disclose false information related to their client companies’ financial standing. This type of fraud results in billions of dollars of lost tax revenue, as well as losses to individuals who were deceived about a company’s financial strength.  Accounting fraud may be used to artificially boost a company’s stock price. In two recent cases, AgFeed Industries, an animal feed and hog production company, created fake invoices to inflate its revenue and Diamond Foods, a snack food company, lied about walnut costs so it could report higher earnings.  In both cases, the goal of this fraudulent  activity was to make the company look more attractive to investors.

Securities Fraud Attorneys

Rigorously investigating and litigating SEC fraud cases requires relentless focus and dedication to our clients’ cause. The lawyers at Baum, Hedlund, Aristei & Goldman are tenacious and unflinching litigators and have routinely prevailed in both state and federal courts. Our experienced team of whistleblower attorneys can help you through the complicated process of filing an SEC fraud claim and assuring that your rights are protected.

If you have personal knowledge of federal securities law violations and would like to learn more about your options, please contact us.

Please allow a few moments after submitting this form. You will be notified when your information is received.