What Is Securities Fraud in New York, NY

A securities fraud lawyer can represent you if your investments have been defrauded by brokers, financial advisors, and brokerage firms.

Examples of Securities Fraud

Securities fraud can take many forms. Examples of the most common types of securities fraud are:

Ponzi Schemes

Ponzi schemes promise a guaranteed return for the investment. In reality, the earlier investors are simply getting the capital of the new investors. The best example of the Ponzi scheme is the scheme employed by Bernie Madoff, a Wall Street financier who scammed $65 billion from around 40,000 investors, using money from new clients instead of actual profits in paying off the promised guaranteed returns of earlier clients.

Pyramid Schemes

A pyramid scheme is similar to a Ponzi scheme in the sense that payments are made to the earlier investors by later investors. However, in a pyramid scheme, the investors are called recruiters and there is no consistent guaranteed return unless the earlier investor or recruiter is able to recruit a later investor or recruiter. The payments made by the later recruiter is then given to the earlier recruiter. Thus, money is made by recruiting more people into the scam, and the scheme can collapse when recruitment slows down.

False Information

When individuals or companies provide misleading information to manipulate the market, there is securities fraud. For example, a company can manipulate its own financial information in order to influence an investor to buy its shares. This is what happened to ENRON, where they hid billions in debt in their financial statements using accounting loopholes and special purpose entities.

Pump and Dump Schemes

The pump and dump scheme is a type of securities fraud committed by a group of investors who artificially inflate stock prices by spreading false or misleading information and thereafter selling their shares at excessive prices.

Unsuitable Investment Recommendations

Finance professionals, such as brokers and investment advisors, may recommend unsuitable securities based on the investment objectives, risk tolerance, and other factors that make up the customer's profile. Although investment mistakes can be made, when a broker or financial advisor intentionally deceives the customer into making an unsuitable investment, the broker or advisor may be held liable for securities fraud.

Elements of Securities Fraud

The elements of fraud are similar in proving securities fraud:

  1. Material misrepresentation or omission: The defendant made a material misrepresentation or omission of fact.
  2. Scienter: The defendant acted with the intent to deceive, manipulate, or defraud.
  3. Reliance: The plaintiff relied on the defendant's misrepresentation or omission of fact.
  4. Causation: The defendant's misrepresentation or omission of fact caused the plaintiffs financial loss.

Most securities fraud claims are made in a class action lawsuit. However, when a person's financial loss is large, it makes more sense to file an individual securities fraud action.

Investigating Securities Fraud

The Securities and Exchange Commission (SEC) is the primary agency tasked with prosecuting civilly securities fraud. However, criminal cases of securities fraud are handled by the Department of Justice (DOJ).

Prior to filing charges, however, both the SEC, FBI, and DOJ play a role in investigating securities fraud.

Although FINRA cannot prosecute securities fraud, it can impose disciplinary action against firms or individuals that violate securities laws and regulations.

What To Do When You Were a Victim of Securities Fraud

If you have been a victim of securities fraud, report the fraud to the appropriate agencies, such as SEC, FINRA, and DOJ. Ensure that you have gathered all documentation related to your case so you have strong evidence to prosecute the perpetrator. Should you need representation, we, at the law offices of Albert Goodwin, are here for you.We have offices in New York, NY, Brooklyn, NY and Queens, NY. We are located in Midtown Manhattan in New York, NY. You can call us at 212-233-1233 or send us an email at [email protected].