Common Securities Law Violations

The stock market has a massive effect on the economy. It is in the best interest of the country that trade remains fair and honest. Companies must also remain truthful in their reports and dealings. Laws have been passed to protect investors and the general public from fraud. The SEC also has a program to protect and reward whistleblowers. The following are some of the most common securities law violations on record:

 

Corporate Fraud

High-level officials may manipulate financial reports to make the company look better than its actual financial situation. They may use accounting loopholes to hide large debts and make failed projects seem like they succeeded. These deceptive behaviors continue to attract people to invest in something that they believe is profitable when things are actually going the other way. Another type of corporate fraud is the creation of dummy corporations with a similar name to mislead buyers into thinking that they are getting securities from a real company. Once the investors try to cash in on their assets, they will find out that they were duped and that their assets are worthless.

 

Ponzi Schemes

This has been around for a long time and has evolved with the trends. However, the basic principles remain the same. This is a type of investment fund where there are no actual investment activities to grow money. The interest promised to investors are instead sourced from the influx of new investors that were enticed through the initial results. The first payouts are usually just as promised but the scheme often crumbles under its own weight. The market is soon saturated and investors eventually dry up. Without a source of fresh funds, it becomes impossible to pay all the old investors.

 

Internet Fraud

The Internet has certainly revolutionized many industries (and modern life, in general), but it has also exposed people to real dangers. One of them is the prevalence of false information, many of them maliciously planted to achieve a certain goal. Fraudsters will sometimes descend upon online forums and chat rooms to spread info designed to cause a massive shift in the price of certain stocks. They will wait for the price to peak and then sell off their stocks for large profits. Meanwhile, the price will eventually crash to its normal value and the fraud victims lose their money.

 

Insider Trading

Sometimes people in the know or insiders will use information that is not available to the public to trade securities. For example, a high-ranking executive may learn about an upcoming merger or a declaration of bankruptcy. He may decide to sell or buy stocks to maximize profits prior to the impending event. Those who are aware of such frauds and wish to alert the SEC may get the services of an SEC whistleblower lawyer for assistance.