Solve Your Legal Matter

Five common securities frauds

by | May 25, 2021 | Business Litigation |

Individuals and businesses often turn to financial advisors to manage investments and financial matters. Ideally, this financial expert should help the client pursue lucrative business opportunities and identify those that too risky or simply inadvisable.

Not all investments will meet or surpass their initial potential, but the financial advisor still should not act negligently or have ulterior motives outside the conditions of the business relationship. Trust is an essential part of this relationship, and a violation of that trust can have serious consequences.

Common business scams to watch for

Also known as investment fraud, securities fraud can range from shockingly obvious to complex schemes that are hard to recognize. Typical red flags include:

  1. Misleading statements: Going beyond optimistic business forecasts, this involves company representatives knowingly making misleading statements about a company’s finances or omit crucial financial information.
  2. Internet scams: One of the common examples of fraud, this can involve using fictitious financial opportunities or misleading practices in the securities market.
  3. Insider trading: This occurs when someone inside an organization uses confidential information as the basis of their decision to buy or sell stock.
  4. Penny stocks: These may seem like an inexpensive way to invest, but many of these stocks are often of dubious origin and have less oversite than larger and more reputable companies.
  5. False information: Advisors or managers may knowingly provide false information about stocks, companies or industries. It can lead to pump and dump schemes that the advisors get others to invest in and drive up the stock price. They then dump the pumped-up stock.

Legal action is possible

Some financial advisors may face accusations of securities fraud because they were misled or simply because they made a bad judgment call. However, those who intentionally mislead clients can be held accountable for their actions.