Securities fraud can be described as deceptive practices in the stock and commodity markets. Generally, securities fraud occurs when investors are enticed to part with their money based on untrue statements. Securities Fraud is illegal. Examples of securities fraud under securities law include:
- Providing false information on a company financial statement
- Providing false information on Securities and Exchange Commission (SEC) filings
- Lying to the company auditors
- Insider trading
- Stock manipulation schemes
Securities Law – Churning
Churning occurs when a broker engages in excessive trading in an account, often in an attempt to generate additional fees and commissions. Often times the broker will sell the securities that have appreciated to show a small profit, while keeping the losers.
Often, a stockbroker or investment advisor may misrepresent material facts by omitting information or by not disclosing risks that may be associated with an investment to the client. In both instances, the investment professional can be held liable if the client experiences losses because the professional failed to give the client proper advice.
The law imposes a duty upon securities brokers and investment advisors to only recommend securities that they reasonably believe are suitable for the client. The broker’s belief must be based upon a reasonable inquiry of the client’s investment objectives, financial situation, tax status and any other relevant information known by the broker.
Failure to Execute Orders Under Securities Law
Financial advisors and securities brokers have a duty to properly execute client orders. The broker also has a duty to obtain the best price available for the customer. If the customer places an order to sell a security for when the price declines to a certain level, the broker is obligated to do so. Failure to meet these obligations may result in liability for any resulting losses.