Securities fraud refers to a group of crimes that typically involve a false statement that is made about a company or value of the company’s stock and others make financial decisions based on that false information. One example of securities fraud is insider trading when company insiders such as executives, board members or others trade stocks based on information unavailable to the public which is why it is helpful to be familiar with all of the different types of securities fraud, including insider trading.
Insider trading occurs when confidential information about the financial condition of a company informs decisions to buy or sell stock before any of that information is made available to the public. Securities fraud can also take place inside of a company and by the company itself. This can occur in instances when an officer or director of a corporation fails to accurately report the financial information and condition of the corporation to shareholders. Doing so can artificially inflate the worth of a company which may lead to investments being made into a company that’s financial health is not accurately represented or understood.
A third type of securities fraud involves third party misrepresentation. This type of securities fraud occurs when a third party provides false information related to the stock market generally or in regards to a particular company or industry. One example is when a party buys large amounts of stock in a small unknown company and then sends out false information about the company encouraging others to purchase the stock to drive up its price. Once the price of the stock has been driven up artificially high enough, the party will then sell their shares for a profit.
There are several different types of securities fraud it helps to be familiar with for anyone involved in securities fraud or who thinks they may be involved in securities fraud. Understanding how the law treats securities fraud and addresses these concerns is useful to be familiar with.