Securities fraud is a white collar crime that has serious consequences for individuals who are convicted. This category of crimes includes many different things that are illegal because not all cases of securities fraud involve the same methods. The key factor is that there must be an intentional effort to trick people into making specific investment decisions based on false information.
Individuals who are facing this type of charge should remember that there is usually a considerable paper trail associated with them. This can make trying to formulate a defense strategy a challenge because of the amount of information you may have to address.
Martha Stewart went to prison for insider trading. The simplest form of this involves someone with intimate knowledge of a company using that information to make decisions about their own stocks with the company before they alert the shareholders to the information. In many cases, these individuals will use that knowledge to help people close to them determine what actions to take with stocks. Insider trading can come from buying or selling shares in a company, and you can be accused of this crime if you are the recipient of the inside information and act on it.
Fraud by a company
Publicly traded companies are expected to provide accurate financial records. This includes revenue and expenses. It is possible that a company will provide accurate income information but it may not report true expenses, which is what led to the Enron scandal in 2001. When inaccurate financial records are provided to shareholders and potential investors, those individuals might make decisions that they wouldn’t have made otherwise. This type of securities fraud is usually done by a director or officer of the company since they’re the ones who can manipulate what information is made public.
Pump and dump schemes
One of the newest forms of securities fraud is the pump and dump scheme. This occurs when a third-party provides false information about a small company that offers cheap stocks. The person purchases a large amount of shares themselves, and then they try to get others to make purchases. This drives the price of the stocks up. Once it reaches a high enough value, the person will sell their shares.
The issue with securities fraud charges is that there are victims who have to deal with major financial impacts. This is considered in the criminal case against the person who’s accused of the fraud.