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What is securities fraud, and how is it committed?

On Behalf of | Jul 19, 2022 | Criminal Defense

White-collar crimes are among the most seriously punished in North Dakota and around the country. If you are arrested for securities fraud, it’s important to know how the crime is committed and that you should seek immediate help.

What is securities fraud?

Securities fraud is a type of white-collar crime that involves false statements or false misrepresentation of information about stocks or similar investments. It can be carried out in different forms but has the same goal.

What are different types of securities fraud?

There are different forms of securities fraud. One of the most well-known is the Ponzi or pyramid scheme, which involves instilling the believe of success in an enterprise that doesn’t exist for the purpose of taking money away from new investors. Meanwhile, those investors never receive the high returns they were promised.

Sometimes, securities fraud is committed through insider trading when individuals such as board members buy or sell stocks via information that isn’t publicly available.

The pump and dump scheme occurs when a third-party misrepresentation is made. The perpetrator finds an obscure company and buys large amounts of cheap shares with the purpose of encouraging other people to buy them at higher prices. This is a newer form of securities fraud that usually involves the use of the Internet to convey false representation.

Sometimes, investment fraud is carried out by a person high up within a company. A person with a corporate position might deliberately inaccurately report the company’s financials to shareholders, which can drive up the value of stock. This scheme encourages investors to buy more shares. However, if the company is financially floundering, it hurts the investors as they lose money.

Securities fraud is a crime that could change people’s lives in negative ways. If a person is convicted, they could face up to five years in prison and fines that could range as high as $5 million. It is a charge that requires a strong defense.