Securities Violations

Securities are financial instruments—such as stocks, bonds, certificates, and derivatives—purchased as investments and traded in markets that are subject to federal rules and regulations.

The deception of investors or the manipulation of securities markets may constitute securities fraud, a type of white collar crime that can harm investor finances and the economy at large.

The Securities and Exchange Commission (SEC) handles most securities fraud cases, and whistleblowers who report fraudulent securities activity may be eligible for a substantial reward. The SEC has awarded over $100 million to whistleblowers since 2011.

Some common types of SEC fraud are explained below.

Corporate Fraud

Corporate securities fraud occurs when high level company officials fail to accurately disclose company financial information to shareholders. The posterchild for corporate fraud is the 2001 Enron scandal, in which company executives concealed billions of dollars in debt and made profits appear larger than they were, eventually leading to bankruptcy. Enron shareholders ended up losing more than $70 billion, including at least $40 billion lost to corporate fraud.

Internet Fraud

Fraudsters may use the Internet to disseminate false securities information and profit from unaware investors. For example, a company or individual might send out an investment newsletter via email promoting worthless stocks, or post information on an online forum offering false or misleading “inside information”. Such efforts might be part of a larger “pump and dump” scheme whereby promoters first boost the price of stock that they own, then sell their own holdings of the stock.

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Money Laundering

Money laundering is the process of making criminally-obtained funds appear legal. The laundering of money in the securities market might occur, for example, when a stockbroker accepts large cash deposits from a drug dealer and deposits them in a money market account, where the money can be withdrawn by check. Or, a brokerage firm might open accounts for individuals who deposit fraudulently obtained money into the accounts, then invest the money in the stocks of public companies.

Late Trading

Mutual fund share prices are set once per day at 4 p.m. Eastern time (after the closing of the financial markets). The value of any share transactions made after 4 p.m. are subject to closing prices set the following day. Late trading occurs when shares are purchased at that day’s closing after the closing price is set. Buying shares at the previous day’s prices gives the late trader an advantage over other mutual fund shareholders, particularly when the late trader obtains information material to a buy-or-sell decision and is able to lock in a short term profit.

Dodd-Frank Act Violations

The Dodd-Frank Wall Street Reform and Consumer Protection Act is a comprehensive set of financial industry regulations passed in response to the Great Recession. Dodd-Frank gave the federal government greater authority to regulate financial institutions and to protect consumers from abusive financial services practices. The Act also introduced a whistleblower provision that allows people with information about possible federal security law violations to report them to the SEC for a financial reward.

Other types of securities fraud include:

  • Manipulating securities prices
  • Falsifying SEC filings
  • Committing accounting fraud
  • Insider trading
  • Breach of fiduciary duty

Questions about SEC Fraud? Speak to our Attorneys

SEC fraud is a complex legal area that includes many types of activities. If you have information about a potential securities law violation, you may be eligible for a reward from the government. To learn more, contact our securities fraud whistleblower attorneys for a free case review.