An Investor’s Guide to Securities Fraud

Securities fraud is the offer, sale, or purchase of an investment in a security, or any scheme to swindle investors out of their money. It can take the form of a misrepresentation, an omission of material fact, or a deliberate scheme to separate investors from their money. The consequences for investors who encounter it can be severe.

What Securities Law Defines as Fraud

Securities law violations, including fraud, can be defined by both state and federal provisions. The fraudulent conduct typically occurs during the offer and/or sale of the security. Salespersons include anyone who attempts to provide financial advice to their customers.

Common Forms of Securities Fraud Against Individual Investors

Misrepresentation and omission. A financial professional provides an incomplete or false picture of an investment. Material information is withheld, risk is minimized, or the product’s nature is mischaracterized. An investor who relies on that representation and suffers losses may have a viable claim.

Unethical sales practices. Broker-dealers, agents, investment advisers, and investment adviser representatives must adhere to ethical practices in performing their duties on behalf of customers. Examples of unethical sales practices include, but are not limited to, unauthorized trading, charging unreasonable fees, churning, making unsuitable recommendations, and deception. When advising their customers, investment advisers and investment adviser representatives engage in unethical practices if they breach their fiduciary duty to those customers.

Ponzi schemes and private placement fraud. Ponzi schemes pay earlier investors with funds from new investors. Promoters misrepresent the source of returns, and the structure collapses when new investment slows.

Affinity fraud. Bad actors exploit trust within identifiable communities, including religious groups, professional associations, and ethnic communities. Bad actors often recruit a member of the group to promote their scheme and convince the person that the fraudulent investment is legitimate.

The Legal Framework for Pursuing a Claim

Individual investors who may have been harmed by securities fraud should consult a legal professional immediately. A legal professional can help the investor determine whether they have a claim and the best strategy going forward.

Depending on the type of harm and investment account, the investor may be required to pursue their claim through arbitration (including FINRA, AAA, JAMS) or through state or federal court. Investors should seek help immediately regardless of which path applies.

Why Qualified Representation Matters

Securities fraud cases are procedurally and substantively demanding. The record that needs to be assembled, including account statements, order tickets, correspondence, product disclosures, and expert analysis on suitability or damages, requires experience to identify and preserve.

Investors who proceed without qualified representation are at a real disadvantage. The financial professionals they are contesting have experienced counsel.

PIABA member attorneys have represented investors in securities arbitration and litigation since 1990. They understand litigation forums, the substantive standards under federal and state securities law, and what it takes to build a viable case. Use PIABA’s Find an Attorney tool to connect with qualified counsel nationwide.

Frequently Asked Questions

What is securities fraud?

Securities fraud refers to deceptive or manipulative conduct connected to the purchase or sale of investment advice, securities, or broker services. Common examples include material misrepresentations, failures to disclose material facts, unauthorized trading, churning, and schemes intended to defraud investors.

How do investors recover losses from securities fraud?

The primary path for most individual investors is arbitration or litigation. A securities fraud attorney can help you evaluate which path applies to your situation.

How do I find a qualified securities fraud attorney?

PIABA’s Find an Attorney tool at piaba.org provides access to a national directory of member attorneys focused on investor representation in securities arbitration and litigation.

What is the difference between arbitration and litigation for securities fraud claims?

Arbitration is a private dispute resolution process, often required by account agreements, administered by bodies such as FINRA or JAMS. Litigation takes place in state or federal court. A qualified attorney can advise which forum applies to your account and claim.

PIABA has advocated for public investors since 1990 through its national network of securities attorneys. If you or your clients have experienced broker misconduct or investment fraud, qualified help is available. Visit piaba.org/find-an-attorney to connect with a PIABA member attorney in your area.