The Effects of Securities Fraud

Rather than tucking it away in a savings account, many Americans choose to invest some of their money in the stock market and other securities. Investment has the potential to yield a profit, and good investors can even become very wealthy. At the same time, however, investing in securities carries it's risks.

Much of the risk comes from the fluctuations of the market. Sometimes a stock's value crashes because of a natural disaster or other unforeseen events. Suddenly the stock you bought is nearly worthless. However, among the many ways money can be lost in the market, some are not the product of chance. For one, it's not rare to hear of a financial professional being taken to court on charges of securities fraud. But what exactly is securities fraud?

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Whenever a person or organization decides to invest some of their assets in securities (stocks, commodities, and so forth), they're taking a risk. One of the most important steps before investing in a business is gathering information on the company and its track record. If they are given false information, investors can be tricked into handing over their money to what seems like an ordinary investment.

This crime of defrauding investors is known as securities fraud. It can come in many forms, and can be perpetrated by people in a number of different positions. Sometimes this takes the form of stock brokers embezzling money from their clients, keeping some of it as their own and giving misleading information to the contrary.

Although most stock brokers are not defrauding their clients, there are other types of securities fraud associated with brokers as well. The creation of "chop stocks" are one example. Chop stocks are stocks in small companies that are intentionally inflated in price and then sold for a big profit. The way brokers figure into this picture is that, since they often have substantial input in their clients' trading decisions, some brokers can be paid to encourage their clients to invest in these stocks. This increase in demand then drives up the price of the stock until the fraudulent stockholders sell for a profit.

In the case of publicly-traded companies (ones whose stock you can buy and sell), trades made on information not released to the public are illegal. This process is known as insider trading, and is a kind of securities fraud. For example, a person in a position of authority at such a company might have access to information that is withheld from the public. If such a person sells their stock because private, insider information suggests the company's stock will devalue, he or she could be accused of insider trading / securities fraud.

If you have been driven to the brink of bankruptcy because of securities fraud, a Florida bankruptcy lawyer can help you. The compassionate experienced Boca Raton bankruptcy lawyers of Eric N. Klein & Associates, PA understand the life-altering effects securities fraud can have on unsuspecting investors. Contact them today to speak to a lawyer and learn what Eric N. Klein & Associates, PA can do for you.

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