Securities Fraud

Securities Fraud can happen when someone makes a false statement about a company or the value of its stock and others buy stocks based on that information. For example, an officer of a corporation does not accurately report the company’s financial information to its shareholders. This can artificially raise the worth of the company’s stock and encourage investors to buy shares of an unhealthy company. If the company later files for bankruptcy, people who bought shares based on false information may lose their investment completely.
Other forms of Securities Fraud includes insider trading and “pump and dump” schemes. Insider trading happens when someone with confidential information about a company’s financial state uses that information to make decisions about whether to buy or sell the stock before that information is disclosed to the public. In a “pump and dump” scheme, a person will find a small, unknown company with cheap stock and buy large amounts of its shares. This person will then send out false information about the company to encourage others to buy the stock to drive up the price. Once the price of the stock is high enough, the stock is sold for a substantial profit.