| Read Time: 6 minutes | Fraud & Misrepresentation | Investor Losses |

Investors trust their financial advisors to make important and wise decisions regarding the management of their investment portfolio. Financial advisors hold a position of trust with their clients, and clients expect their advisor to act with the client’s goals in mind. Unfortunately, advisors frequently violate the trust of their clients by committing various forms of securities fraud.

It is important to note that suffering losses on your investments, by itself, is not a form of securities fraud. Securities fraud involves the deception of investors or the manipulation of financial markets through illegal methods. If you suffered investment losses but don’t know if you have a claim for securities fraud, our securities fraud lawyers at The Law Offices of Robert Wayne Pearce, P.A., are ready to help. Contact us today to get started on your case.

What Is Securities Fraud?

What is Securities Fraud?

Securities fraud, also known as investment fraud and stock fraud, is the deception of investors or the manipulation of financial markets through illegal methods. Investors who suffer losses as a result of securities fraud can seek to recover their losses.

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Common Forms of Securities Fraud

Securities fraud occurs in multiple different ways, making it even more difficult to recognize. Victims of securities fraud often suffer steep losses as a result of the fraud. Fortunately, victims of securities fraud can seek to recover their losses. So, what is securities fraud? Below are some of the most common forms of securities fraud. 

Misrepresentations and Misleading Statements

Misrepresentation is the most common type of securities fraud. It involves a false statement about an investment in a company; for example, a company that supposedly has earnings, a revolutionary product, or multi-million dollar contract when it has none of those assets. Misleading statements arise by omission; such as, using the same examples, when the financial advisor fails to tell you the earnings surprise was a one time past event, the revolutionary product can’t be patented, or the multi-million dollar contract is with another company about to file bankruptcy. Undoubtedly, those missing facts would have made all the difference to you in making your investment decision.

The fraudster doesn’t care, he/she lies or misleads you to just get you to part with your money so he/she makes a commission. If you relied upon that intentionally false statement or misleading statement and made that investment, you have the right to claim securities fraud under federal and state statutes as well as ordinary common law fraud. But the securities fraud statutes usually have statutory remedies, including, prejudgment interest on the full purchase price from the date of purchase and attorney fees, to fully compensate you for your loss. The only problem with securities fraud statutes is they generally come with short statutes of limitation and so, you need to act fast and file suit quickly to take advantage of them.

Ponzi-Like Schemes

Ponzi schemes involve promises of high returns with little risk for investors, a staple of many forms of securities fraud. However, instead of issuing returns to investors out of profits, the funds of new investors are paid to early investors. Thus, Ponzi scheme victims receive guarantees of returns regardless of market conditions. 

Ponzi schemes fall apart once there are no new investors providing funds. Companies operating Ponzi schemes focus the majority of their efforts into advertising to new investors to keep the scheme afloat. 

Well-known financier Bernie Madoff was convicted of running the largest Ponzi scheme in history after evidence showed that Madoff falsified trading reports to indicate clients were earning profits on investments that did not exist. Madoff received a 150-year sentence in federal prison after pleading guilty.


Embezzlement refers to the misappropriation of assets by a person entrusted with those assets. An embezzler possesses the assets lawfully at the outset, but once the assets are used for unintended purposes, embezzlement has occurred. 

For example, financial advisors placed in charge of clients’ accounts possess authority to conduct transactions in the accounts, subject to some limitations. A financial advisor who steals assets entrusted to him or her by a client commits embezzlement. 

Advance Fee Schemes

Advance fee schemes target all kinds of victims and are becoming more prevalent with the rise of internet scams. Con artists operating advance fee schemes require the victim to pay an “advance fee” in anticipation of receiving something—such as a service, a product, or an investment opportunity—of greater value in return. The scheme operator convinces the victim to provide the fee, then subsequently informs the victim that he or she is ineligible for whatever was offered after the fee is paid. The victim is unable to recover the fee that was paid.

To avoid suffering losses due to an advance fee scheme, take precautions before conducting business with a company you have never heard of. Providing any payment amount to a person or company you are unfamiliar with is a risky practice. When in doubt, speak to an experienced securities fraud attorney to determine whether the investment opportunity is fraudulent. 

Pump and Dump Fraud

A pump and dump scheme, also referred to as market manipulation, occurs when a group of fraudsters post content on the internet enticing investors to purchase a stock as soon as possible. 

The fraudsters claim to have insider information regarding the product that will result in a jump in the share price of the stock. The fraudsters post content in multiple forums in an attempt to entice as many new investors as possible. Once investors purchase shares of the stock, the fraudsters sell their shares, resulting in a dramatic dip in the share price. New investors, lacking awareness of any fraudulent conduct, suffer the losses. 

Pump and dump schemes began primarily through cold calling. However, the internet and social media provide fraudsters a more efficient way to attempt the scheme.

Insider Trading

Insider trading involves the use of “non-public, material information” to buy or sell stocks. Non-public material information includes any information that could substantially impact an investor’s decision to buy or sell a stock that is not available to the general public. The most common examples of insider trading occur when an employee gains confidential information about a security offered by his or her company and uses that information to either buy or sell stocks offered by the company.

Fortunately, victims of securities fraud can seek to recover their losses.

How to Avoid Securities Fraud

The SEC outlines warning signs and early indications of securities fraud schemes. The SEC recommends that investors avoid investment opportunities that:

  • Sound too good to be true;
  • Involve uncomfortably high-pressure sales tactics;
  • Are solicited;
  • Require too much personal information over the phone or internet; or
  • Guarantee high returns with no risks.

The SEC also advises investors to conduct their own research when it comes to the investments they purchase and the parties selling the products. 

Other ways to evaluate the veracity of the investment opportunity include:

  • Searching the company’s name in state and federal securities regulatory databases;
  • Requesting information about the company, such as the state of incorporation and the location of the registered agent;
  • Obtaining financial documents from the company, such as a prospectus, an annual report, and financial statements; and
  • Seeking advice from a trusted financial advisor or securities fraud lawyer prior to making any purchases.

Victims of securities fraud often feel embarrassed and ashamed after suffering investment losses due to fraud. Do not let these feelings prevent you from reporting the losses you suffered. Securities fraud reported right away is more likely to result in charges and the recovery of damages than a scheme reported several months down the road. 

How Can a Securities Fraud Attorney Help Me? 

Investing in financial markets is inherently risky for investors and results in losses for thousands of people on a daily basis without the presence of fraud. However, investors who suffer losses as a result of securities fraud can seek to recover their losses. 

The securities fraud lawyers at The Law Offices of Robert Wayne Pearce, P.A., represent victims of securities fraud from all across the United States on a contingency fee basis, meaning you receive a bill only if we reach a settlement agreement or receive a FINRA arbitration award. Attorney Robert Pearce has tried, arbitrated, and mediated hundreds of investment-related disputes and possesses the experience necessary to help you with your case. Contact us today to start your path to recovery.

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Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $160 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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