Types of Stock Fraud

There are several ways that an investor can become a of victim stock fraud. Sometimes, the stock fraud is the result of an individual, such as a broker, seeking to increase his or her commission. But sometimes, stock fraud can be the act of an entire firm that is looking to manipulate stock prices by pushing all of the firm’s clients to purchase a certain stock in order to inflate its value. Corporations have also been known to release false financial statements in order to inflate the value of the company’s stock. Our stock fraud lawyers have assisted clients in several class action lawsuits involving many types of stock fraud, and we have had success helping defrauded investors recoup their losses.

There are several categories of stock fraud. Often, stock fraud is committed by an individual broker. These types of stock fraud include misrepresentation/omission fraud, unsuitability fraud, overconcentration fraud and illegal stock churning. The stock fraud class action lawsuit lawyers at our firm have experience with all of these of forms of stock fraud, and we are committed to making sure that brokers who commit these acts are held to account.

Misrepresentation/ommission is a type of stock fraud that occurs when the broker intentionally misleads the customer about material facts regarding the stock. Brokers have a duty to inform investors about all known risks associated with a stock. But there are many cases of stock fraud involving misrepresentation or omission that disguise risks associated with that particular stock.

A broker should be aware of a client’s risk tolerance. stock frauds involving unsuitability occur when the broker knowingly recommends stocks that are outside the client’s risk tolerance. stock frauds committed through unsuitable matches allow the broker to push undesirable stocks. There are many cases where this type stock fraud results in losses much higher than the client can bear. Unsuitability stock fraud can be especially devastating for older people, as bad matches can wipe out large portions of retirement savings just when they need those funds the most.

Purposely failing to diversify a client’s portfolio can be a form of stock fraud known as overconcentration. In order to protect a client’s assets, the broker should vary the types of stock purchased, stock fraud through overconcentration strips the client of the protection diversification can afford. Our stock fraud lawyers are committed to helping people recoup losses from this type of stock fraud.

Churning is another serious form of stock fraud that is used to boost a broker’s fees. Churning involves trading large numbers of stocks, even when it is not in clients’ best interests. Often this form of stock fraud consists of selling stocks with small gains in order to show a profit. When a broker churns stock, he or she is simply trading in order to obtain fees from each transaction, and gives no thought to how the trades effect clients’ well being. Though stock churning is often committed by an individual broker, often an entire firm is liable for that brokers actions. A firm should have safeguards in place to prevent and detect illegal stock churning.

Our stock fraud lawyers are also evaluating potential stock fraud class action lawsuits involving schemes that are far more elaborate than the ones mentioned above. Sometimes, stock fraud can involve an entire company, with many employees engaged in illegal acts at the direction or encouragement of higher-ups. In some cases, corporations have engaged in stock to keep failing businesses funded. Many other stock fraud investigations in recent years have found an enormous amount of insider trading, which occurs when brokerages sell IPO stocks before the release date to favored clients and friends. Elaborate forms of stock fraud like this can destroy the finances of investors, and even whole companies.
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