Normally, when a company’s stock (or other security) is traded on a public exchange (like the NYSE or NASDAQ), the market price reflects all the company’s publicly available information. Securities fraud occurs when a company publishes false or misleading information about its business. Sometimes, the information is misleading because it’s only a half-truth, meaning the company hasn’t disclosed all the relevant information. Other times, a company’s top managers may be selling their personal stock at the same time as they’re encouraging the public to buy it. If an investor buys (or sells) stock at a price that’s been influenced by a company’s fraudulent information, federal law permits the investor to sue for damages.
Securities Fraud includes:
- Concealing a company’s important, adverse information;
- Misrepresenting how well a company’s product is selling; and
- Significant accounting irregularities
Oftentimes, a company, its top-most management, and its board of directors are sued. Other defendants can also be sued, such as accountants who knew about the fraud or whose reporting on the company’s financial statements was reckless.