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3 types of securities fraud over which you could face accusations

If you have a business and want to make it look good to investors, you might think it’s a good idea to boost your stock value by rounding up at the next meeting. The truth is that when you make a false statement about the value of your stock, you are committing securities fraud.

If you’re accused of committing securities fraud, your attorney can help you collect the information you need to defend yourself. In the meantime, it’s smart to understand what you’re accused of. There are a few kinds of securities fraud for which you could face charges. Below are three of them.

Company-based securities fraud

It’s your responsibility to accurately report your business’s stock information to shareholders. If you artificially inflate the value of your stocks, you could convince others to back your company and buy stock even though the value is not as high as you say. For example, if you never reveal how much your company has in expenses, then you could show gross profits that are widely inaccurate. The shareholders need honest information to invest appropriately. When you don’t provide all the information and later have failing stocks or go bankrupt, the truth will come out and you can be accused of securities fraud.

Third-party securities fraud

Another kind of fraud you may not have heard of is third-party misrepresentation. This doesn’t necessarily have anything to do with the company itself. Instead, a third-party buyer buys a relatively unknown company’s stocks up at very low prices. Once the person owns a large number of stocks, that person puts out false information about the company and its value. When others buy into the company, the company’s stock value rises. Then, the third-party buyer sells his or her stocks, making an illegal profit off of false information.

Insider trading

If you had knowledge about the company’s potential increase in sales and potential growth in value, you’d buy up as many stocks as you could at a lower rate. Doing this before the company’s financial state is disclosed to the public is illegal.

Here’s an example: If you’re working at a technology company and know that the latest release has been a flop by looking at accounting numbers that just came into your office, you might put in an order to sell your stocks now. If you did not yet notify the CEO and board of the financial status of the company, then you can be accused of insider trading by taking advantage of your position in the company.

If you’re accused of fraud, it’s wise to speak to your attorney about defending yourself. You have a right to show that you were not participating in fraudulent acts or that you had no idea they were occurring in your workplace. Even if you did, your attorney can help you fight for lower penalties after an arrest.

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Nick Lotito & Seth Kirschenbaum

Former Federal Prosecutors

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