What Are The Securities Fraud Overview

Congress passed the "Private Securities Litigation Fraud Act" in 1995 an effort to stop abusive securities fraud litigation in court. This act included two provisions: heightening pleading standards and automatic stay of discovery (defendants do not have to present documents to prosecutors if a valid securities fraud lawsuit is not brought against them). It is also important to research mutual fund companies to ensure that they are legitimate. The client should also receive a prospectus regarding their potential broker. Background checks, track records, and criminal history are important to research prior to choosing an investment company as well. It is also important to compare markets and to look at all hidden costs including load funds versus commission percentages in order to combat investor fraud. Securities fraud online is a "pump & dump" scheme. This can sometimes take the form of a SPAM email. The SPAM emails are sent out in order to lure investors into bad investments. Sometimes, the value of the stock actually does go up due to the amount of investors pumping their money into it. However, the scam artist will sell off the stock for a nice profit and take off. Then the stock value will drop dramatically causing financial loss for the investors. Websites can also be utilized to commit pump & dump schemes. Websites advertise stocks known as "hot stocks". The pump & dump scheme can also be committed by using radio stations, television, and even in chat rooms and bulletin boards as tools. These companies will also advertise cheap stocks known "penny stocks". Penny stocks can be purchased for $5 or less. Penny stocks are also the most common stocks purchased in pump & dump schemes. According to US Securities Law, pump & dump is considered fraud and it is a federal offense. The US Securities Exchange Commission (SEC) recommend considering the advertisement source, research, and staying away from "high-pressure" sales pitches. These usually come in the form of advertisements claiming to have a "once in a lifetime" chance or other over the top claims.