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Do you know what constitutes security fraud?

Though the term securities fraud is one that is often heard on the news or read in papers, it is possible that some readers are not aware of what it is. The reality is that the term encompasses a series of activities that are deemed to be illegal. Some are attributed to individuals while others are committed by businesses.

The first type of securities fraud is insider trading. Someone may be accused of this if he or she makes decisions about buying or selling stock by relying upon information that is confidential.

Another example of securities fraud could be alleged against a company. This situation could arise in cases where either a director of officer of a corporation that is not doing well does not present the company's financial information to those who own shares in it. Some may be tempted to go this route because it serves to encourage investors to buy shares of the company. In situations where a company ends up filing for bankruptcy, investors can lose everything they invested.

Third party misrepresentation is also a type of securities fraud. The false information spread regarding a business or industry could lead to "pump and dump" scheme. In this situation someone finds a small, unknown business with cheap stock, and purchases a lot of it. They then encourage others to purchase it which results in it being worth more. When it reaches as certain value, an investor will sell it to make a nice profit.

Individuals who find that they are the victim of any of these types of crimes may be able to recoup damages. This is generally accomplished with the assistance of a lawyer. 

Source: FindLaw, "Securities Fraud," Accessed Sept. 25, 2014

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