Normally, when a companyâs stock (or other security) is traded on a public exchange (like the NYSE or NASDAQ), the market price reflects all the companyâs publicly available information. Securities fraud occurs when a company publishes false or misleading information about its business. Sometimes, the information is misleading because itâs only a half-truth, meaning the company hasnât disclosed all the relevant information. Other times, a companyâs top managers may be selling their personal stock at the same time as theyâre encouraging the public to buy it. If an investor buys (or sells) stock at a price thatâs been influenced by a companyâs fraudulent information, federal law permits the investor to sue for damages.
Securities Fraud includes:
- Concealing a companyâs important, adverse information;
- Misrepresenting how well a companyâs 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 companyâs financial statements was reckless.