Securities fraud is when people make a false statement about a company’s value and others use this information to make financial decisions. Executives on a board who buy and sell stocks from nonpublic information are committing inside trading. West Virginia laws state that people can’t offer, sell or buy securities to defraud or make untrue statements about a company. Understanding securities fraud is critical for those who operate or work for a public company.
Securities fraud by the company
Securities fraud by the company itself occurs when a high-ranking person of a corporation lies about financial information to shareholders. These white-collar crimes can artificially raise the company’s worth and encourage investors to buy shares. Unhealthy businesses can go bankrupt, and investors will lose their investments because of false information.
Securities fraud from inside trading
Another type of securities fraud is insider trading. It occurs when people use confidential information to buy or sell stocks. The information an executive uses isn’t available to the public yet, which is illegal. An example is an accountant who notices financial losses and sells off his or her stock before the loss is made public.
Securities fraud through third party misrepresentation
The third type of security fraud is when a third party misrepresents a company by offering false stock market information. A pump and dump scheme is one of these white-collar crimes. A person may find a small unknown company with cheap stock and buy a large amount. The person then tells others false information to get them to invest in the company stocks. The prices rise as other investors buy the stock. Once the stock is expensive, the person sells all their shares for a profit.
State and federal laws discourage securities fraud, but people should protect their assets. Understanding information about financial markets helps you see fraudulent situations easier. You should get your stock information from the company and double-check the data against the SEC. If you want to start investing, understanding the warning signs of securities fraud can keep your assets more safe.