Does a Securities Investor Have Rights?

by christophers on June 19, 2012

Law blog post contributed by Christopher Stephens on behalf of Page Perry LLC, a Securities Arbitration Firm.

The answer to the above question is, of course, “Yes!” This answer is particularly important in that the New York Stock Exchange has estimated that some 200 million Americans either directly or indirectly (e.g. public pension funds or by way of mutual fund shares) have an interest in securities.

However, and despite the amount of publicity related to fraudulent financial dealings involving billions of dollars, many investors remain unaware of their rights under United States law and how they can protect those rights with the right securities fraud lawyer.

This post will review the rights of the private investor in all aspects of financial transactions and then offer suggestions regarding what steps may be taken if an investor thinks that his or her rights may not have been respected.

Acting Unlawfully

In general, the United States Securities and Exchange Commission (SEC) holds that any company, that offers its financial instruments (e.g. stocks and bonds) to the public, has acted unlawfully if its executives:

  • Make deliberately misleading, or patently false, statements regarding a company’s financial health or business prospects;
  • Knowingly file incorrect or misleading information with a regulatory agency;
  • Exert undue influence on an outside auditor or accounting firm in order to cause the outside firm to restate its original finding in a manner that does not accurately reflect the company’s actual financial status;
  • Use their access to non-public information for their personal gain or to give an unfair competitive advantage to another, or
  • Deliberately transfer assets or liabilities to subsidiary companies in order to circumvent fair accounting practices.

Broker or Seller Prohibitions

In addition to the above acts at the corporate level, a broker or seller of financial instruments is specifically prohibited from:

  • Making false or deliberately misleading statements to induce a customer to buy or sell a given financial instrument,
  • Making false statements as to a company’s financial well-being, or
  • Deliberately buying or selling, either alone or in concert with others, sufficient quantities of a financial instrument that will result in an artificial increase or decrease in its price on the open market.

Since any of the above actions would constitute a serious breach of law, investors may reasonably assume that a company will not engage in such practices. If, however, such practices have been proven, then investor fraud has occurred and individual investors may bring legal action against the company itself as well as its executives.

Investor rights and securities law is one of the most complex areas of legal practice, which makes it unlikely that the typical investor will have the knowledge to successfully litigate such matters as were mentioned above.

For those suspecting that their rights as an investor may have been violated, it is strongly advised that such individuals arrange for a consultation with a securities fraud attorney experienced in securities and investor law.

Note: For news on a recent conviction involving many of the issues mentioned above, see Convictions Pile Up on Wall Street.

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