What is Securities Fraud Litigation?

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  • Written By: Christopher John
  • Edited By: A. Joseph
  • Last Modified Date: 22 January 2020
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Securities fraud litigation is a legal action against a party accused of some form of deceptive conduct upon which an investor relied to his or her detriment. Securities are investment vehicles such as stocks, bonds or any other investment device sold to the public. Numerous laws prohibit the use of deceptive practices to entice investors to purchase the securities. Companies and individuals could suffer serious consequences for violating the laws prohibiting fraudulent conduct.

Many types of activities might constitute fraud. Examples of securities fraud include misrepresentation, omissions, Ponzi schemes, pyramid schemes, unsuitability and churning. Ultimately, each type of scheme involves deceit. An investor might pursue securities fraud litigation against companies and individuals, if he or she relied upon the deceitful information and suffered losses.

Misrepresentation is an example of fraud, which occurs when a company knowingly provides misleading or false information to prospective investors in order to cause them to purchase securities. Another example of fraud is churning. Brokers will conduct excessive transactions, selling securities that have increased in value while keeping securities that lose value.

In the short term, this activity appears profitable to an investor. In reality, it results in long-term losses. The real purpose of churning is to benefit the broker because he or she generates commissions with each transaction. Many other types of fraudulent conduct can occur. Securities fraud litigation is one means of combating fraudulent conduct.


In the United States, the Securities and Exchange Commission (SEC) regulates the sale and transfer of securities. The SEC also is empowered to pursue securities fraud litigation against individuals and companies that violate securities laws. U.S. law imposes severe criminal penalties for securities fraud violations. The SEC and the National Association of Securities Dealers (NASD) also can impose civil fines upon individuals and companies found guilty of committing fraud.

The Securities Exchange Act, a U.S. federal law, also provides investors an avenue to seek relief by using securities fraud litigation to recover losses. This law prohibits fraud or manipulation in the trading of securities. This mechanism allows investors to recover losses, plus other damages, including attorney’s fees. The SEC also has used the Securities Exchange Act to promulgate securities regulations and prohibit specific deceptive practices.

International companies engaged in fraudulent behavior also are subject to securities fraud litigation. Investors can file lawsuits in the U.S. and in other countries. These suits often cause companies to settle cases out of court.

A securities fraud litigation case can involve several countries and multiple governmental agencies. This is because many countries have adopted regulations similar to those in the U.S. In addition, the SEC has entered agreements with countries to prosecute fraud cases. European countries have debated tougher laws against securities fraud to provide investors with avenues of relief.

Securities fraud litigation cases on an international level are extremely complex. These cases can create jurisdictional disputes between nations. Countries also refuse to honor foreign judgments because no treaties are in place requiring reciprocal enforcement of judgments. Investors could find themselves embroiled in a securities fraud litigation action for years.


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