Securities Fraud | Class Action

Securities Fraud Lawsuits: Legal Rights, Remedies, and Investor Protection

Securities fraud undermines trust in financial markets and causes billions in investor losses each year. When brokers, financial advisors, corporations, or executives mislead investors, federal law provides avenues for recovery through securities fraud lawsuits. These cases are often complex, involving federal securities laws, regulatory investigations, and class actions.

Investigating investment fraud & securities fraud claims

The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) play critical roles in investigating and prosecuting securities fraud. SEC enforcement actions often run parallel to private lawsuits, and regulatory findings may strengthen investors’ claims.

What Is Securities Fraud?

Securities fraud occurs when investors are deceived in connection with the purchase or sale of securities such as stocks, bonds, or mutual funds. Fraud can take the form of false statements, omissions of material facts, insider trading, market manipulation, or corporate misconduct.

Securities fraud is prohibited under both state and federal law. At the federal level, Rule 10b-5 of the Securities Exchange Act of 1934 is the most frequently litigated provision, making it unlawful to use deceptive practices in securities transactions.

Common Types of Securities Fraud Lawsuits

1. Misrepresentation and Omission

Companies and brokers must provide truthful, complete information about investments. Fraud occurs when they make false claims or withhold material facts, such as:

• Inflated earnings reports
• Concealing liabilities or risks
• Misstating financial conditions

2. Insider Trading

Corporate insiders who trade securities based on non-public information violate securities laws. Lawsuits often follow high-profile cases where insiders benefited from advance knowledge of mergers, product failures, or earnings reports.

3. Ponzi Schemes

Though broader than traditional securities violations, Ponzi schemes are often litigated as securities fraud. These schemes involve using new investor funds to pay earlier investors, inevitably collapsing and leaving victims with losses.

4. Market Manipulation

Unlawful practices such as “pump-and-dump” schemes—where fraudsters artificially inflate stock prices and then sell at a profit—can form the basis of securities fraud litigation.

5. Broker Misconduct

Brokers and advisors have fiduciary duties to their clients. When they engage in churning (excessive trading for commissions), unauthorized trading, or unsuitable investment recommendations, investors may sue for securities fraud.

6. Accounting Fraud & Corporate Misconduct

Cases like Enron and WorldCom illustrate large-scale securities fraud in which corporations falsify financial statements. Shareholders may file class actions to recover losses when stock values plummet.

Securities Fraud Class Actions

Because securities fraud often affects large groups of investors, many lawsuits are filed as class actions. Under the Private Securities Litigation Reform Act (PSLRA), plaintiffs must meet strict pleading standards, and courts must appoint a lead plaintiff to represent the class.

Securities class actions typically allege violations of Rule 10b-5 and Section 11 of the Securities Act, holding corporations, executives, and underwriters accountable for misleading investors.

When company management conceals information from public or private shareholders, or whose actions influence the price of a stock, shareholders may have a claim against the company to recover lost wealth in investment fraud and securities fraud claims.

Recently, a securities fraud lawsuit was filed on behalf of class of investors suing GoPro Inc. for allegedly concealing information that caused its stock to drop sharply.

In securities fraud class actions, shareholders and plaintiffs can receive a percentage of total damages recovered in a settlement. Company management can be held liable for the loss of wealth when they are negligent in their management duties.

In the GoPro case, plaintiffs alleged that the company announced new camera models and drones would be available for purchase on a certain date. However, GoPro allegedly delayed the release dates, causing shares to fall. GoPro went on to recall the Karma drones and the stock fell even more.

Securities class actions can be filed when inaccurate financial statements are released or when investors buy shares because of news and information released regarding future releases and projects and the company fails to follow through.

Many investors buy shares on company expectations and GoPro’s announcements, but they turned out to be inaccurate and affected stock price.

Joe Lyon is an investment Fraud attorney and financial negligence lawyer reviewing securities class actions for investors nationwide. Plaintiffs can expect to recover losses linked to negligent management and inaccurate company announcements.

Remedies in Securities Fraud Litigation

Investors who prevail in securities fraud lawsuits may recover:

• Compensatory Damages: To replace losses suffered from fraudulent transactions.
• Rescission: Cancellation of fraudulent transactions.
• Disgorgement: Repayment of profits made by wrongdoers.
• Equitable Relief: Court orders to prevent future misconduct.

Investment Fraud Lawsuits: The Broader Picture

While securities fraud lawsuits focus on misconduct involving securities, investment fraud lawsuits address a wider variety of fraudulent investment practices. These may include:

• Real estate scams
• Promissory note fraud
• Affinity fraud (targeting specific communities)
• Precious metals or cryptocurrency scams
• Offshore investment fraud

Investment fraud lawsuits often overlap with securities litigation but may be pursued under different state consumer protection laws or common law claims like fraud and breach of fiduciary duty.