Stockbroker fraud involves a broker using false or misleading information to persuade an investor to invest their money. Inside trading is another form of broker fraud. Penalties for committing fraud include losing their securities license, facing civil lawsuits, and criminal charges.
Fraud comes in many forms, one of which is stockbroker or broker fraud. Fraud occurs when someone uses a deceptive practice or acts for personal or financial gain. In the case of broker fraud, it often involves a stockbroker providing an investor with false or deceptive information that persuades the investor to invest their money. Inside trading, or using non-public information about a stock, is another form of broker fraud.
A stockbroker is a professional who buys and sells stocks and securities on behalf of his clients. Stockbrokers must have a license to act as intermediaries. In theory, a broker is a neutral party used by investors to facilitate the buying or selling of stocks or securities.
When a stockbroker uses false or misleading information to induce an investor to buy or sell stocks or commodities, then he or she is guilty of fraud. Sometimes, the investor is offered biased or inaccurate financial information regarding the financial health of the company to prompt him to invest in the sock. All publicly traded companies are required to submit annual financial reports so potential investors get an idea of how financially secure the company is before deciding to invest. If the financial reports have been changed by the broker, or if the broker knows they have been changed by the company, then he is committing fraud.
Inside trading is another potential type of broker fraud. Only public information may be used or disclosed for the purpose of making stock trading decisions. If a broker learns non-public information which he then uses to buy or sell stocks for his own personal gain, this is also considered fraud by the broker.
A stockbroker found to have committed fraud can face a variety of potential penalties. First, he could lose his securities license. In the United States, the Securities and Exchange Commission (SEC) regulates and enforces securities law in the United States. If a broker is found to be in breach of the securities laws, he will lose the right to continue trading.
In addition to losing his or her trading license, a stockbroker can also face a civil lawsuit and/or criminal charges. Fraud can be handled as a civil suit by filing a complaint against the broker for pecuniary damages suffered as a result of acts of fraud. A broker who commits fraud can also face criminal prosecution as fraud is also considered a crime in most jurisdictions.
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