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Stock fraud occurs when deceptive information is used to persuade investors to buy stock. It can be committed through false information on required documents, insider trading, false statements, or embezzlement. It can result in civil or criminal charges, including monetary awards or jail time.
A stock is basically a piece of property of a company. The shares are publicly traded and often sold by stockbrokers. Securities fraud, often called securities fraud, occurs when a stockbroker, or other person involved in the sale of stock, persuades an investor to buy stock based on deceptive information or acts.
There are numerous ways in which stock fraud can be committed. A common scenario in which stock fraud is discovered is when a company includes false information on its cash flow statement that it needs to file with the Securities and Exchange Commission (SEC). Every company that trades on the New York Stock Exchange is required to file a series of documents with the SEC, which are intended to provide investors with the necessary information on which to base an investment decision. If a company falsifies any of the required document information, it is committing stock fraud.
Another big area of stock fraud involves insider trading. The SEC has very strict rules against people having access to non-public information trading stocks. Unfortunately, not all traders abide by these rules. When a person uses private or inside information to buy or sell company stock, he is committing stock fraud. Exploiting inside information can devalue the shares held by others or prevent others from benefiting from the information when it becomes public.
Company officials may also be guilty of stock fraud for making false statements about documents other than those filed with the SEC, such as a corporate tax return. The omission or exaggeration of information in advertising materials can also lead to stock fraud charges. Embezzlement by company officials can also be considered an act of fraud.
Fraud can be considered the basis for a civil suit or it can be filed as a criminal charge. If stock fraud is prosecuted through a civil suit, the plaintiff who filed the suit will receive a monetary award at the end of the case if it prevails. If criminal charges are filed, the offender can face jail time or probation if convicted. A stockbroker who has been convicted of fraud will also lose his or her license to deal in securities, as a rule, and may still have to pay back any monetary damages the state can prove resulting from the fraudulent acts.
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