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Securities Fraud and Stock Fraud FAQ

What are securities?

Securities include a number of investments including stocks, bonds, notes, mutual funds, treasury stocks and investment contracts.

What is securities fraud?

Securities fraud occurs when someone attempts to defraud a person in an attempt to sell or market a security. This includes providing false or misleading information, failing to disclose relevant information, artificially inflating prices and failing to represent the clients' best interests.

What is stockbroker arbitration?

Stockbroker arbitration is a means of dispute resolution overseen by FINRA (Financial Industry Regulatory Authority), in which one to three arbitrators hears each side of a case and rules on the merits of that case. Because many brokerage firms require clients to sign a form agreeing to arbitration to resolve any disputes, many complaints against brokers and financial firms are resolved through arbitration.

What is a derivative action?

A derivative action occurs when shareholders of a company file a lawsuit against the directors, officers and/or management of the company for breach of fiduciary duty, self-dealing, fraud or mismanagement. In such cases, the allegations are that the officers, directors and/or management have not acted in the best interests of the company. In a derivative action, the plaintiff files the lawsuit on behalf of the corporation to recover damages lost by the corporation.

Can class action lawsuits be filed in securities cases?

Yes, if many people have sustained similar damages because of the actions of the defendant, a class action lawsuit can be filed. In the case of securities, a class action would be brought on behalf of all people who purchased a specific security during a set time period (known as the "Class Period.") during which the wrongdoing would have occurred.

How does ERISA relate to securities complaints?

Some companies offer employee stock option plans which are covered by ERISA (the Employee Retirement Income Security Act). Violations of ERISA law could result in lawsuits being filed against the employer.

Who can be named as defendants in securities cases?

Defendants in securities cases include broker-dealers, financial advisors, financial analysts, private investors (who may receive inside information), and companies.
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Last updated on Jan-20-11

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