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Questions About Securities Law

Q: What are securities?

A: Securities are investment vehicles like stocks, mutual funds and bonds. As securities, they reflect investments by various individuals and entities in a common enterprise, like a corporation, made with the expectation of deriving a profit. For example, a stock represents a share, or percentage, in a corporation's profits and assets. By purchasing stock an investor is buying a percentage of ownership in a company. If the corporation makes higher profits, the value of its securities will increase and the value of a stock will increase. Shareholders make money by selling their shares of stocks at a price higher than the price when they purchased the stock. When a corporation loses money the value of the investor's shares will decrease.



Q: What is securities fraud?

A: Securities fraud occurs when an individual or entity acts in an attempt to illegally manipulate the investment market. Securities fraud may be committed by broker/dealers, financial advisor/analysts, corporations, and private investors. Renewed concern over securities fraud arose during the recent telecom bust. Investors lost millions on Internet companies that had gone from being highly rated and seemingly secure to bankrupt in a phenomenally short period of time.



Q: Who commits securities fraud?

A: Securities fraud may be committed by:

  • Brokers-dealers (misleading clients or advising based on inside information)
  • Financial advisors or analysts (purposefully offering poor advice or inside information)
  • Corporations (hiding or distorting information)
  • Private investors (acting on inside information)


Q: What is a securities class action?

A: A securities class action is a lawsuit that is brought on behalf of a group of investors who lost money because of claimed violations of the securities laws. Often such cases allege a series of false and misleading statements regarding a company's business that caused the company's stock to trade at higher prices than it otherwise would have. In other words, investors never would have paid as much as they did for the stock if they had known the truth about the company's business. Typically, it is more efficient for investors to pursue their claims as part of a class, rather than pursuing an individual claim.



Q: What are the benefits of a class action?

A: A securities class action provides small shareholders with the ability to litigate on an equal playing field with the large, well-funded corporations who have allegedly violated the securities laws and have a lot of money to spend on defending lawsuits directed at those violations. A class action allows many people who would never have brought an individual action against a company to seek recovery from the company without having to individually retain a lawyer and incur a legal fee.



Q: How do I know if I have a securities claim?

A: If you purchased a publicly-traded security that declined in value after a significant negative disclosure about the company, you might have a claim.



Q: What should I do if I have believe I have a securities claim?

A: If you or someone you love has been the victim of securities fraud or other securities wrongdoings, you should contact a lawyer who has experience representing investors. An attorney who understands securities law will not only inform you of your rights as an investor, but also help to recover some, if not all, of what you lost.



Q: How long does securities class action litigation take?

A: A class action typically takes anywhere from one to four years to resolve. This is only a generalization of course. Some cases, if brought to trial followed by appeals, can last longer.



Q: What is securities arbitration?

A: 1987, the U.S. Supreme Court held that brokerage firms could enforce pre-dispute arbitration clauses contained in their standard form customer agreements. Virtually all brokerage firms' customer agreement forms now contain arbitration clauses. As a result, most disputes between brokerage firms and customers are arbitrated. Arbitration is a private dispute resolution process in which three arbitrators are appointed to decide the merits of a case. In an arbitration, the parties are typically represented by counsel and present evidence through testimony and documents like in a court proceeding.



Q: What is corporate fraud?

A: When a corporation deliberately conceals or skews information to appear healthy and successful before shareholders, it has committed corporate or shareholder fraud. Corporate fraud may involve a few individuals or many, depending on the extent to which employees are informed of their company's financial practices. Directors of corporations may fudge financial records or disguise inappropriate spending. Fraud committed by corporations can be devastating, not only for outside investors who have made share purchases based on false information, but also for employees.



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