Securities Law Basics
Created by FindLaw's team of legal writers and editors | Last reviewed June 20, 2016
For most people, securities come in two forms: stocks and bonds, and promissory notes. Stocks and bonds are investments in corporations or governments. Promissory notes, on the other hand, are documents that are created when one person lends money to another person. Securities law is relevant to the general public because securities make up a substantial portion of most people's retirement or investment portfolios. FindLaw's Securities Law Basics section provides general information about securities laws as well as how to prove securities fraud. In this section, you can also find articles about securities arbitration, the use of promissory notes, and the responsibilities of investors and brokers.
Common Signs of Securities Fraud
It can be hard to determine that you've been the victim of investment or securities fraud before you lose your investment money. The market naturally fluctuates, which means that sometime you lose and sometime you win. However, big losses should raise a red flag and prompt you to investigate the situation. While it may be difficult to detect securities or investment fraud without the help of a professional, there are some common signs to watch out for.
Knowing the common signs of securities and investment fraud can help you avoid becoming a victim. If your broker doesn't return your phone calls or tells you to the view market news as entertainment, it could be a warning sign that a fraud is occurring. Other signs of fraud are paying capital gains taxes even though the account value is decreasing, losing money despite it being an "up" market, or if the majority of investments recommended by your broker are declining in value. It can also be a warning sign if your broker fails to disclose important information about an investment purchase or he or she begins trading in high risk and speculative investments without your instructions or approval.
Of course, these warning signs don't always mean you're the victim of securities or investment fraud. But, if you experience any of these situations, it would be in your best interest to discuss your concerns with a securities lawyer. Also, even though most of us live busy lives, it's very important that you pay attention to your investments, so that you can spot the warning signs of securities or investment fraud before losing a large sum of money.
Proving Securities Fraud
In order to prove fraud, an investor must show that the broker or someone else in the industry intentionally or recklessly made an omission or misrepresentation of material fact that the investor justifiably relied upon. The investor must have also suffered damages as direct result of relying on the omission or misrepresentation. Put more simply, you have to show that you lost money because you relied on a fact that the broker or other industry member told you, and he or she knew or should have known that the fact wasn't true.
In order to show reliance, an investor can provide direct or indirect evidence of the reliance. An example of direct evidence is showing a prospectus that has a statement claiming the existence of a lucrative contract that the issuer doesn't actually have. If the investor can show that his or her investment decision was based on that particular statement, the investor has provided direct evidence of reliance. If a fraud by omission is being claimed, the investor is not required to provide evidence of reliance.
Hiring a Securities Lawyer
As an investor, you have rights. If you lost investment money as a result of a company's or broker's misconduct, you may be entitled to recover the money you lost. If you believe that you might have been the victim of investment or securities fraud, you may want to contact an attorney with experience in securities and investment fraud to discuss your legal options.
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