In recent years, many Americans have lost huge sums of money as a result of investment fraud. According to statistics, the average loss for an investor, through fraud, stands at $15,000, with individual losses running into millions of dollars. One kind of investment fraud, which has been responsible for people losing even their life savings, has been Stock Fraud.
Stock Fraud Explained
Fraud, which is a result of unethical and dishonest actions on the part of a stockbroker, or any other investment executive, is referred to as Stock Fraud. If any broker misinforms his clients about the price of a stock, undermines the risks involved in the stock, overstates the profitability of the stock, or fails to buy and sell stock as per instructions, in order to increase his brokerage, commission, or income, then the broker is said to be involved in stock fraud.
Any actions that involve half truths or misrepresentation of any stock, by a stock dealer, stockbroker, an issuer of stocks, or any other person dealing in the stocks, can lead to stock fraud. Such misinformation about the stocks, usually affects the market price of the stock, which could lead to shareholders, investors and others being hoodwinked or swindled, but benefits the brokers or dealers involved. Such fraud is known as Stock Fraud.
When a broker influences the decisions of his customers, not for their but his own benefits, then he is indulging in stock fraud. Such brokers typically provide wrong or misleading information to their clients, who are then encouraged into trading stocks, which are not always in their best interests, but are always profitable to the broker.
Thus, any kind of action, on the part of a broker or stock dealer, without considering the customers' interests, but done to increase the profits of the broker, can be termed as stock fraud. Stock fraud comprises a deliberate falsification of the truth, or suppression of important facts, with regards to a company’s stock.
Forms of Stock Fraud
While a majority of stock fraud cases are a direct result of unscrupulous and fraudulent actions by brokers, some elaborate forms of stock fraud may involve top executives in a company, and sometimes even the entire company itself.
Investigations into stock fraud cases have revealed that many a company has a kind of policy, which encourages stock fraud at all levels of the company. In most cases of stock fraud, the employees of the organization are involved in hiding and concealing illegal practices in the company, which in turn could lead to the stock of the company crashing, and thus resulting in many investors losing their money in such stocks.
But sometimes, even the opposite may be true. A particular company may willingly and knowingly manipulate its stock and misinform the investors about it, so as to cause an increase in the price of the stock due to added buying by the investors. Once the company has raised its stock prices and the required funds, they may stop manipulating the stock, which would then typically crash and investors would be left with worthless stock.
Whatever forms the fraud may take, whether through an immoral broker, or through company insider trading and stock manipulation, they all constitute stock fraud. All the various forms of stock fraud have one common binding principle – that of maximizing the gains for the fraudsters, without any concern for the investing public, by indulging in violation of the investor-broker trust.
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