Securities And Investment Fraud: Protecting Investors

Last updated on June 4, 2025

Laws protect investors from illegal actions by corporations that sell stocks, stockbrokers and other financial entities. Illegal activities include material representations and omissions. Fraudulent transactions, including stock option backdating, are also not allowable. Ponzi schemes sometimes cause large numbers of investors to lose money in a short time through deceitful accounting and other irregularities.

Investors who have been cheated may recover their losses through legal remedies, including the following:

• Class action lawsuits
• Direct claims by individual investors against sellers or brokers
• Derivative actions

Edelson Lechtzin LLP has built a strong reputation for successfully representing high net worth investors who have experienced significant losses through securities law violations. Our clients come to us from throughout the United States.

Securities Investment Fraud Overview

• Common Types Of Securities Fraud
• Warning Signs Of Investment Fraud
• How A Securities Fraud Class Action Lawsuit Works
• Federal Securities Fraud Lawsuits
• Deadlines In A Securities Fraud Class Action Case
• Shareholder Derivative Lawsuits
• Why Edelson Lechtzin LLP?
• Securities And Investment Fraud Frequently Asked Questions
• Contact Us

What Are The Common Types Of Securities Fraud?

Securities fraud encompasses a range of illegal activities that involve deceit or manipulation in the trading of securities. Common types of securities fraud include the following:

• Affinity fraud: Deceptively exploits trust within specific communities (e.g., religious or ethnic groups) by using shared bonds to gain credibility. Perpetrators lure victims into fraudulent investment schemes, ultimately betraying trust and causing financial harm.
• Pump-and-dump scheme: Artificially inflates stock prices by disseminating false or exaggerated information, enticing investors to buy shares at inflated prices. Perpetrators then sell their own shares, causing the stock price to fall and leaving unsuspecting investors with significant losses.
• Insider trading: Involves the illegal trading of stocks based on nonpublic, material information about a company, providing insiders an unfair advantage. This unethical practice erodes market integrity and undermines investor confidence.
• Accounting fraud: Involves manipulating financial statements through deceptive practices like inflating revenues, understating expenses or hiding liabilities, thereby presenting a false picture of a company’s financial health. This undermines investor trust and can lead to significant financial losses when revealed.
• High-yield investment fraud: Schemes promising unusually high returns with little to no risk, preying on investors’ desire for quick profits. Often targeting vulnerable individuals like retirees, these fraudulent schemes (including Ponzi or pyramid schemes) inevitably collapse, leaving most investors with substantial losses.
• Stock fraud: Encompasses a wide range of fraudulent activities in the stock market, including false statements, unauthorized trading and market manipulation. Fraudsters deceive investors through misrepresentations about companies, misleading trading practices or other deceptive tactics, resulting in financial losses.

Securities fraud causes extensive financial losses and erodes the integrity of financial markets, ultimately harming both individual investors and the broader economy.

Warning Signs Of Investment Fraud

Investment fraud may manifest in various ways, but there are common warning signs to watch out for. These include:

• Promises of astronomical profits: Exorbitant profits that seem too good to be true are a major red flag. Investment returns are generally commensurate with risk, so guaranteed, unusually high returns without adequate explanation or acknowledgment of associated risks strongly suggest fraud.
• Unsolicited adverts and marketing: Unscrupulous sellers often bombard potential investors with unsolicited advertisements and marketing materials via email, phone calls or social media. These communications typically pressure you to act quickly, creating a false sense of urgency to invest without sufficient time for research or proper consideration.
• Promises of exclusive information: Proceed with caution if a seller promises exclusive or inside information for a significant advantage. Investment decisions should rely on thorough research and analysis of publicly available information, not on privileged insights that may be illegal or unethical.
• High-pressure sales tactics: Fraudulent sellers frequently employ aggressive and persistent tactics to pressure quick investment decisions. They may use repeated phone calls, urgent deadlines and exaggerated claims about limited availability to exploit your fear of missing out (FOMO) and push you into committing funds before a proper risk evaluation.
• Poor communication: A pattern of unprofessional conduct – evasiveness, vague answers to questions, or difficulty reaching the seller or company representatives – can signal investment fraud. Legitimate opportunities involve clear and transparent communication.

At Edelson Lechtzin LLP, we leverage our extensive experience to provide you with sound legal guidance on dealing with investment fraud.

How A Securities Fraud Class Action Works

A securities fraud class action allows a group of investors who suffered similar losses to file a lawsuit collectively against the responsible party. This process makes it more efficient to seek justice while holding corporations, brokers or financial entities accountable.

• Investigation and filing: Attorneys conduct an in-depth review of financial records, fraud allegations and investor losses. This involves analyzing corporate disclosures, stock movements and misleading statements to build a strong case before filing the lawsuit.
• Class certification: The court determines whether the case qualifies as a class action. This involves proving that all investors suffered similar harm from the same fraudulent actions, making a collective lawsuit the most effective approach. Without certification, investors may need to file individual lawsuits.
• Discovery phase: Both sides exchange evidence, including internal company emails, financial reports and witness testimonies. This phase can reveal crucial information, such as fraudulent accounting practices, insider trading or deceptive marketing tactics that mislead investors.
• Settlement negotiations or trial: Many securities fraud cases result in settlements where the defendant agrees to compensate investors without admitting wrongdoing. If a settlement cannot be reached, the case goes to trial, where attorneys present evidence before a judge or jury.
• Distribution of funds: If investors win the case or a settlement is reached, the court oversees the distribution of funds. The amount each investor receives depends on factors such as the size of their losses and the total settlement or verdict amount.

Class actions provide investors with a powerful tool to recover losses while holding fraudulent entities accountable. Understanding how these cases unfold can help investors make informed decisions about their legal rights.

Understanding Federal Securities Fraud Class Actions

While the general mechanics of a securities fraud class action aim to consolidate claims, federal securities fraud class actions operate under a distinct and robust legal framework, primarily addressing violations of federal statutes. These actions are typically brought in federal courts, which often hold exclusive jurisdiction over such complex matters.

Legal Foundation

The cornerstone of these cases rests on federal securities laws designed to ensure market integrity and investor protection. Key statutes include the Securities Act of 1933, which primarily concerns misrepresentations or omissions in registration statements for new public offerings (IPOs). The Securities Exchange Act of 1934 governs the secondary market trading of securities, addressing issues like market manipulation, insider trading, and false or misleading corporate statements. Rule 10b-5 under this Act is a critical provision widely used in securities fraud litigation for its broad prohibition against deceptive practices.

Jurisdiction And Scope

Cases involving federal securities fraud are almost exclusively litigated in federal court. This ensures a consistent application of federal law and often facilitates the handling of class actions that seek to represent a nationwide group of investors who were impacted by a particular security’s alleged fraud during a specific timeframe.

Influential Legislation

The landscape for federal securities class actions has been significantly shaped by key legislative reforms. The Private Securities Litigation Reform Act of 1995 (PSLRA) introduced heightened pleading standards for plaintiffs, requiring them to state facts with particularity to support claims of fraud. It also established a “lead plaintiff” process and imposed stays on discovery during the early stages of litigation, aiming to deter frivolous lawsuits.

The Securities Litigation Uniform Standards Act of 1998 (SLUSA) largely preempts state-law securities class actions involving nationally traded securities, directing these complex cases into the federal court system under federal law. This was intended to create uniform standards and prevent plaintiffs from circumventing PSLRA’s stricter requirements by filing in state courts.

Common Allegations

The fraudulent activities forming the basis of these actions often include misleading financial statements, undisclosed adverse information, fraudulent projections, insider trading schemes and various forms of market manipulation.

Deadlines In A Securities Fraud Class Action Case

If you have lost money due to securities fraud, it is essential to be aware of the strict filing deadlines. Securities fraud class actions are subject to both statutes of limitations and statutes of repose, which dictate how long investors have to take legal action.

• Statute of limitations: Investors generally have two years from the date they discovered the fraud to file a claim.
• Statute of repose: Even if fraud is uncovered later, claims cannot be filed more than five years from the date of the alleged violation.

These deadlines are strictly enforced, and missing them can mean losing the right to seek compensation. Acting quickly after discovering fraudulent activity can help preserve your legal options.

Navigating Shareholder Derivative Lawsuits

Shareholder derivative lawsuits represent a critical legal mechanism for addressing corporate misconduct when a corporation’s own leadership fails to act. These distinct legal actions allow shareholders to intervene when the company has been harmed but its board of directors refuses to pursue appropriate remedies. Unlike direct claims or class actions, derivative suits function as representative actions on behalf of the entire corporation.

Who Brings The Suit?

Derivative lawsuits are typically initiated by one or more shareholders acting as representatives. Rather than pursuing compensation for their personal losses, these shareholders step into the corporation’s shoes to compel action against those who have harmed the company.

On Whose Behalf?

The lawsuit is brought on behalf of the corporation itself. The shareholder plaintiff essentially acts as a representative, stepping into the corporation’s position to enforce its rights when leadership has failed to do so.

Who Is Being Sued?

The defendants in these actions are usually the corporation’s own directors, officers or occasionally third parties alleged to have damaged the corporation through negligence, breach of fiduciary duty or other wrongful acts. Common examples include self-dealing transactions, excessive executive compensation, corporate waste or oversight failures resulting in significant penalties.

What’s The Alleged Harm?

The fundamental allegation in derivative suits centers on direct injury to the corporation itself, not individual shareholders. This might include depleted corporate assets, damaged reputation or other value-diminishing actions that hurt the company’s overall worth.

Where Does The Recovery Go?

When successful, any financial recovery flows directly back to the corporation, benefiting all shareholders indirectly through increased corporate value. The plaintiff shareholder’s legal fees may, in some cases, be paid by the corporation if the suit successfully benefits the company.

What Are The Key Procedures?

Before filing, shareholders must typically make a formal “demand” on the board of directors, requesting they take action against alleged wrongdoers. Litigation proceeds only if the board rejects this demand, fails to respond or if making such a demand would be futile. Courts maintain significant oversight throughout derivative proceedings, with any proposed settlement or dismissal generally requiring court approval to ensure fairness and protection of the corporation’s interests.

Aggressive Securities And Investment Fraud Representation

At Edelson Lechtzin LLP, our attorneys investigate and prosecute claims against entities that have defrauded our clients. When we uncover evidence of liability and wrongdoing, we craft strategies for recovering suitable damages for our investor clients.

When we accept a securities fraud or investment fraud case or initiate a class action, we do so on a contingency basis. This means you will not owe us attorney fees initially. Our remuneration will be a percentage of the recovery that we obtain on your behalf.

Frequently Asked Questions About Securities And Investment Fraud

It is only natural to have questions when you have been victimized by fraud. Here are some of the questions our firm hears most often:

What exactly is insider trading?

Insider trading refers to the illegal practice of trading stocks or other securities based on material, nonpublic information about the company. This privileged information can give insiders an unfair advantage over other investors, leading to market manipulation and unfair gains.

How do you prove securities fraud, and how hard is securities fraud to prove?

Proving securities fraud involves demonstrating that the accused party knowingly engaged in deceptive or manipulative practices in the securities market. While it can be challenging to prove, several steps can help establish a case of securities fraud:

• Material misrepresentation or omission: Show that the accused made false statements or failed to disclose material information about the investment.
• Scienter: Establish the intent to deceive or manipulate, often by demonstrating the accused’s knowledge of the false statements or omissions.
• Reliance: Demonstrate that the victim relied on false information or omissions when making investment decisions.
• Loss causation: Link the fraudulent conduct to the investor’s losses, showing that the fraud directly caused financial harm.
• Proximate cause: Establish a direct connection between the defendant’s actions and the investor’s losses, proving that the fraud was a substantial factor.

A skilled securities fraud attorney can help you assess the strengths and weaknesses of your case.

Suffered Significant Financial Loss from Investment Fraud?

No matter how you lost money on investments or what prompted you to look for a lawyer’s advice on investment fraud, Edelson Lechtzin LLP is here for you. From our law offices in Philadelphia, we offer free consultations for clients nationwide with no further obligation.

To request a case analysis, call 844-696-7492 or complete our online form. We will get back to you very soon.