Stock and Securities Fraud

mericans are known to be hardworking, driven and innovative.   We strive to provide for our families and live a life of fulfillment.   Undoubtedly, one of the primary objectives of all that hard work is acquiring and building wealth.  Options for investment are limitless.  One of the most common investments is private and public stock and securities.   Investors ranging from Mom and Pop to more sophisticated market players rely upon a multitude of resources for information to place investments, much of which is governed by federal and state laws which prohibit false and misleading statements regarding the health, value and status of a public or private company.

At the end of the day, people make investments trusting the representations made by the people running corporations, partnerships and limited liability companies.  Yet, no matter how big the corporation may be, ultimately, some people believe they can make money by breaching trust and providing knowingly false information regarding the value of stock or other securities.   In some cases, fraudsters start companies with the intent to “pump and dump” private or public stock.   This scheme involves opening a business, issuing the sale stock or securities and, thereafter, creating a buzz about the offering through targeted “press releases.”   This buzz temporarily drives up the price of private or publicly trade stock and then, the majority shareholders sell their shares at the inflated value driving the price down and making themselves rich in the process.

Another example is where individuals running a privately held company develop a scheme to artificially inflate the value of their shares over time by falsifying company metrics to an “independent” valuation company.   They issue shares out of thin air and offer the private securities to employees as a “once in a lifetime opportunity” to share in the “growth” of the company.   The scheme works overtime by new shareholders being invited to purchase the shares of those retiring or those who have left the company.    There can never be a “run on the stock” because employees are prohibited from liquidating their shares and, instead, any cash out requires a new buyer to come in to purchase at the inflated price.   This type of scenario is considered a Ponzi or Pyramid scheme and it can be hard to detect until it is too late because it appears that a shareholder can technically sell back their stock for a timed cash payout for an increased share value.   However, federal and state laws prohibit providing false information to employees or independent valuation companies and claims exist – even where employees’ shares increased in value.

Corporations, limited liability companies and partnerships are legal structures for the operation of a business.  Underlying these legal entities are people agreeing to work together under certain terms and conditions to create opportunity to make money and live out the American dream. Corporations are not automatically regulated entities.  Private shares, partnership percentages, equity positions and other securities are not subject to registration with any governmental agency.    Business organizations function as well as the people who operate and control them.   Most businesses do not survive the first five years and this is caused by many factors, the most common of which is that the people controlling the operations either do not comply with operating agreements or, more often than not, there was never a formal written agreement between the business owners.   Thus, performing due diligence is critical before choosing to invest in any private or public stock or security.   However, when individuals are intentionally seeking to defraud by manipulating information, even the best research fails to detect the underlying schemes.

Investing into a business operation, especially investments for stock or equity in a privately held entity, is essentially an investment into the relationship between the people running the organization.    Agreements are only worth the paper they are printed on; it is the people standing behind that paper that make the difference.   Investing into private stock or equity relies heavily on being presented with accurate information.

Unfortunately, most of the disputes related to stock and securities fraud we have encountered relate to one of the parties becoming the bully and fraudster of the transaction.   They have calculated being caught and use illegally gotten gains towards legal representation to limit your recovery.   These Bullies do not discriminate, and anyone can become a victim.

There are a thousand reasons for a claim for stock and securities fraud to arise.  For each reason, there are laws to protect a partner, shareholder or investor from being defrauded. Each situation is unique and requires careful analysis and application of different legal tools.

By the time you are looking for a lawyer to handle this type of dispute, you are usually past the point of trying to amicably work things out and there is substantial money or property missing.   In this case, we believe it is time to stand up for yourself and we are here to support you.   We are heavy-handed in our pre-suit reconnaissance and believe information is the key to gaining the upper hand in any business dispute.   Our unorthodox approach to investigations is directed at making a meaningful attempt to resolve the case before it even gets filed and becomes a matter of public record.   In many instances, business bullies do not want to be exposed for fraud and become willing to resolve matters when presented with evidence of wrongdoing in a business dispute.