Enron, Tyco International, and WorldCom – what do these three companies have in common? They earned high revenue with numbers amounting to millions. They engage in great investments in their respective industries, making them the corporate giants of their time. Most of all, these companies were involved in stock scams and securities frauds.
While securities fraud is not complicated in itself, it can be hard to understand if you are not fully aware of the regulations and all these entail. When it comes to white collar matters, Houston lawyers classify these into three:
Company Committed Securities Fraud
This occurs when a corporate director or officer does not provide accurate reports of a company’s financial information. As a result, the false information can increase the value of the company’s stocks and encourage stockholders to buy more shares. If the company becomes bankrupt, the shareholders who entered the corporation can lose their investments completely.
Insider Trading
This occurs when an individual uses the company’s confidential financial information to decide on whether to buy or sell the stock. For instance, an accountant notices the company might be heading towards bankruptcy. If the accountant or other parties involved sell their stock without the knowledge of the company’s board of directors, they have committed insider trading.
Third Party Misrepresentation
This occurs when a third party provides false information about a company, an industry, or the stock market. Common examples of this securities fraud are the “pump and dump” schemes. In this case, an individual will approach a small company or a start-up with low-priced stocks, and then buy large amounts of its shares. The individual will send false information to encourage other shareholders to buy stocks and drive up its price. Once the price is high enough, the individual or parties involved will sell their shares.
Even corporate giants are not an exception when it comes to the law. Be aware of the regulations—don’t be a fraud.