Securities Fraud Lawyers

Securities fraud lawyers represent investors who have lost money after being defrauded by Registered Investment Advisers (RIAs). RIAs are regulated by the Securities and Exchange Commission (SEC) and the SEC is responsible for bringing charges in cases of securities fraud. Investment advisers are fiduciaries, which means they must act in their client’s best interests.

Investment advisers are uniquely positioned with the opportunity to defraud their customers. These advisers’ services often involve active management of investment portfolios. Many types of investment products come with commissions for investment advisers, commissions that create an incentive for the investment adviser to recommend a product that is not in the investor’s best interest. If the RIA is working in a managed account, they may not need to seek out their customer’s approval for transactions, making it even easier for investment advisers to disguise the fraud.

Federal Securities Fraud Laws

Securities fraud lawyers are experts in the regulatory rules set forth by the Securities and Exchange Commission. The U.S. Investment Advisers Act of 1940 requires anyone engaged in the business of advising on securities for compensation to register as an investment adviser.

The following securities laws prohibit deceit in the sale of securities are typically cited in SEC regulatory actions. Securities law attorneys are experts on these laws, as well as the SEC’s latest updates to rules and regulations.

Violations of Section 10(b) of the Securities Exchange Act of 1934

The Exchange Act of 1934 regulates securities transactions and created the requirement for securities issuers to disclose information to the SEC that would help investors independently evaluate investments.

Section 10(b) specifically prohibits the “use of any device, scheme, or artifice to defraud.”

Violations of Section 17(a) of the Securities Act of 1933

This is another anti-fraud provision that makes it unlawful for anyone to obtain money or property using material misstatements or omissions, or to “engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.”

SEC and State Regulators

The SEC may enforce actions by state securities regulators. In 2023, Credit Suisse agreed to pay a $10 million fine following SEC allegations that Credit Suisse acted as an underwriter and investment adviser to mutual funds after New Jersey prohibited the firm from doing so.

Investment Advisers and SEC Violations

SEC fraud charges do not involve criminal charges and their penalties do not come with prison time. However, the regulator may work alongside an Attorney General’s office to bring criminal charges.

Investment advisers are expected to help investors plan for a full spectrum of financial needs, including retirement planning, estate planning, and taxes. To uphold their fiduciary duties, RIAs are expected to understand their customers’ full financial picture. Violations of fiduciary duties and other regulatory rules are quite common. The SEC maintains a public record of allegations of misconduct against investment advisers. This is called the Investment Adviser Public Disclosures (IAPD) database. Investment advisers appear in this database, whereas registered brokers appear in FINRA’s BrokerCheck record. Financial professionals who are registered as both brokers and RIAs have records maintained on both sites.

Typical Examples of SEC Fraud Cases

Investors should know about a few especially common types of securities fraud. If you believe you may have lost money based on the following types of investment fraud, contact an SEC fraud lawyer today.

Stock Market Manipulation

Investment advisers may attempt to illegally manipulate share prices on behalf of themselves or their clients. They can employ a variety of deceitful tricks to make it appear as though there is increasing public interest in a stock, and that appearance can drive up stock prices.

Case Example

According to SEC allegations filed in November 2023, an alleged fraudster attempted to publish a misleading press release about WeWork, allegedly falsely stating that his company, Cole Capital, was about to make a tender offer for WeWork shares. Ahead of the press release, the alleged manipulator purchased WeWork options contracts that would have made millions of dollars. (Unfortunately for him, he allegedly mistimed his press release and his options expired before the share prices shot up.)

Insider Trading

Insider trading is a type of stock market manipulation. Investment advisers are frequently privy to non-public information about certain stocks. If an RIA knows, for example, that an institutional client is going to sell a large number of certain shares, they may be tempted to sell their own shares ahead of the likely price drop. They may also be tempted to tip off their preferred clients. This illegal practice is also considered insider trading and research suggests that it is extremely common.

Case Example

SEC allegations involving insider trading frequently involve the disclosure of non-public information concerning mergers and acquisitions. For instance, in September 2023, the SEC alleged that a former analyst at a major investment firm learned of an upcoming merger and acquisitions before they were publicly announced. He allegedly shared this information with a long-time friend who then allegedly placed trades in advance of six merger and acquisition transactions. These trades allegedly resulted in proceeds of $322,000.

Unregistered Securities and Ponzi Schemes

Unregistered securities are frequently the subject of Ponzi schemes. Disclosing financial information and business plans helps weed out fraudulent offerings. Ponzi schemes frequently use fraudulent, unregistered offerings to lure in unsuspecting investors. In a Ponzi scheme, the offeror uses the influx of cash from newly defrauded investors to make payments to previous investors, passing off these payments as returns on the investment. In reality, the majority of the investors’ funds go toward enriching the fraudster.

Case Example

On December 21, 2023, the SEC filed a complaint alleging Diana Fernandez raised $364,000 from at least 20 investors through the fraudulent sale of securities with promises that she would use their money to invest in private and publicly traded companies, cryptocurrencies, and luxury real estate properties. She allegedly guaranteed returns as high as 63% — the telltale sign of a Ponzi scheme.

Reverse Churning

Investors typically pay a fee that is a percentage of the advisory assets under management. In exchange for that fee, the advisor is expected to execute trades to benefit the investor. Reverse churning cases involve investment advisers that collect their fees without providing any advisory services.

Case Example

The SEC alleged in September 2022 that a former investment advisory firm Waddell & Reed engaged in misconduct related to one of its wrap fee programs. The wrap fee should have gone toward advisory services and trading costs, but this fee is not suitable in accounts with infrequent trading. The firm allegedly flagged hundreds of accounts for concerns related to an absence of trading. Furthermore, the SEC alleges that the firm should have evaluated whether these types of accounts were suitable or if the customers would have been better off with brokerage accounts.

Hedge Fund Fraud

Hedge funds are meant for especially wealthy investors and rely on the financial savvy of the hedge fund manager. These investments can be complex and may be subject to fraud.

Case Example

According to an SEC complaint from December 2019, a hedge fund adviser called SBB Research Group and two top executives engaged in a multi-year fraud that inflated fund values.

The complaint alleges that the fund invested almost exclusively in a type of complex investment called structured notes. They allegedly used their own valuation model to artificially inflate the value of the structured notes, which allegedly allowed them to misstate the fund’s historical performance. Hedge funds typically charge based on performance, and this misstatement allegedly allowed them to overcharge investors approximately $1.4 million in fees.

Mutual Fund Fraud

Mutual fund advisory programs make money by investing in a portfolio of investments. Investors are relying on investment advisors to actively manage these accounts. However, investors should be aware that investment advisors might use these as shields for fraud.

A common type of mutual fund fraud is breakpoint fraud. If an investor purchases shares of a mutual fund in which they already own shares, they may be entitled to breakpoint discounts. Investment advisers are required to inform their investors about available breakpoints. The fiduciary duty requires investment advisors to consider if there might be a mutual fund with a similar investment strategy that does not charge as much in fees. In many cases, the investment adviser puts the financial gain associated with a certain mutual fund share class ahead of the best interests of their clients.

Case Example

An SEC Order dated October 2023 alleges that Wilmington Trust Investment Management did not fully disclose the conflicts of interest related to its use of mutual fund share classes. The investment adviser allegedly exchanged clients’ existing assets for other investments in the same sector that had higher mutual funds.

Cherry Picking

Cherry picking is a type of fraudulent trading in which an investment adviser “cherry picks” the best investments for their own accounts or for the accounts of their preferred clients.

Case Example

In September 2023, the SEC barred an investment advisor following allegations that he engaged in cherry-picking. The SEC Order found that the advisor’s firm, GlennCap, cherry-picked trades that resulted in at least $2.7 million in profits. Glenn Capital is still registered as an investment adviser, although New York and Texas have terminated the firm’s registration, and Connecticut has requested termination.

Retirement Accounts

Investment advisory firms make more money on IRAs and retirement accounts that are held at the advisory firm. This gives investment advisors an incentive to roll over their accounts to the investment advisory firm.

Case Example

In August 2022, the SEC alleged that an investment adviser fraudulently induced his clients to roll over “significant funds” from their federal retirement accounts into variable annuity accounts. Variable annuities are often too complex to suit investors’ needs and typically feature high fees. The SEC barred the adviser as a result of these allegations.

Other Types of SEC Fraud Lawyers

Make sure you find an SEC fraud lawyer with the right specialty. There are other types of lawyers working in the securities fraud industry.

Commodities Fraud Lawyer

Commodities fraud attorneys may represent whistleblowers who report commodities market manipulation.

The commodities market oversees the purchase and sale of commodities like oil, wheat, and gold. Certain securities, like futures, generate revenue based on the price of commodities. Just like the securities market, the commodities market may be subject to unfair manipulation.

The commodities market is subject to manipulative trading practices like spoofing. Spoofing involves placing a large order for a certain commodity, only to cancel it. This order temporarily drives up the price of that commodity, allowing the manipulative party to get a more favorable price for their commodity. Even outside of elaborate manipulative trading practices, commodities may be subject of investment adviser fraud when advisers recommend managed futures funds without letting their customers know about the risks.

Securities Fraud Defense Lawyers

Financial professionals who find themselves the subject of an SEC investigation may hire securities fraud defense attorneys. Investment advisers often hire attorneys once they receive a Wells Notice, which is a letter from the SEC notifying the financial professional of the charges the SEC intends to bring. This makes it all the more crucial to secure your own legal representation if you are pursuing a case for securities fraud.

What Can a Securities Fraud Law Firm Do for Me?

If you believe you are the victim of securities fraud, an SEC fraud lawyer may be able to help you recover. Kurta Law works with investors who have been defrauded by their FINRA-registered brokers, but many brokers are dually registered as RIAs also fall under SEC regulations. Investors who are not certain of their investment professional’s license type can look them up using their Central Registration Depository (CRD) number on either IAPD or BrokerCheck.

Our free case evaluations can help determine if your complaint has the elements of securities fraud. Lawyers are ready to answer your questions. For more information, contact (877) 600-0098 or email info@kurtalawfirm.com.