California businesses and individuals may hear the term securities fraud and assume it is a complex, white-collar crime, reserved for top executives involved in a complicated and fraudulent financial scheme. However, there are many common activities that could constitute securities fraud.
The penalties for a securities fraud in California conviction can be major, involving prison time and exorbitant fines. It is important to have a basic understanding of the laws surrounding securities fraud and your legal options if you find yourself facing a criminal charge.
A security is a piece of ownership in a business through stocks, bonds, shares, or another form of investment. Securities may be bought, sold or traded for a profit. Owners of securities have a legal duty to provide accurate and truthful information about the security and its value.
Securities fraud defined
The California Corporations Code states that it is illegal to buy, sell or offer to buy or sell, a security, through a statement that includes a false statement of material fact or omits material facts that make the statement misleading. The statement can be oral or written.
The scenario typically occurs in situations where an intentional statement is made about a security that contains false information, such as stating the security is worth more than it is or leaving out information about any risks involved in purchasing the security.
Contrary to popular belief, a securities fraud charge can happen to just about anyone. A financial advisor who unintentionally gives poor advice, or an investor in a corporation who mistakenly discloses inside information may suddenly find they are being accused of securities fraud.
A simple mistake, or poor judgment based on wrong information, can lead to a securities fraud charge. Both can be defenses to a charge, if it is proven that the false statement was made in good faith without an intent to defraud. Situations that lead to a charge of securities fraud are often complex and obtaining advice on legal rights and options is crucial.