Types Of Investment Broker Fraud That Stockbrokers Can Be Found Guilty Of

A firm or stockbroker can be found guilty of four different types of fraud

. As a whole, however, investment broker fraud is any incorrect or negligent claim made by a stockbroker, investment bank or firm that has an effect on the choices made by others. Fraudulent activity can also be committed by individuals.

There are many different ways an investor can give false information. He might tell his client that an investment carries no risks. He might omit information or give bad advice. Offering or acting on insider information can also be legally prosecuted.

The Securities category of fraud is prosecuted by the National Association of Securities Dealers and the Securities and Exchange Commission. The person can be prosecuted civilly or criminally and could be imprisoned or fined. Accounting practices that are fraudulent also fall under the Securities category.

Manipulating stock prices and giving incorrect information on SEC filings are defined as fraudulent under the securities umbrella. Enron is a famous case in this area. Law firms and banks were also prosecuted in the case. They hid loans, made false investments and personally profited from the scheme.

The Enron case's law firm involvement included the setting up of false deals and insider trading. 16 people pleaded guilty in the proceedings. In the end, Enron collapsed but more importantly, the entire debacle put the spotlight on securities regulations.

There were a variety of different types of fraudulent acts committed in the Enron case but they were all within the securities category. Two Enron CEOs were prosecuted for intentionally supplying false information to the public by omitting the fact that the company had a poor financial prognosis.

Securities is often a difficult case to prove and prosecute. Circumstantial evidence is often the only proof. Many cases involve the omission of information. Public companies are legally responsible for keeping careful documentation of finances and honestly disclosing them to the public.

A breach of Fiduciary duty has its own category altogether. Stockbrokers have a number of ethical and legal responsibilities and are only allowed to act when they're authorized to. They're also compelled by law to act in their clients' best interests. They are responsible for supplying their clients with all relevant information they're aware of that could have an effect on their client's affairs. These are known as their fiduciary responsibilities.

A stockbroker is compelled not to recommend stock he hasn't investigated thoroughly. He's required to have knowledge about a stock's financial prognosis, price and nature. He's required to act in his clients' best interests. He is disallowed from acting without his client's authorization unless an account is agreed to be discretionary. Discretionary accounts are not without responsibility, though.

When an account is discretionary, the broker is still responsible for acting in his client's best interests. He's required to stay informed of stocks he's invested in and all aspects of the market that affect it. He must disclose all associated risks to his clients. If any of these responsibilities are not met, the broker can be held liable for fiduciary investment broker fraud.

by: Jenifer Whitmire

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