Corporate Fraud Laws & Regulations

Stock fraud is a serious crime in the United States that comes with hefty penalties such as fines and possible prison terms. The Securities and Exchange Commission was created in 1934 to protect the interest of investors and other consumers from stock fraud and other securities fraud. Securities fraud can be committed by almost anyone these days; from the investor to the stockholder to the corporation with the stock that is being sold. Close to 25 million Americans are victims to fraud each year, which accounts for 11 percent of the adult population, but becoming a victim of fraud can be easily avoided. Anyone interested in the art of investing should make sure they are informed of the stocks they are purchasing prior to making a deal, if they wish to avoid becoming the victim of fraud.

Hiding or Distorting Information

Securities fraud is an illegal practice in the United States that involves the purchasing or selling of stocks on the basis of false information, which frequently results in major financial losses for one of the parties involved. One major category of securities fraud is corporate fraud. Corporate fraud is when high level corporate officials commit securities fraud on a corporate level. One of the most notable examples of corporate fraud involved a company named Enron in the early 2000’s. Corporate fraud occurs when a publicly traded company withholds information about their profits, losses, and other financial entities instead of reporting this information to the Internal Revenue Service. In the case of Enron, the company admitted that in 2001 they overstated their earnings for four years for a total of $586 million and that they created limited partnerships in order to hide their $3 billion in debt. The Enron case falls under the realm of hiding and distorting information because they hid their debt and distorted their earnings for four fiscal years.

Elements of a Fraudulent Case

There are nine elements of a common law fraudulent case. They include the following:

  • A representation of an existing fact
  • The materiality of the fact
  • The falsity of the fact
  • The speaker’s knowledge of the falsity of the fact
  • The speaker’s intent that it shall be acted upon by the plaintiff
  • The plaintiff’s ignorance of the falsity
  • The plaintiff’ reliance on the truth of the representation
  • The plaintiff’s right to rely on it
  • Consequent damages suffered by the plaintiff

For a corporation to be charged with fraud each of these nine elements must be pled and proved with clear, cogent, and convincing evidence to establish the claim of fraud.

Legal Help

If you or a loved one has been the victim of securities fraud committed by a corporation, contact a securities law attorney immediately for expert legal counsel regarding your case.