Houston Stock Fraud Attorney
What Is Stock Fraud?
Stock fraud occurs when corporations and corporate insiders prioritize their profits over the interests of their shareholders. By misleading shareholders, corporations put shareholder investments at risk.
Corporate stock fraud by misrepresentation occurs when investors or insiders:
- Manipulate stock value by falsifying information on a company's financial statement and SEC filings
- Lying to corporate auditors
- Through the public statements of misleading information.
Insider trading, another form of corporate stock fraud, is the trading of a corporation's stock or other security by corporate insiders such as officers, key employees, directors, or holders of more than 10% of shares. In illegal insider trading, an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise misappropriated.
Fraud involving corporate stock options is increasingly common. Stock options grant the holder the opportunity to buy stock a date in the future with the purchase price being fixed at the date the option is granted. If the stock's value increases before the purchase option is exercised, the holder profits from exercising their stock purchase option. Stock options fraud occurs when corporate executives backdate the granting of their stock options, virtually guaranteeing a profit as soon as the option is granted. This manipulation is unfair and defrauds other shareholders.
Data Theft Costs Investors Billions
From 2017 to 2018, hackers committed serious data breaches at Facebook, Paypal, and other major databases of private information. These breaches were often followed by admissions of "guilt," or varied admissions that the company's security was not as robust as they promised.
Those announcements usually occur alongside precipitous drops in stock value. For instance, Facebook's data scandal involving Cambridge Analytica, who weaponized user data for political reasons, led to a loss of over $100 billion through the course of the scandal.
Data Breaches May Count as Stock Fraud
Since last year, plaintiffs have increasingly brought cases forward that these data breaches are a form of securities fraud. But how can that be?
Their argument relies on the relationship between a data company's security and it's stock value. The more secure a platform is, the higher its value as a company–especially in today's data-driven world. If a company presents its security as more robust than it really is, then they're essentially inflating the value of their stock artificially, which is why data breaches are followed by massive losses.
Will it work?
That remains to be seen. Very few of these companies have subjected themselves to a regulatory investigation, making it difficult to prove that the security issues were a known issue prior to the breach. Plaintiffs would need evidence that the company deceived the public when presenting itself as secure, which would make investors able to claim stock fraud. In legal terms, that's known as "scienter," or the knowledge of wrongdoing. That would require confidential witness allegations or the findings from a regulatory investigation, which (as we mentioned) is rare—for now.
However, cases like these prove that stock fraud is rarely straightforward–proving your case will require a deft and experienced lawyer at the wheel and a well-funded investigative team behind them. That's why many of our clients called us in the first place.
Contact a Stock Fraud Lawyer in Houston, TX
At Arnold & Itkin LLP, our Houston business attorneys fight aggressively for the rights of our clients. If you have been a victim of stock fraud perpetrated by officers, shareholders, directors, or other company insiders, you have rights. We can help you recover losses from the corporate fraudsters who are responsible. Contact a Houston stock fraud attorney immediately if you have been victimized by fraudulent activities.