Misrepresentations in Sales of Securities and Commodities
The securities laws and the Commodity Exchange Act prohibit the use of fraud or deceit including obtaining money or property through material misstatements and omissions in the offer or sale of securities. Misrepresentations that lead to significant actual or potential investor harm are frequent targets of enforcement actions by the SEC and CFTC and can be the basis for whistleblower claims.
The government is concerned about deception of investors in both public and non-public (pre-IPO or private) companies and transactions. Sophisticated investors and market participants can be the victims of misrepresentations as much as retail investors can be.
Investors can be misled by any number of ways, including:
Material misstatements about a security’s historical performance, profitability, or the magnitude of actual losses
False statements of “guaranteed” returns
False statements about the investment strategy of a fund or pool
Misstatements about the intended use of investor funds
False inflation of a private or public company’s value with deceptive statements about the performance of a key product or service, or actual value of a key asset(s)
Manipulation or false reporting of benchmark rates such as the LIBOR
Misuse of the EB-5 immigrant investor program whereby foreign investors are falsely told their substantial investment in U.S. enterprises would create new jobs, impact the local economy, and give investors an opportunity for future U.S. residency, when.in fact, offerors either pocket the money or divert it to other projects.
False statements of the suitability of an investment for a particular investor or investment strategy
Misleading statements and/or omissions in offerings to retail investors for complex financial products, such as structured notes
High-frequency trading schemes
Selective disclosures of “dark pool” order types made only to certain customers, creating a non-level playing field
Spoofing—i.e., bidding or offering with the intent to cancel before execution