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Be proactive in avoiding securities fraud investigations

On Behalf of | Nov 15, 2022 | Investigations & Regulatory Compliance

The Securities and Exchange Commission (SEC) is diligent about finding and addressing fraud. If it launches an investigation targeting your investment firm, you could be ordered to pay fines that might bankrupt your company. In some cases, imprisonment is also a possible outcome.

Although you likely have experience complying with the SEC, it is wise to refresh your and your staff’s understanding of securities regulations. A good place to start is ensuring that employees know the different ways fraud allegations may arise.

Forms of securities fraud

Generally, fraud is any act that harms others through deception. Since securities fraud can and does impact the American public, a mere whisper of wrongdoing could attract the interest of SEC investigators. During investigations, the SEC is looking for evidence of fraudulent activities such as:

  • Insider trading: Using nonpublic information to sell or buy securities
  • Ponzi/pyramid schemes: Paying investors from subsequent investment funds rather than actual profits
  • Advance fee fraud: Making unattainable financial promises in exchange for the payment of an upfront fee

If your staff does not understand what is and is not permitted, your company could be liable for damages if an investigation proves fraud occurred. Worse, you might have an unknown fraudster lurking within your personnel and may be held responsible for their wrongdoing.

Three tips

Below are three ways to stay on top of the law, potentially preventing the SEC from investigating for securities fraud.

  1. Stay up to date with SEC regulations
  2. Monitor your staff to identify signs of fraud
  3. Dig deeply into the backgrounds of new candidates

It is unwise to ignore the situation if the SEC targets you for a securities investigation. By getting experienced legal guidance, you can protect your interests throughout the investigation.