Securities fraud occurs when someone manipulates financial markets by spreading false or misleading information about investments like stocks and bonds, potentially harming investors by skewing their financial decisions.
California Pump & Dump Schemes Come In Many Forms
In California, consumer rights concerning “pump and dump” schemes are protected under both federal and state laws. A “pump and dump” scheme is a type of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme “dump” their shares and stop hyping the stock, the price typically falls and investors lose their money.
Federal Laws
At the federal level, “pump and dump” schemes are primarily regulated by the Securities and Exchange Commission (SEC) and are illegal under several provisions of federal securities laws, including:
- Securities Act of 1933 and Securities Exchange Act of 1934: These acts make it illegal to engage in manipulative and deceptive practices in the buying and selling of securities.
- Rule 10b-5 under the Securities Exchange Act: It prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security.
The SEC actively investigates and prosecutes individuals and companies who engage in pump and dump schemes.
California State Laws
In addition to federal laws, California has its own regulations:
- California Corporations Code: This contains specific provisions against fraud in securities transactions, including those that could cover pump and dump schemes.
- California Department of Financial Protection and Innovation (DFPI): This body enforces rules against securities fraud within the state. The DFPI can work in conjunction with the SEC to address fraud involving California residents or businesses.
Legal Remedies
Victims of pump and dump schemes can take legal action to recover losses:
- Civil Lawsuits: Investors can file a civil lawsuit against the perpetrators to recover losses. The basis of such lawsuits typically involves allegations of fraud and misrepresentation.
- Restitution: In cases where the SEC or DFPI prosecutes, courts may order the fraudsters to pay restitution to victims.
- Whistleblower Protections: Individuals who provide information about securities fraud may be eligible for protection and rewards under both federal and state whistleblower programs.
Preventative Measures
To protect themselves, investors are advised to:
- Conduct thorough research before investing in stocks, especially those promoted through unsolicited emails or sudden media attention.
- Be wary of stocks with dramatically increasing values without clear reasons.
- Consult with financial advisors or legal professionals when uncertain about investment opportunities.
By understanding and utilizing these legal protections and preventative measures, California consumers can better safeguard their investments against fraudulent schemes like pump and dump.
Our Approach
Our Practices are Guided by Integrity. We’ll protect what you deserve.
We work tirelessly and fight tenaciously to hold rights abusers accountable.
If you’ve experienced a distressing incident related to an issue like this, call us for a free case evaluation.
Did You Know?
False Statements
Inflating a stock's price through false statements, then selling it at the inflated price is a prime example. These false statements are often directed at microcap companies and can violate federal securities laws.
Warning Signs
Warning signs include sudden reverse mergers, promises of significant profits, and unusual trading surges.
Is It Illegal, or Just Unfair?
Legal cases can be lengthy, complicated, and confusing, but you don’t have to take on the system all by yourself. If you believe someone has violated your individual rights, or the rights of a large group of people in your community, we can help you find the right course of action.
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