Investor Protection Guide: Micro-cap Stock Fraud ("Pump and Dump")
"Pump and Dump" is a type of stock fraud involving the use of false or misleading statements to increase stock prices and then sell the inflated stocks to the public.
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securities law
Investor Protection Guide: Misleading Senior Designations
Financial advisors may be designated “senior specialists” in order to imply a certain level of training and expertise regarding issues of importance to senior citizens. The Consumer Financial Protection Bureau (CFPB) reports that there are currently more than 50 such “senior designations” or “titles” being used by financial advisors, which is “extremely confusing” for consumers. A full copy of the CFPB report can be read at consumerfinance.gov.
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Investor Protection Guide: Ponzi Scheme
Named after Charles Ponzi, who infamously bilked investors out of millions of dollars in the 1920s, a Ponzi scheme is an investment scam that involves the payment of abnormally high "returns" to investors that are actually paid from money contributed by newer investors.
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Investor Protection Guide: Prime Bank Schemes
Prime bank fraud is a type of investment scheme that promises extremely high yields over a short period of time. Individuals claim that they have access to secret financial products which they can buy at a discount and sell at a premium. In reality, these financial products are fictitious. Individuals attempt to make these products seem legitimate by associating them with top world banks or secret government banking systems for the elite.
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Investor Protection Guide: Pyramid Scheme
A pyramid scheme is an unsustainable, illegal business model where investment returns are typically from the principal of investments or membership fees instead of from the underlying investment gains. It is often marketed as a foolproof way to turn a small amount of money into big returns.
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Investor Protection Guide: Systematic Investment Plan (SIP)
Systematic Investment Plans (SIP) are regulated as Periodic Investment Plans under the federal securities laws. The primary objective of a SIP is to enable investors to clearly define an investment goal and then to help them reach it. While the majority of these plans are sold to military personnel, they are also sold to civilians.
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Investor Protection Guide: Viaticals
A viatical settlement (also known as a life settlement) is a sale of a life insurance policy of an insured person with an abbreviated life expectancy. Sellers are typically terminally ill patients who want to cash out of their life insurance policies before death; however, individuals without terminal illness may also sell their life insurance policies. Buyers purchase these policies at a price that is less than the death benefit of the policy. When the seller dies, the investor collects the d
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Lawson v. FMR, LLC
Issues
Does the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, which forbids publicly traded companies, mutual funds, and contractors or subcontractors of such companies from discriminating or retaliating against an employee because of certain protected conduct, protect an employee of a privately-held contractor or subcontractor of a public company?
Jonathan Zang and Jackie Hosang Lawson sued their respective Fidelity employers, alleging that the companies retaliated against them for reporting what they believed to be securities law violations. Section 1514A of the Sarbanes-Oxley Act protects employees of public companies from retaliation after the employee “blows the whistle” on the company. Zang and Lawson argue that § 1514A should also apply to employees of private contractors and subcontractors contracting with public companies, since these employees may be in the best position to report problems. FMR LLC argues that Congress only intended § 1514A to apply to public employees, and that extending coverage would result in an unmanageable amount of litigation. The First Circuit ruled that § 1514A protects only public employees, and that Congress must expand coverage if it wants to cover employees of private contractors. The Supreme Court will address whether and to what extent Sarbanes-Oxley provisions apply to private companies. The Court’s decision will impact employees of private companies that contract with public companies, and whether private employees will be protected from retaliation if they report securities violations to the Securities Exchange Commission.
Questions as Framed for the Court by the Parties
Is an employee of a privately-held contractor or subcontractor of a public company protected from retaliation by § 1514A?
Facts
Petitioners Jonathan M. Zang and Jackie Hosang Lawson worked for private companies that provide advising or management services to the Fidelity family of mutual funds (“Fidelity funds”). See Lawson v. FMR LLC, 670 F.3d 61, 63 (1st Cir.
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Additional Resources
- Greg Stohr, Sarbanes-Oxley Whistle-Blower Rules Get Top Court Review, Bloomberg News, (May 20, 2013).
- Josh Lawler and Kevin Malcolm, Lawson et al. v. FMR LLC: Sarbanes-Oxley’s Whistleblower Protection is Limited to Employees of Publicly Traded Companies, LawUpdates, (Mar. 28, 2012).
- Barbara Leonard, Whistle-Blower Issue Picked Up by Justices, Courthouse News Service, (May 20, 2013).
- Matt Allen and Todd Holleman, SEC Whistleblower Program: What Employers Need to Know, JDSupra Law News, (July 29, 2013).
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Lorenzo v. SEC
Issues
Can a defendant who sent emails containing misstatements to potential investors be held liable under a fraudulent-scheme claim where the evidence showed that the defendant merely forwarded the emails at the direction of another?
This case asks the Supreme Court to determine the scope of Janus Capital Group, Inc. v. First Derivative Traders, as well as the extent of liability for securities professionals who play a supportive role in fraudulent-scheme claims. Francis Lorenzo contends that the Supreme Court should apply a narrow definition of primary liability to Rule 10b-5 securities actions. Lorenzo argues that he is not culpable for securities fraud under Rules 10b-5(a) and (c) because, in forwarding emails that were written by his superior, he did nothing more than provide “substantial assistance” to those who defrauded investors with misleading financial statements. The Securities and Exchange Commission (“SEC”) counters that Lorenzo played a primary role in advancing the fraud because he signed the emails as the director of investment banking, and he told the potential investors to contact him for information about the financial health of his brokerage firm’s clients. This case will determine the ease with which the SEC can bring claims against securities professionals accused of fraud.
Questions as Framed for the Court by the Parties
Whether a misstatement claim that does not meet the elements set forth in Janus Capital Group, Inc. v. First Derivative Traders can be repackaged and pursued as a fraudulent-scheme claim.
In 2009, Francis Lorenzo (“Lorenzo”) was appointed director of investment banking for Charles Vista, LLC (“Charles Vista”), a brokerage firm in New York City. Lorenzo v. Securities and Exchange Commission at 3. Lorenzo oversaw the account of Charles Vista’s largest client, a startup company called Waste2Energy Holdings, Inc. (“W2E”).
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Additional Resources
- Greg Stohr, Supreme Court Will Consider Narrowing Securities-Fraud Laws, Bloomberg (June 18, 2018).
- Peter J. Henning, Are False Statements Enough to Prove Fraud?, The New York Times (July 3, 2018).
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Securities Act of 1933
The Securities Act of 1933 was Congress's opening shot in the war on securities fraud. Congress primarily targeted the issuers of securities. Companies which issue securities (called issuers) seek to raise money to fund new projects or investments or to expand their operations. These companies must attract potential investors.
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