Securities fraud can be divided into two categories: civil and criminal. The major differences are the procedures and penalties that apply to each type of proceeding. In a nutshell, criminal securities cases are prosecuted by the government and can lead to possible fines and imprisonment. Civil securities fraud cases, on the other hand, seek restitution or monetary damages and can be brought by the government or individuals. Most securities fraud claims that involve account mismanagement are civil fraud cases. When a stockbroker civilly defrauds one of its customers, the customer may have the option of filing a securities arbitration claim seeking to recover their damages.
Misrepresentations & Omissions
Securities disputes arise not only when there is outright fraud and deceit, but also when the sales person misrepresents or fails to disclose the true nature and risk of the investment. Misrepresentations include both misstatements of fact and omissions. An omission is a failure to give the customer all of the facts and information necessary in order for them to make an informed decision about an investment. Financial professionals such as stockbrokers have a legal duty to adequately inform their customers about the risks and costs associated with any product or services that they are recommending.
The fact that a prospectus may have been given to the customer does not automatically protect a stockbroker or other financial professional from being liable for securities fraud, misrepresentations or omissions.