Securities Fraud Claims

To prove any fraud, a customer must show that the broker or someone else in the industry (a) intentionally or recklessly made a misrepresentation or omission of material fact that the customer justifiably relied upon, and then (b) suffered damages as a direct result of reliance on the misrepresentation or omission of material fact. Malecki Law’s New York securities fraud lawyers will tell you, more plainly, in the securities fraud context, this means the customer has lost money because he or she relied on information provided by a broker or securities industry member that the broker/member either knew or should have known was not true.

In making certain claims of fraud, an investor must show some reliance or action related to the misrepresentation. When a showing of reliance is required, it can be established by direct or indirect evidence. Direct evidence is akin to a statement in a prospectus claiming the existence of a lucrative contract that the issuer does not have. When the investor can show that their investment decision was based on that statement or omission, they have provided direct evidence of reliance. In many cases, Malecki Law’s New York securities fraud lawyers will not only be able to show the fraud, but even absent the fraud, the investments at issue are still unsuitable – in a “belt and suspenders” approach to the claims.

At times, a brokerage firm may misleading sell a proprietary product or sell a defective proprietary product. A proprietary product is a product created by the brokerage firm to sell to the public itself, as an issuer. Because there are potential conflicts of interest between the seller (brokerage firm) and buyer (investor) of this product, the area is ripe for fraud.

Even a Ponzi scheme can be considered a form of securities fraud, as investors weer lied to about the fictitious investment.

Investors can also use indirect evidence to prove reliance using a theory called fraud-on-the-market or claim defects in the securities products sold. Courts use the fraud-on-the-market theory when a misrepresentation artificially inflates the price of the stock. Because the misrepresentation affected the stock price, and the investor bought the stock based on the affected price, the investor is assumed to have indirectly relied on the misrepresentation that misled the market as a whole. In such case, the defendant may try to show that the misrepresentation was not important or did not affect stock prices, which securities fraud attorneys in New York at Malecki Law will challenge. The defendant may also attempt to show that the individual investor knew that the statement was false or would have bought the stock even if he or she had known of the falsity of the statement.

When a fraud by omission is claimed, the investor does not have to prove reliance. For example, if a prospectus omits to put prospective investors on notice that the issuer's patent on its primary product is being contested in court, it would be difficult for the investor to prove that he or she specifically relied on the missing information. The courts have decided that if the omitted information constitutes material facts that reasonably could be expected to influence an investor's purchase decision, positive proof of reliance is not required. Rather, reliance is presumed to exist. The defendant can overcome this presumption by showing that the investor's purchase decision would not have been affected even if the defendant had disclosed the omitted fact by, for example, proving that the plaintiff did not read the prospectus. Similarly, with defective products, our securities fraud law firm in New York, Malecki Law, can argue that the product should never been sold, was misleadingly marketed and sold, as well as was misrepresented in offering and other materials.

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