Securities fraud, which is also referred to as stock fraud or investment fraud, is generally a deceptive exercise in the stock markets aimed at inducing investors into making purchases or sales based on falsified information. It often results in huge losses and violates the law of securities (Blanck, 2008). In this practice, investors are duped into believing the prospective successes of the companies that they choose to invest in at the stock market. Investors end up paying hefty amounts of money by relying on the information they get regarding the companies. This practice also entails the outright theft of money from investors, such as embezzlement of stockbrokers, manipulation of stocks, misrepresentations of information regarding the company in its reports, or blatant lying by the auditors of a company regarding its financial position (Rofman & Oliveri, 2012).
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In the 2005 case of Dura Pharmaceuticals, Inc. v. Broudo 544 U.S. 336 (2005), the US Supreme Court asserted that the old common law elements of deceit, as well as misrepresentation in adjudging the criminal liability of a party to a criminal case should be used in determining the actual causation of fraudulent practice in the trade of securities (Coffee et al., 2007). In other words, the court was of the opinion that the threshold for gauging whether a party is liable under a charge of securities fraud is the same gauge used in criminal law, which is the deceit and misrepresentation on the part of the suspected party.
In determining the amount of harm caused on a party in an action for securities fraud, Section 549 of the Restatement (Second) of Torts states that a receiver of a fraudulent falsification is entitled to recover from the consequences of the fraudulence by an award of damages from the architect of the pecuniary losses to him (Cox & Thomas, 2009). In such an award, the party receives the calculated difference between the value received in the particular transaction of deceit and the actual price, as well as pecuniary damage suffered (if any) from the party’s reliance on the deceitful information that leads to his detriment. In essence, this section seeks to restitute the party in loss from the transaction to their original position before the loss that was caused by the deceit occurred. It seeks to bring equity into the penalization of the culpable party; not by just punishing him by making him pay the due amounts and costs, but by recognizing that losses were incurred by the victim of the deceit. Therefore, the efforts are aimed at taking the fraud victim back to his original financial position (Rofman & Oliveri, 2012).
Therefore, securities fraud is a characteristic white-collar crime where authoritative individuals in matters regarding the stock market misrepresent certain aspects of the market to the disadvantage of the victims. However, the law has properly taken into consideration this crime through legislation, as well as case law to avert its effects.
As individuals plan for retirement, a large part of the funds that people seek to rely on for their sustenance through this period are normally their employer-sponsored funds paid as pension to them (Coffee et al., 2007). In some inevitable cases, however, these funds face acute mismanagement that may often lead to significant losses of the funds on the part of the employees. This has, therefore, led to the establishment of the Public Employee Retirement Administration Commission (PERAC) under Chapter 427 of the 1996 Acts of the US (Rofman & Oliveri, 2012). This body is duly empowered to receive complaints and cases where a person feels or has reason to believe that a pension claim or a payment from a pension scheme is being made, has been made, or is about to be made fraudulently. The body then conducts the necessary investigations to determine the correctness of the allegations.
Generally, public pension fraud generally falls under two categories. The first one is the submission of falsified documents to the PERAC. Here, persons knowingly submit fabricated records with the purpose of gaining extra benefits from their pensionable monies (Blanck, 2008). The second category involves the submission of fabricated affidavits to the PERAC. All beneficiaries of any pension are required to tender in sworn affidavits every year, averring that they are alive and they intend to continue receiving benefits that accrue from their pensions. Fraud comes in where the direct beneficiary might be dead, yet the other beneficiaries, such as the children, swear affidavits on his behalf falsely claiming that he is alive to retain the continuing benefits. In these instances, any misrepresentation that is investigated by the PERAC and found to exist makes the implicated party liable for a criminal charge of fraud (Rofman & Oliveri, 2012).
The PERAC has in the recent past tried to conduct its activities in the best possible way in a bid to eradicate all forms of pension fraud (Cox & Thomas, 2009). The move has been inspired by the rampant incidences witnessed and recorded as cases of pension fraud. However, a lot more needs to be done through the creation of more stringent legislation to help curb this menace.
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Blanck, P. (2008). “The right to live in the world”: Disability yesterday, today, and tomorrow. Texas Journal on Civil Liberties & Civil Rights, 13(2), 367-401.
Coffee, J. C., Seligman, J., & Sale, H. A. (2007). Securities regulation: cases and materials, volume 1. Eagan, MN: Foundation Press.
Cox, J. D., & Thomas, R. S. (2009). Mapping the American shareholder litigation experience: A survey of empirical studies of the enforcement of the US securities law. European Company and Financial Law Review, 6(2-3), 164-203.