Misleading Statements in Securities Fraud

Church Falls, VAIn any purchase of securities, stocks or other investments, there is an acceptance of a certain level of risk, but when investors are lied to about the risk, they may be the victims of securities fraud. Each investor has a different level of risk tolerance, and having firm knowledge about the true nature of a security’s risk can help ensure the investors do not wind up filing a securities lawsuit. Although some losses in securities are due to a downturn in the market or unforeseen circumstances, some are the result of securities investment fraud - when the investor has no idea how risky an investment truly is.

False statements about securities can cover a wide range of communications to investors, but underneath each is a misleading statement about the true nature of the security. In some cases, securities fraud involves false statements about the actual security itself, and how vulnerable to risk it is. Other false statements may involve a company’s performance or success - or alternatively, hiding negative information about the company - false quarterly statements and incorrect statements about a company’s accounting practices.

The effects of such false statements are that they can artificially inflate the price of a company’s stock. That artificial inflation is corrected when the truth becomes known, but investors who bought the stock or securities at an artificially inflated price lose money when the investment loses value. This is not just a natural risk associated with investing, because the company or its officials misled investors to benefit the company. Investors, had they known about the true risk, may not have purchased those stocks.

Further, not all investors are individuals with money to lose. Many times in securities fraud cases, the plaintiff is a pension plan or charity that has invested that organization’s assets in a stock, believing it to be relatively risk-free.

Recently, Computer Sciences Corp. (CSC), agreed to settle a class-action lawsuit for almost $100 million. According to Businessweek (5/16/13), the lawsuit alleged the company issued false statements about its accounting practices, including not giving correct information about internal controls regarding its financial reporting, artificially inflating the price of the company’s common stock.

The lawsuit is In Re Computer Sciences Corporation Securities Litigation, 11-cv-00610, U.S. District Court, Eastern District of Virginia (Alexandria).

Meanwhile, Fannie Mae and KPMG have also agreed to settle a lawsuit filed by Ohio pension funds and other plaintiffs, alleging the two companies issued false financial reports. According to Reuters (5/7/13), the companies will pay $153 million to settle the lawsuit, which started in 2004. That lawsuit is In Re Fannie Mae Securities Litigation, U.S. District Court for the District of Columbia, No. 04-01639.