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The difference between securities fraud and investment mistakes

On Behalf of | Oct 12, 2023 | Criminal Defense

Both securities fraud and investment mistakes impact investors’ finances. However, they are the result of different circumstances and intentions.

You should understand the differences between securities fraud and investment mistakes.

Deliberate securities fraud

Securities fraud occurs when people or organizations purposefully manipulate financial markets. They might give fake or misleading information to investors to make stock prices rise or fall.

For example, insider trading occurs when people who know secret information about a company use it to make money on the stock market. This process is against the law because it gives some people an unfair advantage over others.

Unintentional investment mistakes

Investment mistakes are errors that investors make when handling their money. They happen when people do not know enough about investing, make bad decisions or face unexpected problems. Their intention is not to trick or cheat anyone.

Investment mistakes may occur when individuals buy or sell stocks at the wrong time. They may not diversify their investments or make decisions based on feelings instead of good financial knowledge, such as selling all their stocks quickly during economic downturns.

Legal consequences

Investors lost almost $8.8 billion as a result of fraud in 2022 according to the Federal Trade Commission. Securities fraud is a serious crime that can lead to legal punishments. Authorities like the Securities and Exchange Commission and the police pursue those involved in fraud to keep the financial markets fair and honest.

Making investment mistakes is not against the law. Although people who make these mistakes usually suffer financial losses, they do not typically face legal trouble.

For the best results, do your due diligence through conducting research and seeking advice from financial experts to make good choices.

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