Honest and open capital markets are dependent on the enforcement of securities laws. The federal securities laws requires disclosure of material facts by publicly-traded companies. One of the most common types of securities fraud litigation involves allegations that full and fair disclosure of all material facts were not made by a company and its officers. Some companies and their executives may manipulate the market price of the company’s securities by making misrepresentations and omitting material facts about the company’s financial condition or future prospects. When innocent investors purchase shares of stock or other securities without knowledge of these material facts, they purchase their securities at artificially inflated prices. Ultimately, when the truth about the company is revealed, the securities fall to their true value, and the investors had paid artificially inflated prices for their securities suffer a loss. In such an instance, a securities fraud class action can be initiated by one or more investors who lost money as a result of purchasing the company’s securities at prices that were artificially inflated prices by material misrepresentations and omissions made by the company and its officers.
In a shareholder derivative action, an individual or institutional shareholder who serves as a representative plaintiff takes legal action on behalf of the corporation. A shareholder derivative action allows shareholders to redress harm to the corporation caused by management where it is unlikely that management will redress the harm itself. Through a shareholder derivative action, a single shareholder may be able to compel changes that otherwise might not happen at the company, such as certain corporate governance reforms, removal of officers or directors whose misconduct injured the corporation, and monetary payments in the form of damages and/or disgorgement of ill-gotten gains. Corporate misconduct that can be addressed by shareholder derivative litigation may include:
• Breaches of fiduciary duty
• Fraud or other unlawful activity
• Self-dealing by insiders
• Insider trading
• Waste of corporate assets
• Conflict of interest
• Options backdating
• Accounting scandals
• Inflated, false, or misleading financial statements
• Improprieties related to executive compensation
• Misconduct leading to Department of Justice or SEC investigations
• Management or board decisions that expose the company to harm or risk (e.g., violations of consumer protection laws, environmental violations)
Securities and investment fraud can occur as the result of material misrepresentations and omissions, accounting misstatements, fraudulent transactions, the backdating of stock options, Ponzi schemes, and others. The Lin Law Firm is dedicated to representing investors in securities fraud actions and shareholder derivative actions.