Securities are any investment form, such as stocks, bonds, or mutual funds. A stock, for example, represents a piece of ownership in a company. As a partial owner, the stockholder is entitled to any profits derived from the company, i.e. dividends. Those profits are based on a percentage of the total company owned. These securities are bought in sold in a highly regulated market, like the New York Stock Exchange.
Securities fraud is basically an illegal attempt to manipulate the investment market. It could be committed by virtually anyone—from private individuals to corporations or brokers. Often, securities fraud class action lawsuits are initiated by a group of investors who lost money due to the fraud.
For example, if the company stated that it was in good financial health by inflating numbers on tax documents and balance sheets, then that would be a good case for a securities fraud action. The company’s false representation caused the stock value to go up, but the stock was not actually worth that much. So, when the fraud is realized, the stock value plummets and investors could potentially lose a great deal of money.
When investors band together to initiate a class action, they have much more power to go up against the company. Otherwise, one person on the lawsuit may not be able to do much.