Investment Fraud

There exists a great potential for fraud anytime an investor puts their trust in an investment advisor. It has been estimated that this type of fraud results in a loss of $40 billion to investors every year. Georgia and federal law makes certain fraudulent activities illegal and allows for the victims of investment fraud to recover damages from the offender. If you believe that you are the victim of investment fraud, you should contact an attorney with experience in investment fraud lawsuits to ensure that your rights as an investor are protected.

It is generally unlawful to use a device, scheme, or artifice in connection with the sale or purchase of any security to defraud a person. Misrepresentations are also generally outlawed when used in connection with the sale of any security. These laws make a whole range of dishonest and unethical practices illegal. Unethical practices in Georgia include the sale of securities by an unregistered dealer, sales that are made without a prospectus, and sales made with representations that the future market price of a security will be higher.

Additionally, investment advisors are prohibited from engaging in certain specific activities. For example, it is unlawful in Georgia for an investment advisor to recommend a purchase or sale without reasonable grounds that the transaction is appropriate for the client. Another unlawful practice is placing an order for the purchase or sale of a security without the customer’s authorization. Georgia law also makes it unlawful for investment advisors to charge unreasonable fees, guarantee specific results, disclose a client’s confidential account to others, misrepresent one’s qualifications, churn a client’s account, or fail to disclose conflicts of interest. This list of prohibited practices is by no means exhaustive, and an experienced attorney should be consulted to determine if a particular practice is actionable under Georgia or federal law.

Purchasers of securities who are the victims of investment fraud may have a cause of action against the offender or offenders. In some situations, liability may extend to a corporation where one of its agents caused the corporation to violate the law. Georgia also places liability on control persons, including partners, executive officers, and those who are directly or indirectly in control of the guilty person. However, a control person is not liable if he or she did not know of the act and could not have known through the exercise of reasonable care.

The Georgia Security Act and the federal Securities Exchange Act provide remedies for victims of investment fraud. In Georgia, a victim may demand rescission of the transaction, and this includes the consideration that has been paid along with interest at a 6% rate from the time of the original payment. When the victim no longer possesses the security, a claim for damages may be brought if the victim sold the security at a loss. Generally, the measure of damages is the difference between the fair market value the victim paid for the security minus the fair market value of the security at the time the victim disposed it. Any income the victim received from the security must be subtracted from the damages. Interest at a rate of 6% is also applied. Additionally, dealers of “penny stocks” who violate Georgia law may be liable for the above damages plus three times the actual damages.

To succeed in an action under the Georgia Securities Act, a plaintiff must generally show that the offender acted in a severely reckless manner. This standard requires an extreme departure from ordinary care. A plaintiff must also show that he or she reasonably relied on the false information, and that economic damages resulted from the false information. Reliance is shown when a plaintiff can demonstrate that he or she could not have discovered that the statements were false with the exercise of reasonable diligence. An action under federal law requires similar elements to be proven and also allows for similar remedies.

Other actions may also be available to victims. A victim may choose to pursue an action under Georgia’s fraud statute. In an action for fraud, the victim must show that there was a false representation, intent or knowledge of the misrepresentation, an intent to induce the plaintiff to act in reliance, and actual damages. In addition to compensation for injuries sustained, a victim may also seek punitive damages in some Georgia fraud cases. Additionally, actions properly brought under Georgia’s RICO Act may be awarded both treble and punitive damages.

Georgia and federal law also provides stiff criminal punishments for offenders. For instance, the Georgia Securities Act classifies a violation of the Act as a felony, and an offender can be fined up to $500,000 and sentenced to prison for five years. An offender may also be punished under the Georgia Racketeer Influenced and Corrupt Organization Act (RICO), which carries with it fines up to $25,000 and 20 years in prison.

There are many defenses that an offender may utilize in court to avoid liability. Among the most common of defenses is to argue that the purchaser knew of the false representation or untrue statement. If the purchaser knew the statement was false, then liability generally cannot be established. A seller may also argue that he or she did not know that the statement in question was untrue or misleading and could not have known through reasonable care.

If you believe you are the victim of investment fraud, you should consult an attorney experienced with investment fraud to protect your legal rights. Our firm assists victims of investment fraud recoup what they have lost due to the fraudulent acts of others. If you have been defrauded, our firm may be able to help.

The information provided above is a very general summary of the law of investment fraud at the time this text was prepared. Because this analysis is subject to change depending on recent cases and legal developments, you should not rely on this summary as legal advice. As with any important legal question, you should always consult a lawyer licensed to practice in your jurisdiction. Our Lawyers are licensed to practice in all state and federal courts in Georgia.