Written by attorney Jonathan Warren Evans

Former Stockbroker Pleads Guilty to Conspiracy to Commit Securities Fraud

Bloomberg published an article regarding a former New York stockbroker who admitted to sharing insider tips on International Business Machine Corporation’s (IBM) $1.2 billion acquisition of SPSS Inc.

In a Manhattan federal court, the 35-year-old stockbroker pleaded guilty to conspiracy to commit securities fraud and two counts of conspiracy fraud. The defendant allegedly learned about the acquisition from his roommate, a former financial analyst, who was extradited from Hong Kong in March. According to prosecutors, the roommate received a tip from an unidentified corporate lawyer who was working on the IBM deal in 2009.

The stockbroker said he understood this information was insider information and that it was not publically available. He told U.S. District Judge Andrew L. Carter Jr., “I can assure the court that I will never put myself in this position again."

The financial advisor allegedly purchased SPSS stock based on the information and tip that he shared with the stockbroker. In turn, the stockbroker was accused of telling his friend about the tip, who then shared the information with two more brokers, according to the government. The financial advisor, an Australian citizen, pleaded not guilty to conspiracy and securities fraud.

About Securities Fraud

The average person often does not have the education or time to manage their own finances, and because of this a broker wields a tremendous amount of power when it comes to making securities transactions on behalf of his or her clients. The broker/client relationship is universally recognized as being one built on an enormous amount of trust and confidence; therefore, in an effort to regulate securities trading, the Securities Exchange Act of 1934 was enacted on June 6, 1934 with the purpose of governing the secondary trading of securities; the Act also contained sweeping antifraud language.

Not long after the Act was made into law, it was realized that the general investing public was not well educated on the rules governing proper communication between the broker and the investor. In reality, investors trust and rely on their brokers to recommend investment decisions for them. Investors are frequently at a disadvantage as they are often in the dark about the securities industry and its governing rules and regulations. Due to this information imbalance, investors can fall victim to broker misconduct and fraud.

Securities fraud is a deceptive practice in the stock or commodities markets which can cause unwitting investors to sustain economic losses at the hands of a dishonest broker. With securities fraud, brokers induce investors to make sale or purchase decisions based on false information. Securities fraud frequently results in economic losses for the investors. Unscrupulous brokers can offer risky investment opportunities to unsophisticated investors who are unable to accurately evaluate risk, and most of these investors cannot afford the losses that are subsequently incurred, which are often in the hundreds of thousands of dollars.

When a broker engages in fraud and their actions cause the investor to sustain economic damages, the investor may be legally entitled to recover their losses. There are a number of different types of frauds that may affect one’s investment, some of which include:

  • Overconcentration
  • Misrepresentation and omissions
  • Breach of fiduciary duty
  • Stock manipulation
  • Insider trading
  • Front running
  • Embezzlement by stockbrokers
  • Selling Away
  • Conversion

Additional resources provided by the author

If you are the victim of securities fraud, then it is important that you contact a California securities attorney from The Law Offices of Jonathan W. Evans & Associates. The firm has been open since 1975, and its founding attorney, Jonathan W. Evans specializes on securities arbitration matters, which account for 95% of the firm’s cases. The firm has litigated hundreds of securities arbitration claims and it has tried more than 50 cases to conclusion with the NASD. If you believe you were a victim of securities fraud, contact the firm right away to schedule a consultation with an attorney who can help!

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