Key Defenses in Securities Fraud Litigation
Securities fraud often involves complicated financial transactions and statutory regulations. For those entangled in securities fraud litigation, a skilled legal defense can mean the difference between protection and liability.
If you or your business are facing securities fraud matters, the Law Offices of David H. Schwartz, INC., offers exceptional representation in securities fraud and broader business litigation.
Based in San Francisco, California, Attorney David Schwartz has built a reputation for taking on challenging legal matters for clients across the Bay Area, including San Jose, Santa Clara, San Mateo, Alameda County, and Oakland. With 45+ years of legal experience, he has handled high-stakes cases in business litigation, including trade secrets, Civil RICO, and shareholder disputes.
In this blog, Attorney Schwartz provides an overview of the key defenses in securities fraud litigation, how they are applied, and the relevant California laws.
Understanding Securities Fraud
Securities fraud refers to deceptive practices in the stock or commodities markets that induce investors to make financial decisions based on false information.
These cases often involve misrepresenting material facts, omission of critical details, insider trading, or falsified financial information. Claims typically arise under federal regulations, such as the Securities Exchange Act of 1934, or California state laws.
Defending against securities fraud allegations requires in-depth legal knowledge and a strategy that considers the fine details of regulatory compliance, intent, and investor conduct.
Key Defenses in Securities Fraud Cases
If you are faced with a securities fraud case, you will be required to demonstrate that either the client did not engage in fraudulent activity or lacked the intent to deceive. In these cases, there are several potential defenses you could use. These include the following.
Lack of Material Misrepresentation or Omission
For a securities fraud claim to hold up in court, the plaintiff must demonstrate that the accused made a material misrepresentation or omission. Material statements or omissions significantly influence investors' decisions to purchase or sell securities.
The defense may argue that the alleged misrepresentation or omission was not material or did not substantially impact the plaintiff's investment decision. For example, statements that are opinions, predictions, or general corporate optimism rather than factual misstatements may not be considered material unless they are specifically misleading.
Absence of Scienter (Intent to Deceive)
Under federal law, securities fraud defendants are typically required to have acted with “scienter,” or intent to deceive, manipulate, or defraud others.
If intent cannot be proven, the defendant may successfully argue that the alleged actions constituted mistakes or negligence rather than intentional fraud. For example, financial misstatements caused by clerical errors that the defendant was unaware of could negate the argument of scienter.
Truth on the Market Defense
This defense focuses on the availability of information in the public domain. If the defendant made misleading statements, but accurate information was readily available from other public sources and could have been reasonably accessed, the defendant may argue that the plaintiff had a responsibility to uncover the truth.
This defense is most effective when the plaintiff fails to demonstrate reliance on the alleged false or misleading statement.
Lack of Reliance
Securities fraud claims often require the plaintiff to prove they relied on the defendant’s statements when making an investment decision. If reliance cannot be demonstrated, the claim loses credibility. A robust defense may demonstrate that the plaintiff made independent decisions without considering the claims or disclosures made by the defendant.
Causation and Loss
In some cases, you could challenge the connection between the alleged fraud and the plaintiff’s financial loss. If market conditions, economic trends, or other unrelated factors caused the loss, the claim might fail due to the lack of proximate causation. The courts are often cautious in distinguishing between losses caused by fraud and those caused by unrelated market volatility.
Compliance with Federal and State Regulations
Securities fraud laws are often tied to compliance with statutes and regulations. Proving that the defendant followed mandated procedures, disclosed necessary information, and acted in good faith can be a powerful line of defense.
California Laws Governing Securities Fraud
While federal laws like the Securities Act of 1933 and the Securities Exchange Act of 1934 play a significant role in securities fraud litigation, California has additional regulations under the California Corporate Securities Law of 1968. This enacts strict standards on securities transactions to protect California investors and hold sellers and securities promoters accountable for fraud.
Key Points of California Securities Law
The California Corporate Securities Law of 1968 emphasizes how the courts are to uphold transparency and accountability in securities transactions statewide. Some important provisions and responsibilities mentioned in this law include the following:
Disclosure obligations: Under California law, issuers, brokers, and sellers of securities must fully disclose material information about the securities being sold. Any omission of relevant details can have serious legal consequences.
Anti-fraud protections: Similar to federal laws, California regulations prohibit misleading statements, deceit, and omissions of key details in the sale of securities.
Statute of limitations: California law has time limits on bringing claims, typically three years from the date of the alleged fraud or two years from its discovery, whichever comes first. Failing to file within this window can result in the dismissal of a claim.
Securities Fraud Litigation Attorney Serving the San Francisco Bay Area
Securities fraud is a serious allegation that can significantly impact your business. The Law Offices of David H. Schwartz, INC., offers experienced legal representation for clients in securities fraud litigation. Whether you're pursuing a claim or defending against one, Attorney David Schwartz will use his extensive background in handling complex business and commercial disputes to help you establish a strong defense.
Located in San Francisco, California, the firm serves clients throughout the Bay Area, including San Jose, Santa Clara, San Mateo, Alameda County, and Oakland. Reach out today to schedule an initial consultation.