fraud 10.06.14Corporate fraud seems to be everywhere these days. The story is often the same – bad decisions by a few executives that affect the lives of many. Corporate fraud not only endangers the health of the corporation itself but also impacts employees, clients and anyone who has bought stock in the corporation as an investor.

People who have been wronged often use the law to try and recover what they have lost. In the case of investors, they can sue for securities fraud if they were misled or outright lied to and relied on that misinformation when making their investment. One example is when a corporation puts out misleading financial statements that make them look better than they actually are. People invest, thinking the company looks financially healthy, but then the truth comes out and the stock prices take a hit. And shareholders lose money because they relied on that false information.

These cases are generally class actions, which means that a group of plaintiffs sues together because they have similar claims. A lead plaintiff is responsible for representing the entire class. The court appoints this lead plaintiff and that plaintiff’s lawyer acts as the main attorney for the case. The lead plaintiff might be the investor with the largest investment, or they might be chosen for another reason. Not every investor is automatically part of the class. There’s usually a class period – a specific time period – that the lawsuit covers.

Not all cases are based on bad financial statements. There was a recent Illinois case against a company that ran psychiatric hospitals, including one in Forest Park and one in Streamwood. It had come out that patients in these two facilities were being harmed. One report said that mentally disabled children were sexually assaulted over the course of several years. The investors’ lawsuit said that the company made false and misleading statements about the quality of care provided at its facilities. In other words, the company hid these less-than-favorable incidents and as a result the stock price was inflated. Investors, including large investors such as pension funds, lost millions of dollars. There is a tentative settlement agreement for $65 million, which still has to be approved by the court.

Another recent case is against Halliburton. Plaintiffs claim that the company misled investors, exaggerated the positive effects of a merger and lied about its exposure to asbestos liability. They say that the stock price took a big hit when the truth came out. Defendants can win these cases by trying to prove that the fraud did not affect the stock price.

You can be a plaintiff in a securities fraud case if you bought stock during the time period in question, even if you didn’t specifically rely on the company’s financial statements. Not everyone reads corporate reports, but they do look at stock prices. Courts have said, generally speaking, that relying on the stock prices is enough.  If you are looking for an attorney, contact us at any time.