How Does Texas Law Address Misrepresentation in Securities Transactions?

Misrepresentation in securities transactions is a type of securities fraud, which can have both civil and criminal consequences. Financial crime attorneys are well-placed to defend anyone accused in such a serious matter. These cases are brought forward through federal law, but Texas also has some specific law related to the issue. 

The Law Addressing Misrepresentation in Securities Transactions

What Is Misrepresentation in Securities Transactions?

A securities transaction is when an investment broker, or similar, sells a client on a stock or other type of security. A broker is legally required to be 100% truthful in any statements given to a client during a securities transaction. 

Misrepresentation occurs when a broker makes a false statement about at least part of the transaction. This can include omission, which is deliberately leaving out relevant information. 

Which Law Covers Misrepresentation?

Misrepresentation in securities transactions comes under Rule 10b-5, which is enforced by the Securities and Exchange Commission (SEC). The law states that a person may not give any false information, or deliberately not mention important information, about a material fact to a potential investor when attempting to sell a security. A material fact is information that the average investor would rely upon to make a decision.

Private Misrepresentation Claims

For an individual to prove a private representation claim, they need to demonstrate some key facts. These include:

• Material misrepresentations and/or omissions
• Broker deliberately gave the false information
• Investor was reliant on the information
• Financial loss
• Direct link between the financial loss and the broker's information

The investor may be entitled to financial relief that includes the amount of money or property that the broker obtained from them. 

SEC Misrepresentation Claims

The SEC can bring forward its own civil case for financial fraud and will act as the plaintiff. For this, they don't need to prove that the investor was reliant on information from the broker, nor that the broker's information caused the investor financial loss. 

This could result in a fine and/or an injunction, which prevents the person from operating as a broker in the future. 

Criminal Charges

A misrepresentation in securities transactions is a criminal act, prosecuted by the Department of Justice. There is a maximum sentence of 25 years, plus a fine. The sentence depends on the amount of intended (not actual) loss. 

The Importance of Financial Crime Attorneys

Because of how serious the consequences of securities fraud are, both criminal and civil, specialist attorneys, well-versed in financial crime laws, are necessary to ensure that the defendant receives a fair trial. To find out more about how these cases are defended, click here. 

Texas Law

Texas law in this area is encoded in the Texas Securities Act, of 2017. This act has the power to test civil cases of misrepresentation in securities transactions. This includes the revocation, denial, and suspension of registration as a broker, dealer, etc. It can order a cease and desist for a broker or company to cease operations and apply an administrative fine. 

Civil Cases Under Texas Law

The Attorney General may bring action on behalf of the State of Texas. This could result in equitable relief awarded to the plaintiff, as well as a civil penalty that must be paid to the state. 

Misrepresentation in securities transactions can result in a lengthy prison sentence or fine, and a successful civil case could result in restitution to the investor and the state. If you've been accused, talk to a lawyer immediately.