What is Securities Litigation?

Author: Miod & Company
Date: August 3, 2021
Category: Litigation
Average Time Reading: 3 minutes

To understand securities litigation, we must understand securities fraud. According to California Corporations Code § 25401, any security sale or purchase which uses an “untrue statement of a material fact” (or a misleading omission of a material fact) constitutes securities fraud. In other words: if someone lies while buying or selling securities in California, they’ve committed securities fraud.

Pump and Dump schemes are a common example, and large-scale “creative accounting”—like the kind unveiled in the Enron Scandal—is another. In such instances and others, the government or victims may pursue litigation.

Securities Litigation

Securities litigation refers to legal action against those who’ve allegedly committed securities fraud. This can mean a lawsuit from the Securities and Exchange Commission (SEC), a class action filed on behalf of harmed shareholders, and/or criminal proceedings. In these cases, the defendants risk everything from business disruption and reputational damage to monetary damages or even criminal charges.

SEC and DOJ Enforcement Actions

Like many forms of litigation, securities litigation involves an investigation. When the SEC’s Enforcement Division gets involved, they can gather evidence through informal inquiry, examining records and data, and interviewing witnesses.

If the SEC deems security fraud has taken place, they can pursue several legal actions. They can file an injunction against the perpetrating party to prohibit further violations, seek monetary penalties and/or disgorgement, and/or bar an individual party from serving in certain high-ranking corporate positions.

The SEC may also refer a case to the Department of Justice (DOJ). If the DOJ pursues criminal litigation and finds the defendant guilty, they are subject to fines, imprisonment, or both. Federal sentencing guidelines advise the severity of punishment should correlate with the amount of loss, so the more monetary loss the guilty party caused, the worse their punishment.

Private Civil Proceedings and Class Action Suits

Like all lawsuits, securities suits begin with a plaintiff’s complaint, then—if the judge doesn’t dismiss the case—it proceeds to discovery. If the parties don’t settle, then the suit goes to trial.

While individual victims can file suit for securities fraud, most securities suits are class actions. In these cases, the class is usually anyone who suffered damages from the alleged fraud. If they win their suit, they’re entitled to recovery.


Securities litigation is a broad and complicated subject. If you find yourself involved in such legal action, the process can take years. In such instances, it’s important to prepare yourself with thorough investigation and forensic accounting.

Need guidance? We are happy to help. Reach out to us for guidance!

Pump and Dump schemes are a common example, and large-scale “creative accounting”—like the kind unveiled in the Enron Scandal—is another. In such instances and others, the government or victims may pursue litigation.

Related Blogs
Paul White joins Miod & Company

Paul White joins Miod & Company

Author: Miod & CompanyDate: June 15, 2022Category: TaxAverage Time Reading: 4 minutesIt’s not a common occurrence for a business to bring on a member of a rival firm to its staff. It’s even less likely to bring on a founder of a rival firm. Paul White joining Miod...

Find out How to Safeguard Pensions in Divorce

Find out How to Safeguard Pensions in Divorce

Pensions in divorce can be a complex and stressful issue to navigate during a divorce proceeding. The fate of your retirement savings or pension plan may be one of the many concerns you have during your divorce proceeding. If you've been able to save money through...

Contact Us

Address: 27200 Tourney Rd #290 Valencia, CA 91355
Phone: (818) 898 9911
Email: contact@miod-cpa.com

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!