Securities are financial instruments that people can purchase as an investment in a company. They often come in the form of notes, stocks, bonds, debentures, or investment contracts. Securities are generally transferable, and they may be traded on an exchange, such as the New York Stock Exchange. Unlike other financial instruments, securities have no intrinsic value themselves, rather they represent rights in something else.

What Did the Private Securities Law Reform Act of 1995 Do?

The Private Securities Law Reform Act of 1995, 15 USC §§ 78u – 4(b)(2), expressly states what a private investor must initially show in order to be able sue someone for violating § 10(b) of the Securities and Exchange Act of 1934. An investor has a private cause of action for a civil remedy against another person for securities fraud only if that other person:

  1. With an intent to defraud,
  2. Makes a material misrepresentation or omission facts (not just opinions),
  3. In connection with the purchase or sale of securities,
  4. That causes the investor a financial loss.

What Can a Wronged Investor Recover?

The Private Securities Law Reform Act of 1995 makes it fairly clear what can be recovered in a civil lawsuit against another person for security fraud. Generally, a recovery is limited to two options:

  1. The difference between the purchase or sale price paid by the plaintiff for securities, and the average trading price of the same security during a 90 day period after the defendant made a material misrepresentation or omission; or
  2. A rescission of the sale all together, and the restitution of the money transferred for the purchase of the securities.

Do I Need an Attorney to Handle My Private Securities Issue?

If you believe another person is personally liable to you for security fraud, or you are being sued by an investor for security fraud, it is highly recommended that you contact a bankruptcy attorney or securities lawyers. Your lawyer will be able to explain complex securities-related legal issues and help protect your rights.