Area of Law: Fraud and Fraud Recovery
Answer # 1524
Investor class actionsRegion: Ontario Answer # 1524
Investment fraud and misconduct
Investing in the stock market carries risk, and often results in a certain amount of loss. When deciding on whether to invest in a public company, investors will evaluate, based on information made available to the public, both the potential risk and potential reward of the investment.
That being said, investors do not assume the risk of:
- possible deceptive financial statements,
- insider trading,
- misrepresentations in MD&A (Management Discussion and Analysis section of the annual report),
- unfair and tyrannical conduct by directors and officers,
- market manipulation, and
- professional negligence that involve a company’s auditors or professional advisors.
Investors are protected from losses that are a result of contraventions of securities laws.
Role of regulators
Regulators such as provincial securities commissions and the IIROC (Investment Industry Regulatory Organization of Canada) are limited in what they can do to protect investors. For example, they are not able to investigate and prosecute all cases of securities fraud and market manipulation. Furthermore, while they can bring enforcement actions in cases of serious infractions of securities law, it is not their mandate to seek compensation for investor losses. This results in individual investors often assuming that because they have suffered a relatively small loss there is nothing that can be done to recover their losses.
Benefit of class action for investors
However, investors have another very effective and powerful option – an investor class action. An investor class action is a legal suit filed by a group of investors against a company in which they own shares. By combining their investment losses, individuals are in a much stronger position to collectively enforce their rights and increase their chances of success.
Investor class actions also have the additional benefit of encouraging greater transparency and accountability by public companies, their directors and officers and from those involved in the markets. Investor class actions send the message that deceptive disclosures, misrepresentations, and corporate misconduct and negligence is not acceptable.
If you discover you are a victim of fraud, it is a good idea to contact a fraud recovery expert for advice.
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