The U.S. Securities and Exchange Commission requires financial investment companies to provide clients with accurate statements regarding products and services. When describing how a brokerage firm generates revenue, statements must include material information about the company's practices.
If the SEC alleges a financial company violated disclosure requirements, regulators may file a legal action. An outcome may result in a significant fine, disgorgement of profits or an order to change the company's practices.
Financial company settles SEC charges over misleading statements
A popular stock trading platform settled charges of misleading clients about its trading practices, as reported by CNBC. In response to the charges, the company agreed to pay the SEC penalties worth $65 million, but without admitting wrongdoing.
The SEC charges alleged the company made misleading statements and omitted details regarding how it handled its order flow. The commission claimed the inaccurate and incomplete statements caused clients to lose more than $34 million.
Follow-up class action suits may provide relief to harmed investors
The SEC charges alleged that the company misled investors to believe they could buy and sell stocks without paying commissions. The charges also alleged the company sold its clients' orders to market makers for execution. As described by the San Francisco Business Times, the prices at which the market makers executed the trades proved inferior for the company's clients.
The charges filed by the SEC and the company's willingness to settle may provide sufficient evidence to argue a class action lawsuit. Investors harmed by a company's misrepresentation have a right to seek a remedy for damages. When investors experience losses due to a company's misleading statements, it may lead to both civil and criminal actions.