Can Saying Nothing Lead To A Fraud Case?
There are many ways that speech can be considered a crime, ranging from incitement to violence to defamation. A more common example in the world of civil law might be intentional misrepresentation cases. However, sometimes saying nothing can be just as harmful as saying the wrong thing, and intentionally withholding information can create numerous opportunities for economic harm.
This situation is known as fraudulent misrepresentation by omission when dealing with securities law. A broker or another party selling securities is generally responsible for disclosing relevant and timely information to allow investors to make informed decisions. These points are known as material facts and play a key role in determining whether a broker is guilty of fraud or negligence.
Understanding Misrepresentation by Omission
Intentional misrepresentation can come in numerous forms. For example, a broker may knowingly provide inaccurate information or lie about the basis used for their predictions. These pieces of information constitute material facts, and misrepresenting them can affect the ability of investors to make a fully informed decision when purchasing security.
However, it's crucial to understand that material facts are not generally well-defined. Judges and juries must generally decide on the materiality of any particular piece of information. This determination can include numerous factors, including whether or not a reasonably well-informed investor might use a particular fact as part of their decision-making process.
While intentionally lying is a clear-cut case of misrepresentation, saying nothing can also be problematic. Companies or brokers may carefully omit certain facts to paint a rosier financial picture or hide underlying structural problems. While these entities may still provide otherwise accurate information, the omissions can alter their investors' overall view of the company's financial health.
Recognizing When Omission Constitutes Fraud
Not all omissions are fraudulent. No company or broker must disclose everything they know, and many facts may be completely irrelevant to investment decisions. Instead, an omission may be fraudulent if an inquiry can determine that the entity in question knowingly withheld information and that the information was materially relevant to investors.
Proving the latter point can often be one of the more challenging aspects of cases involving misrepresentation by omission. In general, a plaintiff must prove that a defendant omitted certain information because they knew it would affect the plaintiff's investment decision. Additionally, there must be an expectation that the plaintiff relied on the defendant for accurate information.
Material misrepresentation is almost always challenging to prove, and misrepresentation by omission can be particularly tricky. If you suspect that you suffered material harm due to intentional misrepresentation or omission, you should contact an experienced securities attorney as soon as possible to review your case and suggest the best path forward. Reach out to a local law firm, such as Carter & West Law, to learn more.