All companies must adhere to the regulations and guidelines relevant to their business. Such rules are enacted and enforced by federal, state, and local agencies. Failure to adhere to the applicable rules may give rise to a claim of securities fraud.
Depending on a company’s particular business, its compliance with laws, regulations, and guidelines may be supervised by numerous regulatory agencies. U.S. federal agencies that GPM regularly encounters litigating securities fraud claims include the Food and Drug Administration (“FDA”), the Department of Education (“DOE”), the Consumer Financial Protection Bureau (“CFPB”), the Department of Housing and Urban Development (“HUD”), the Environmental Protection Agency (“EPA”), the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Board (“FRB”), the Office of the Comptroller of the Currency (“OCC”), and the Securities and Exchange Commission (“SEC”).
Common examples of regulatory violations that may give rise to a securities fraud claim include: a drug manufacturer marketing a prescription drug for a non-FDA-approved indication; a for-profit college failing to comply with DOE “90-10” or “Gainful Employment” rules; a bank failing to meet capital requirements set by banking regulators; a company making false claims to any federal regulatory body for some sort of reimbursement or payment (i.e. a False Claim Act violation); or a company that provides consumer financial goods making false or misleading claims to its customers or potential customers concerning its goods, including student loans, mortgages, or credit cards, as regulated by the CFPB.
A regulatory violation may give rise to a securities fraud claim against a publicly-traded company when, for instance, a company provides routine warnings that violations of applicable regulations may give rise to civil liability or have a material negative effect on the company’s business, since such warnings are misleading if the company is presently violating the applicable rule. Another way such violations can give rise to securities fraud claims is if a company attributes growth or other positive results to “increasing demand” without disclosing that this “increasing demand” was in whole, or in part, generated through the company’s violations of applicable regulations.
Litigating a securities fraud action against a company for its regulatory violations poses unique challenges since it requiries an understanding of areas of agency law separate from and beyond an understanding of the securities laws. GPM has the experience to tackle such challenges. If you believe that a company has been or is engaging in regulatory violations, please contact the securities class action attorneys at GPM.