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When it comes to securities litigation, there are a number of key terms that you need to be familiar with to understand the process and potential outcomes. 

They are the following: 

  • Fiduciary Duty

A fiduciary duty is a legal obligation to act in the best interests of another party. In the context of securities litigation, fiduciary duty typically refers to the duty of care and loyalty that a company’s board of directors owes to the company’s shareholders.

  • Breach of Fiduciary Duty

A breach of fiduciary duty occurs when a board of directors fails to discharge their fiduciary duties in a manner that is consistent with their fiduciary obligations. For example, a breach of fiduciary duty may occur if a board of directors approves a transaction that is not in the best interests of the company’s shareholders.

  • Conflict of Interest 

In the securities world, a conflict of interest arises when a broker-dealer or investment adviser has a financial interest in security they recommend to their clients.

There are many different types of conflicts of interest that can arise in the securities world. For example, a broker-dealer may sell security not registered with the SEC. The broker-dealer may not disclose this to their clients and instead recommend the security as a good investment. That is a conflict of interest because the broker-dealer is making money from the sale of the security, and their financial interest could influence their recommendation.

  • Material Misrepresentation 

A material misrepresentation is a false or misleading statement that is material to a company’s financial condition or results of operations. In the context of securities litigation, a material misrepresentation may give rise to a claim for securities fraud.

  • Securities Fraud 

Securities fraud is a type of fraud that involves the misrepresentation of material information in connection with the sale of securities. Securities fraud can take many forms but typically consists of some form of a false or misleading statement made by a company to induce investors to purchase the company’s securities.

  • Pump and Dump

A “pump and dump” is a type of securities fraud in which a company artificially inflates the price of its securities through false and misleading statements to sell the securities at an inflated price. Once the company has sold its securities, the price of the securities typically declines, leaving investors with losses.

  • Short and Distort 

A “short and distort” is a type of securities fraud in which a company engages in a campaign of false and misleading statements to drive down the price of the company’s securities so that the company can profit from shorting the securities.

  • Failure to Diversify 

When a broker only invests their clients’ money in one stock or industry, this is called failing to diversify. It is a problem because it means the broker is not doing their job properly, and their clients could end up losing money.

  • Ineptitude or Malpractice: Malpractice is when someone in a professional capacity does something that results in harm to another person when another equally qualified person could have avoided that harm. In the context of brokerage, this means giving out bad advice that causes people to lose money. The company that employs the stockbroker who did this can also be held responsible.

These are just a few more commonly used terms in securities litigation. If you have questions about these or other terms, speak with an experienced securities attorney.


It is important to familiarize yourself with securities litigation terminologies to understand the process and potential outcomes of securities litigation cases. These cases can be complex and confusing, so it is important to have a clear understanding of the terms used in order to make informed decisions.

The lawyers at MHM Firm have several years of experience in many different areas of law. We work hard to get our clients the best results possible in court. We cover many different legal areas, including business litigation, medical malpractice defense, insurance defense, product liability, commercial litigation, construction law, securities and contracts litigation, employment litigation, and more. 

If you need a dependable lawyer to represent your litigation case in Birmingham, AL, get in touch with us.