Underwriting fraud involves schemes or attempts to mislead investors who purchase securities that are being offered to the public for the first time, whether though an IPO or a secondary offering. Such fraud may be perpetrated by investment bank(s)/broker-dealer(s) involved in underwriting or may be perpetrated by the companies going public. For example, companies and investment banks may mislead buyers about a company’s financial condition.

Issuers of new securities are obligated to provide certain material information regarding the company in the offering documents to potential investors. Moreover, it is illegal for issuers to knowingly provide misleading information about the company.

Similarly, it is illegal for a broker-dealer or registered individual to use any measure to defraud, make false statements or omit relevant information that would deceive an investor in relation to conducting transactions involving stock and other securities. Moreover, broker-dealers and registered representatives are obligated to disclose all material facts relating to any possible conflicts of interest associated with the recommendation.