You can engage in fraud by intentionally misrepresenting a “material fact,” knowing it is false and that the person to whom it is made will rely on it. If I am selling you my home and tell you it recently passed a termite inspection, knowing there was no inspection, I am engaging in fraudulent conduct. If I don’t tell you my home is infested with termites, I have failed to state a material fact and engaged in another form of fraud (a “fraudulent omission”).

Fraud in the securities industry is governed by Rule 10b-5, promulgated by the U.S. Securities and Exchange Commission, under Section 10(b) of the Securities Exchange Act of 1934. It sets forth conduct deemed fraudulent in connection with the purchase or sale of securities. As such, it governs the conduct of mutual funds, brokers and registered investment advisors, or RIAs.

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