Pre-IPO Scams

Many investors dream of buying pre-IPO (Initial Public Offering) stock in the next Microsoft, Apple, Google, or Facebook. In fact, any up-and-coming company with an IPO can make investors giddy thinking about the potential returns on investment when the company goes public and does well. In some cases, they work out well, but not always.

It’s not uncommon to find legitimate offerings of pre-IPO shares in a company interested in raising capital for its operations. However, the SEC has received numerous complaints about pre-IPO scams. In these scams, the shares of an IPO for a company are sold without authority. Alternately, the unregistered securities are sold for an unfair value. Frequently, they are not actually owned by the seller.

The SEC’s Office of Investor Education and Advocacy recently issued an Investor Alert, warning investors about such scams that claim to offer investors opportunities to buy pre-IPO shares of companies.

These types of frauds are typically promoted by boiler room operations, on social media and websites, as well as by telephone, email, in-person, and other means of communication. Many of these companies are operated by former or current registered stockbrokers who charge exorbitant fees to invest in these deals.

While boiler rooms and call centers have been surpassed by social media for fraud, they’ve also come back into favor. Many people don’t answer the phone when they see a number they don’t recognize, even if it’s “local,” because of the increase in neighbor-spoofing robocalls. But enough people do that these operations continue. Typical tactics of these fraudulent operations include:

• Unsolicited calls from people selling securities
• High pressure sales
• Evading questions about specifics related to the so-called “investment”
• “Exclusive,” “unique,” or “alternative” investment opportunities
• “Guaranteed returns,” or substantial returns

Past examples of these scams have falsely purported to offer pre-IPO shares of large tech and telecommunications companies before they went public, including Facebook, Twitter, AOL/Time Warner, Google and other hot tech companies.

If you are contacted by such a company, you can also report it to the SEC as part of their Whistleblower program.

FINRA’s BrokerCheck website lets you check the record of any broker or firm before you decide to engage in business with them. Barred brokers and investment advisors have frequently engaged in fraudulent securities schemes after FINRA disciplinary actions.

Unsolicited investment offers may cross your path by:

• Cold calls from boiler rooms
• Emails
• Fax
• Social media postings
• Blog posts
• Article comment threads (i.e., Reddit)

Fraudsters frequently claim to be with a large, well-known, and reputable firm, but aren’t—or were fired. There’s a good chance they are not licensed or were licensed at one time but are no longer.

Aside from BrokerCheck, use a search engine to do additional searches on the company, the individuals involved, and the investment itself. And of course, no matter how legitimate they seem, never give money to someone who approaches you unsolicited.

You can find additional information on Pre-IPO scams on FINRA’s website.

Whistleblowers help everyone by notifying authorities of conduct that harms the public, while also earning financial compensation for themselves. Hiring experienced SEC counsel will greatly increase your chances of the SEC initiating an investigation based on your information. If you wish to remain anonymous, you must be represented by an attorney, who will submit everything on your behalf.

Securities Whistleblower Attorneys Scott L. Silver and David R. Chase advocate for investors and employees who are aware of federal securities law violations and want to report fraud to the SEC Whistleblower office. For more information on pre-IPO scams, and what steps to take to report such a scam, contact Scott Silver and David Chase at SecuritiesWhistleblowerAttorneys.com or call toll-free at 800-975-4345.

Our attorneys work on a contingency fee basis. This means that it costs you nothing to hire us, and we collect our fees when you receive an SEC bounty. Because we get paid when you do, we have the incentive to help you collect the maximum award available.