High Risk Pre-IPO Speculation Investments
“Pre-IPO” speculation involves buying unregistered shares in a private company before the initial public offering of securities. These deals are often risky, but sometimes they are also fraudulent.
Securities offerings are not legal unless they are registered with the SEC or meet an exemption under the federal securities laws. While a company can legally sell its unregistered shares in private transactions (ie “private placements”), these Investments are typically high risk. There is no guarantee that the company will actually complete an IPO. You may not be able to sell the shares you purchased. Further, the fair market value of your shares may be based solely on speculation. And there are often restrictions, such as lock-up periods that prevent you from selling your shares for up to a year even if the company goes public in the interim.
These private placement investments are typically open only to “accredited investors,” which includes individuals who have net worth of more than $1 million (excluding the value of their primary residence) or income of more than $200,000 in the current year and each of the preceding two years ($300,000 for couples).
There is also the chance that the unregistered shares offered to you could be a scam. The company might be a fake or the promoter might be offering shares he doesn’t have or that he acquired in a questionable transaction. The fraud could also involve misrepresentations about the company and its prospects, including the likelihood, timing and pricing of any potential IPO.
Unfortunately many pre-IPO scams involve sales of unregistered securities and may potentially violate the federal securities laws.
How to Protect yourself from a Pre-IPO Scam
One way to avoid being taken in by an unsolicited offer is to ignore it—regardless of how you heard about it. Someone claiming to have shares of the latest hot social networking company may be a paid promoter or, more likely, a con artist trying to take your money. Consider the following tips to protect yourself from a scam.
- If you received an unsolicited offer to invest in a pre-IPO opportunity, be wary. It’s easy for promoters to make unsubstantiated claims about owning stock or being able to offer you shares of stock they have somehow been able to accumulate.
- An unsolicited offer to buy pre-IPO shares raises the obvious question: Why me? In other words, why would a total stranger tell you about a really great investment opportunity?
- Is the investment salesperson properly licensed, and his or her firm must be registered with the Financial Industry Regulatory Authority (FINRA), the SEC or a state securities regulator?
- Use search engines to learn as much as you can about a solicitation and the person who is selling it.
- Even if you have met or spoken directly with someone selling an unsolicited investment, never write a check out to the individual.
- To find out if the pre-IPO opportunity is legitimate you may need to enlist the help of a professional, such as a securities attorney or a licensed investment professional.
This information is all publicly available and provided to you by The White Law Group.
If you are concerned about a pre-IPO investment opportunity, the securities attorneys at The White Law Group may be able to help you. For a free consultation please call the offices at (888) 637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois.
To learn more about The White Law Group, visit https://www.whitesecuritieslaw.com.