The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn you about investment scams that purport to offer investors the opportunity to buy pre-IPO shares of Facebook, Twitter, Groupon, or other popular companies. SEC staff is aware of a number of complaints and inquiries about these types of pre-IPO investment scams, which may be promoted on social media and Internet sites, by telephone, email, in person, or by other means.
In September 2010, a judgment order was entered in favor of the SEC based on allegations that a scam artist had misappropriated more than $3.7 million from 45 investors in four states by offering fake pre-IPO shares of companies, including Centerpoint, AOL/Time Warner, Inc., Google, Inc., Facebook, Inc., and Rosetta Stone, Inc. In addition, the Financial Industry Regulatory Authority (FINRA) issued a recent investor alert about these types of scams. While offerings of pre-IPO shares in a company are not uncommon, unregistered offerings may violate federal securities laws unless they meet a registration exemption, such as restricting the private offering to “accredited investors” -- investors who meet certain income or net worth requirements.
Investors should be mindful of the risks involved with an offer to purchase pre-IPO shares in a company. As with any investment, we encourage investors to research thoroughly both the investment product and the professional offering the product before making any investment decision.
For additional information relating to pre-IPO investing, also see:
FINRA Investor Alert: "Pre-IPO Offerings – These Scammers Are Not Your Friends"
Risky Business: “Pre-IPO” Investing
Questions You Should Ask About Your Investments
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.