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FINRA Pre-IPO Social Media Offerings Alert

The Financial Industry Regulatory Authority (FINRA) has issued an alert to warn investors about pre-IPO scams purporting to offer access to shares of Facebook, Groupon, Twitter and Zynga.  These companies have millions of subscribers and have dramatically changed the way people interact.  But social media has also become the latest hook on which con artists can hang a scam.  In this case, fraudsters dangle the promise of wealth from the sale of “pre-IPO” shares.

For instance, in late December 2010, shortly after the Securities and Exchange Commission settled a civil action, federal prosecutors brought criminal charges against a self-employed securities trader who allegedly bilked more than 50 U.S. and foreign investors out of more than $9.6 million in a series of pre-IPO scams spanning an eight-year period.

“We are also aware of other potentially fraudulent schemes that have solicited potential victims by purporting to sell shares of Facebook.” FINRA said.

The bottom line is that many pre-IPO scams involve unlicensed individuals selling unregistered securities—that’s why it’s critical to check out both the promoter and the investment.

About Alex Akesson

Alex has been specializing in hedge fund and alternative investment news since April 2006. Working mainly in research and manager interviews, she has published breaking news on the hedge fund industry on her blog, as well as several industry publications. Her access to hedge fund managers gives her insight into news stories as well, and the ability to track press releases and other breaking news in real time.
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One Response to FINRA Pre-IPO Social Media Offerings Alert

  1. Jeff Goolst says:

    Yes, popular companies, such as Facebook, Zynga and Twitter are being touted as the hottest pre IPO’s and bound for abuse.

    Since 2009, Pre IPO investing has opened up a niche for investors into the VC and private equity industry. It is inevitable that certain Wall Street wise guys will end up sharing bed space in the big house with the likes of Bernie Madoff. These guys definitely tarnish and create some challenges for the pre IPO fund industry.

    However, there are legitimate funds targeting Pre IPO companies such as Keating Capital, Renaissance Capital and IPO Trust.

    IPO Trust has the best intentions of earning investors decent returns in our diversified fund focusing on pre IPO stocks, according to Jeff Goolst of IPO Trust.

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