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.