SEC Warns of Pre-IPO Offerings that Violate Securities Laws

Pre-IPO investing offers a chance to buy into a company before it goes public, potentially for high returns. However, it’s risky. The company may fail, the stock price might not rise, and you could be stuck with unsellable shares. Additionally, these offerings often aren’t registered with the SEC, which can be a red flag for scams. Do your research before investing in pre-IPO companies.

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Pre-IPO Investment Scams: Report to the SEC

Red Flags

• Unqualified Sellers: Look out for anyone trying to sell you pre-IPO shares without proper licenses. Investor.gov offers a free tool to check their registration status. Don’t trust someone who can’t prove they’re legit.
• High-Pressure Sales: Beware of aggressive sales tactics like “boiler rooms” making cold calls with scripted pitches. They might push you to cash out your retirement accounts or open new accounts just to invest.
• Social Media Hype: Don’t fall for investment tips on social media. Pre-IPO scams often target these platforms.
• Hot Industry Claims: Scammers might use trendy topics like crypto or AI to lure investors. Be wary if the focus is solely on the industry buzzword and not the company itself.

False or Misleading Claims About Pre-IPO Offering

Watch out for deceptive promises when considering pre-IPO investments. Fraudsters often use flashy websites, social media posts, and spam emails to lure investors.

Be skeptical of comparisons to established companies or guarantees of an “imminent” IPO. Don’t trust claims that the seller only profits when you do, or that there are no minimum investment requirements.

Hidden fees can lurk behind promises of “no upfront fees,” and scammers might create a false sense of urgency with claims of a “limited number of shares” or “discounted prices.” In the worst cases, they might not even own the shares they’re selling, and your funds could be misused.

Be wary of anyone hiding their identities, especially if they have a history of regulatory issues. Always thoroughly research any person or investment before handing over your money, but be especially vigilant with pre-IPO opportunities due to the increased risk of deception.

Recent Pre-IPO Fraud Schemes

Here are some cases that the SEC has brought involving alleged pre-IPO schemes: