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Investor Alert: Pre-IPO Investment Scams (Updated)
The SEC’s Office of Investor Education and Advocacy is issuing this updated Investor Alert to warn investors about investment scams that purport to offer investors the opportunity to buy pre-IPO shares of companies, including social media and technology companies such as Facebook and Twitter. SEC staff is aware of a number of complaints and inquiries about these types of frauds, which may be promoted on social media and internet sites, by telephone, email, in person, or by other means.
The Commission’s Division of Enforcement continues to take action in this area. On April 4, 2012, the U.S. District Court for the Southern District of Florida in Miami issued an Order to Show Cause and Other Emergency Relief to halt a defendant’s fraudulent sale of securities of an investment vehicle that he falsely represented owned pre-IPO shares of Facebook, Inc. In that matter, the Commission’s motion for an order to show cause alleges that Allen Weintraub, using entities with names such as “Private Stock Transfer, Inc.”, “PST Investments III, Inc.”, and “World Financial Solutions” falsely represented that he would sell the investors pre-IPO shares of Facebook, Inc., and that PST Investments had an ownership interest in Facebook stock. The Commission’s motion also alleges that Weintraub utilized the website privatestocktransfer.com to perpetrate his scheme. The Division of Enforcement urges anyone who believes that Allen Weintraub may have recently defrauded them to contact John Rossetti, Senior Counsel, at 202-551-4819.
In another matter 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 AOL/Time Warner, Inc., Google, Inc., and Rosetta Stone, Inc. before the companies went public.
While legitimate 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, please visit the following web pages on the SEC’s website and Investor.gov:
- Litigation Release: SEC v. Allen E. Weintraub and AWMS Acquisitions, Inc., d/b/a Sterling Global Holdings, Case No. 11-21549-CIV-HUCK/BANDSTRA (S.D. Fla.)
- SEC Office of Investor Education and Advocacy Investor Alert: Pre-IPO Investment Scams (March 2011)
- 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.