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Pre-IPO Investment Scams

March 18, 2011

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.

Related Information

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.

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