Understanding Pre-IPO Investment Scams

Understanding Pre-IPO Investment Scams

To understand what may constitute a pre-IPO investment scam, let us first define an IPO investment and pre-IPO investment.

An Initial Public Offering (IPO) is the first time that stock of a private company is offered to the public. Generally IPOs are issued by relatively small and newer companies, often for the purpose of raising capital to expand. IPOs can also be issued by large, privately owned companies looking to become publically traded.

A pre-IPO occurs when a portion of an IPO is purchased by private investors before the IPO goes on the market. Pre-IPO investments are often placed in large private equity or hedge funds, and the investment amounts to a large stake in the company. The incentive to purchase pre-IPO stock is that typically the pre-IPO shares costs less than the price at which the IPO shares will go to market.

Understanding Pre-IPO Investment Scams

A pre-IPO scam can be carried out in a number of ways. The following are common examples of pre-IPO scams:

  • The share promoter (seller) offers pre-IPO shares that he or she does not actually have or acquired in an unlawful transaction.
  • Offering pre-IPO shares of a company that does not exist.
  • If the company does exists, the scam may include misrepresentations about the company and/or its financial standing or prospects for growth.
  • A pre-IPO scam can include false information about the price or timing of any potential IPO.
  • Often Pre-IPO scams involve unlicensed individuals selling unregistered securities.

It is not uncommon for a pre-IPO investment scam to center around a popular company that recently emerged, such as Facebook or Twitter. In these instances, the company is privately held but prospective investors are interested in getting in on the action. A pre-IPO scam may offer shares of a well known private company that is not actually offering pre-IPO shares, or the promoter is not actually able to sell legitimate pre-IPO shares.

Legitimate offering of pre-IPO shares in a company are not uncommon. However, unregistered pre-IPO offerings may violate federal securities laws unless they meet a registration exemption, such as restricting the offering to investors who meet certain income or net worth requirements.

When it comes to investing in stocks, it is an attempt to forecast the future success of a company. This is not an easy task and there is no guarantee of a return on an investment. When that forecast involves the early stages of a company’s development, such is often the case with pre-IPO stocks, it is even more difficult to predict and the risk is even higher. Simply because an investor lost their money does not mean that a pre-IPO investment scam occurred. Sometimes bad investments are just bad investments.

Defending Against Investment Fraud Charges

If you are facing charges of an investment fraud or securities fraud, you need an aggressive and experienced white collar criminal defense attorney on your side. Ashley D. Adams is a former fraud prosecutor with the United States Attorney’s Office. She understands how prosecutors operate. Given her prior work, she also has a longstanding and positive relationship with the U.S. Attorney’s Office, the Attorney General’s Office, and the Department of Justice. Put Ashley D. Adam’s experience to work for you.

Contact us or call now (480) 219-1366 for a case evaluation. Have your questions answered and obtain the peace of mind that comes from having a former Assistant U.S. Attorney on your side.

The attorneys at Ashley D. Adams, PLC handle federal criminal cases throughout the United States, including Arizona, Oklahoma, Utah, and California.