Private market trading of Facebook stock has garnered so much attention lately that the social network is cited as an example in a warning by a financial industry regulator.
The Financial Industry Regulatory Authority has posted a well-intentioned warning against schemes promising access to shares of companies that haven’t gone public yet. Alas, Facebook stakes have become nearly synonymous with the so-called pre-intial public offering market, which explains why the company is listed as an example.
Finra’s press release doesn’t qualify the warning until two paragraphs after the unfortunate use of Facebook as an example:
While most pre-IPO offerings are legitimate, some are frauds in which con artists sell shares they do not actually have. Recently, Finra became aware of potentially fraudulent schemes to sell purported shares of Facebook. Additionally, the Securities and Exchange Commission recently settled a civil action 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 involving purported shares of Google, Facebook and other well-known companies.
Only at the end of the press release does Finra ask that investors who believe they have been defrauded to file a complaint. However, the agency offers some helpful pointers on how to tell the difference between a scam and a legitimate pre-IPO offering:
- avoid unsolicited offers from strangers
- watch for promises of unrealistic investment returns
- confirm that the individual making the offer is a licensed investment professional
- make sure the seller doesn’t have a criminal record — check the Federal Bureau of Prisons Inmate Locator
- research the offer using Internet search engines
- get a second opinion from another investment professional
Usually an investment professional offers pre-IPO stock deals to the best customers — you’d probably know if you were considered one of them.
Have you received any unsolicited offers for pre-IPO stock, either in Facebook or another privately-held company?