HONOLULU- A recent posting on the social networking web site Linkedin offered pre-IPO Facebook shares to more than 1,800 members of the Punahou Alumni Professional Network. However experts say the offer is more than likely a scam.
“If it’s such a great deal, they would want to keep it to themselves,” said Lori Schock, Director of the Office of Investor Education and Advocacy at the Securities and Exchange Commission.
Schock says potential investors should ask themselves, “Why I am I being solicited, especially if I didn’t ask about any of this information?”
The Securities and Exchange Commission is not alone in sounding the alarm about pre-IPO Facebook scams.
The Financial Industry Regulatory Authority, which overseas 4,460 brokerage firms and 629,520 registered securities representatives, issued a warning in March of 2011.
“Consider the source of the offer and never, ever, ever rely solely on information that’s contained on any sort of unsolicited offering, whether it comes in by fax or text or tweet or some other format,” says Gerri Walsh, Vice President for Investor Education at FINRA.
Traditionally, Pre-IPO offerings are extremely difficult to come by and are limited to a certain class of ‘qualified’ investor.
“You have to be what they call an accredited investor,” explains Alan Akina of 101 Financial, a finance education company based on Oahu. “An accredited investor is someone that has a million dollar net worth, excluding their home, or they make $200,000 a year for the previous two years.”
It’s also against the law to openly advertise IPO stocks before they are offered to the general public. Any company that offers to sell securities must either register the transaction with the SEC or meet an exemption.
“These types of investments take place in what they call private placements,” says Akina. “Private placements are offered by companies to these accredited investors.”
In November of last year Florida resident John A. Mattera and several others carried out a scam where investors were offered the chance to buy pre-IPO shares in Facebook, Groupon and other high-profile companies.
Mattera and his co-conspirators were charged with bilking $12 million from investors and using the money for their personal whims like luxury cars and fine art.
Punahou confirmed the man offering the pre-IPO Facebook shares on the Linkedin alumni group graduated from the school in 2008, although it’s entirely possible he could be an imposter.
Experts say investors should always check who they’re doing business with and several online resources are available. The SEC’s Investment Adviser Public Disclosure web site can be found by clicking here.
FINRA provides a similar tool at: www.finra.org/brokercheck
“There you can input the name of the individual or the firm that’s touting the opportunity and see whether or not they’re licensed to do business with you, specifically if they’re licensed to do business with you in Hawaii,” said Walsh.
The name of the man offering pre-IPO Facebook shares to Punahou graduates is not registered with the state of Hawaii as an investment professional, according to the Securities Enforcement Branch of the Department of Commerce and Consumer Affairs.
“More than likely an unregistered person has no business doing business with you,” said Schock. “That is a very large red flag.”
There has been widespread speculation Facebook CEO Mark Zuckerberg will take the company public sometime in 2012, perhaps as soon as May. The initial public offering could be worth as much as $10 billion.
However the frenzy surrounding the expected Facebook IPO also breeds the perfect environment for fraud.
“Investing in pre-IPO stocks is an exciting thing,” says Akina, “but the reality is most people don’t have access to that type of investment.”
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See the original article at: KHON2 Local News
