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Last Updated on: 28th July 2023, 07:31 pm
An initial public offering (IPO) occurs when a company sells its stock shares to the public for the first time. A major financial institution or investment bank typically underwrites the IPO, and there a number of requirements that go hand-in-hand with taking a company public.
However, in some cases, before an IPO occurs, a pre-IPO may take place. In a pre-IPO, a limited number of shares are available on special trading platforms for pre-IPOs, or shares of a company stock are available to certain investors. Typically, hedge funds, large private equity funds and other institutional investors purchase shares during the pre-IPO, but in some cases, a pre-IPO is available to a larger group of private investors.
Although taking advantage of pre-IPO offerings can provide a company with a chance to raise funds before the IPO while also giving knowledgeable investors to get in on the ground floor of a company, there is also an opportunity for scams and fraud to happen as well. Regardless of the type of pre-IPO investment scam, schemes or misrepresentations regarding securities sales can lead to significant criminal charges.
The legal team at Spodek Law Group, PC provides legal presentation in both criminal cases as well as SEC civil actions. If you are facing criminal prosecution, legal actions by federal authorities or a tort lawsuit, contact us today. Our pre-IPO investment scam defense lawyers can provide an aggressive approach to help you work through your legal problems. Ready to get started? Contact us today.
Overview of Pre-IPO Scams
By definition, a pre-IPO involves misrepresentation, fraud or a direct intent to mislead investors regarding stock shares sales for a company awaiting its IPO. There a number of ways that pre-IPO scams occur such as:
– The sale of unregistered securities. Companies that want to offer securities or sell shares must either register with the Securities and Exchange Commission or qualify for an exemption. Selling unregistered securities is illegal, but it is one of the most common forms of pre-IPO investment schemes.
– The sale of pre-IPO shares for a company that never goes public or does not exist. Investors are offered the chance to purchase shares of a company expected to go public, but the company may be false and not even exist. The investors’ money is subsequently embezzled.
– The sale of IPO shares without authorization. A defendant may embezzle client money for his own use, selling shares of stock he neither owns nor has the authority to sell. According to the Securities and Exchange Commission, one defendant was convicted after obtaining more than $3.7 million by offering fraudulent pre-IPO stock shares of well-known corporations before the companies IPOs occurred.
How are IPO Scams Different?
Pre-IPO investment fraud and IPO investment fraud differ in that the latter involves attempts to mislead or scam individuals with a company that is making shares available to the public. Both companies going public as well as large financial institutions involved in the underwriting of the IPOs. For instance, investment banks and companies may mislead potential buyers regarding the financial condition of a company.
A company must make certain financial disclosures when it goes public. If the company or bank provides misleading or false information, this type of IPO investment fraud can result in severe penalties for the investment banks underwriting the IPO as well as for CEOS and other high-ranking company officials who signed off on the fraudulent statements.
Penalties for IPO Fraud
In cases where someone intentionally makes false statements regarding the sale of securities, IPO fraud is considered a crime. In addition, if the defendant makes the states via wire communication or postal mail, he or she may face additional federal offenses such as:
– Wire fraud
– Mail fraud
– Securities fraud
IPO investment fraud may also lead to SEC enforcement actions and criminal charges under New York State law, so it is important to act as soon as possible if you have been accused of participating in a pre-IPO or IPO investment scam.
A Pre-IPO Investment Scam Lawyer Can Help
Call the legal team at Spodek Law Group, PC today if you are facing accusations of involvement in connection with a pre-IPO investment scheme. We can review your case and help you to build a solid defense in order to fight against the criminal charges.
A pre-IPO investment emerges when a company offers a limited number of shares to a select group of investors prior to an official initial public offering (IPO) where stocks become available to the public. This enticing opportunity enables savvy investors, such as hedge funds and large private equity funds, to get in on the ground floor of a company’s growth. However, alongside the potential rewards come significant risks, with ripe opportunities for scams and fraud.
In this article, we delve into the world of pre-IPO investments, covering the potential scams, how they differ from IPO fraud, and most importantly – how to protect yourself and navigate this arena safely.
By its nature, a pre-IPO scam involves intentional misrepresentation, fraud or manipulation aimed at misleading investors with fraudulent stock share sales for a company gearing up for its IPO. Here are some common pre-IPO scams to watch out for:
|Type of Scam
|Sale of Unregistered Securities
|Companies selling shares or offering securities without proper registration or exemption qualifications provided by the Securities and Exchange Commission (SEC). This illegal activity is rampant in pre-IPO investment schemes.
|Fake Companies & Nonexistent IPOs
|Investors are enticed with an opportunity to purchase shares of a company supposedly preparing for a public offering. However, the company is fraudulent and doesn’t exist, with investor funds being embezzled and pocketed by scammers.
|Unauthorized Sale of IPO Shares
|A perpetrator sells stock shares they neither own nor have authority to sell, often times embezzling client money for personal use. These situations have led to multimillion-dollar losses for unsuspecting investors.
While pre-IPO scams prey on investor excitement and eagerness to seize opportunities, IPO fraud involves deceitful actions by companies going public or by large financial institutions aiding in the IPO underwriting process.
Some examples of IPO fraud include providing potential investors with misleading or false information about the financial condition of the company or the executives within.
Intentionally making false statements about securities sales can result in severe consequences, including criminal charges, SEC enforcement actions, and potential additional federal offenses such as wire fraud, mail fraud, or securities fraud.
To avoid these penalties, it’s crucial to act swiftly when facing accusations of involvement in a pre-IPO or IPO investment scam.
If you find yourself accused of participating in a pre-IPO investment scam, it’s essential to enlist the help of skilled, aggressive attorneys who understand the intricacies of these cases. The legal team at Spodek Law Group, PC offers robust legal representation in criminal cases, SEC civil actions, and tort lawsuits related to pre-IPO investment scams.
Don’t let your future crumble due to fraudulent schemes or misrepresentation in the pre-IPO investment world. Contact the experienced professionals at Spodek Law Group, PC today, and let them guide you through the process of building a solid defense against any criminal charges you may face.
Remember, knowledge is power. Being aware of the risks associated with pre-IPO investing, the potential scams lurking around, and the distinction between IPO fraud can greatly improve your chances of success in this high-stakes game of investment. Armed with expert legal advice and protection, you can navigate the complex world of pre-IPO investments with confidence and conquer the challenges that may come your way. Invest wisely and cautiously, and let your future shine bright with the rewards of your diligence.
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