Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

Want to own a piece of Facebook or Twitter? Plenty of scammers would love to you sell you non-existent shares of well-known social media companies, warns the Financial Industry Regulatory Authority (FINRA).

Scammers follow headlines, such as the fact that Facebook’s privately held shares are now trading on the secondary exchange. The company is reportedly valued at $65 billion.

wall streetSocial media “has become the latest hook on which con artists can hang a scam. In this case, fraudsters dangle the promise of wealth from the sale of “pre-IPO” shares,” FINRA said.

IPO stands for initial public offering. Pre-IPO speculation involves buying unregistered shares in a private company before the initial public offering. While a company can sell its unregistered shares in private transactions often called "private placements", these investments usually aren’t advertised and are typically open to a select group of investors.

An unsolicited offer to buy pre-IPO shares raises the obvious question: Why would a total stranger tell you about a really great investment opportunity? The answer, of course, is they hope you’re a sucker.

Even if you are the wealthy sort that may be approached with a legitimate investment opportunity, you should verify whether the person touting the investment is properly licensed.

Some Seattle investors were among those swindled by securities broker Randy Cho, who bilked victims out of nearly $10 million between 2001 and 2009.

“Self-employed Cho was telling investors he worked for Goldman Sachs and had access to shares in companies like Google, Facebook, and Rosetta Stone, and that he would invest their collective funds in these companies ahead of their widely anticipated IPOs,” Reuters reported. “Cho spent the money on personal trades, personal expenses, and to feed a Ponzi scheme, paying old investors with money from new investors.”

In September, the U.S. Securities and Exchange commission settled a civil action against Cho, who had to repay nearly $8 million. In December, U.S. federal prosecutors brought criminal charges against him.

On a related note, the U.S. Securities and Exchange Commission is reviewing private securities trading rules, Reuters reported yesterday.

FINRA is asking investors who believe they have been defrauded — or treated unfairly by a securities professional or firm — to file a complaint.

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