INVESTORS NATIONWIDE BEWARE - PRE-IPO INVESTMENTS CAN RANGE FROM RISKY DEALS TO OUTRIGHT FRAUDS!

When a promising company is emerging or an industry sector becomes "hot," investors cannot resist the desire to get a piece of the action. Oftentimes these companies are privately held, and investors cannot buy shares because the company has not conducted an initial public offering (IPO). Still, the lack of a public market for popular companies does not stop zealous investors from doing anything it takes to get a pre-IPO allotment. Some of the recent issues of high profile social media and internet companies such as Facebook and Zynga had investors searching for access to their pre-IPOs through any available means. As a result, social media has also become the latest hook on which con artists can perpetrate a scam. In this scenario, fraudsters tout the way these companies have dramatically changed the way people interact, and that future prospects alone should make investors rich by simply owning pre-IPO shares.
Generally, securities offerings must either be registered with the Securities and Exchange Commission (SEC) or meet an exemption under the federal securities laws. Pre-IPO speculation consists of buying unregistered shares in a private company before the initial public offering of the securities, and it can range from risky deals to outright frauds. Investors bear the risk that the company may not exist, or if it does, the promoter might be offering shares he does not have or that he acquired in a questionable transaction. The fraud could also involve misrepresentations about the company, including the likelihood, timing, and pricing of a potential IPO.
The people and companies that promote fraudulent pre-IPO offerings often use impressive websites, bulletin board postings, and email spam to attract investors who scour the internet looking for e-business investments. To lure investors in, they make unfounded comparisons between their company and other established, successful internet companies. However, these and other claims that sound so believable at first turn out to be false or misleading.
Fraudsters would have investors believe that anyone can get in on a pre-IPO offering, no matter how big or small the deal is. Investors are recommended to ignore such bogus claims, no matter where they heard it from. However, if one cannot resist the temptation, it is important to do some homework. Never rely solely on information contained in a fax, email, text message, tweet, blog posts, or other format for social network communications. Investors can follow these steps to help safeguard their hard earned money:
-Details About the Offering: It is important to determine whether the offering is subject to an exemption. If it is neither registered nor exempt, it is illegal. Check with the state securities regulator and the SEC to find out whether they have any information about the company and whether the company has filed an offering circular. Ask if the stock will be restricted in any way and whether it can be liquidated in case the company does not go public.
-Information on the Company: Investors should independently verify claims made by the company. Information such as the company's products, services, customers, physical location, inventory, and financial statements should be inquired into before making an investment decision.
-Management's Background: Check with the state securities regulator about who runs the company, whether they have made money for investors in the past, and whether they have violated the law.
-The Existence and Identity if the Underwriter: It is important to verify whether the company has hired an investment banking firm to underwrite the offering. Contact your state securities regulator to find out whether the firm has a history of complaints or fraud.
-The Identity and Disciplinary History of the Promoter: Deceitful promoters typically try to lure in as many unwitting investors as possible to maximize their returns. Check the disciplinary history of any promoters with your state securities regulators.
Have you suffered losses on shares purchased before any company's initial public offering (IPO)? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - BROKER-DEALER SELF-OFFERINGS ARE RISKY INVESTMENTS!

Broker-dealers oftentimes use broker-dealer self-offerings (BDOs) to raise capital by selling their own or an affiliate's securities. Typically BDO offerings come in the form of registered public offerings or private placements. Even though BDOs can be a legitimate investment, potential for abuses still exist. Prior actions have been brought against broker-dealers and financial advisors that have sold more than $36 million in BDOs to clients that involved fraud or other serious misconduct - numerous cases involved high pressure sale tactics targeting elderly or retired investors. Thus, investors are encouraged to consider the risks associated with investing in BDOs and the possibility of fraud or other misconduct before buying their broker.
When an investor purchases a private BDO, they are investing in the brokerage firm itself. Money raised in a BDO offering is usually used to finance a brokerage firm's operations. Therefore, the investor shares the risks that business will be unprofitable in the near future. The Securities and Exchange Commission (SEC) places limitations on the way private BDOs can be sold to investors. For example, brokerage firms are not permitted to advertise the BDO, and the number of small investors to whom the securities can be offered is limited in number. The BDO securities sold are not registered with the SEC or filed with FINRA, and they are not publicly traded. Consequently, private BDOs are subject to fewer disclosure requirements and regulations than registered public offerings. Private BDOs are also highly illiquid investments.
Investing in a private BDO can involve significant risks, especially when a private BDO has been announced through emails or cold calling, which may be a clear sign of a fraudulent offering. Investors can avoid the risks associated with investing in BDOs by considering a few very important points. First, the offering may be illegal if the brokerage firm did not register the BDO with the SEC, which means it was not subject to a Regulation D exemption. To meet the Regulation D exemption, the BDO cannot be advertised to the general public. Second, the reason that a brokerage firm is conducting a private BDO is because the firm is not a public company. So, there is no guarantee when, or even if, there will be a public market for the securities. Even if a company goes public through an initial public offering (IPO), federal and state laws often require that unregistered or private securities acquired in transactions such as BDOs be held for a year or more before they can be sold. Last, when an investor buys a private BDO, the brokerage firms is getting all the investor's money rather than just a commission. The brokerage firm might be selling the BDO to benefit from the offering in a certain way - the firm has been losing money or it needs cash reserves to meet regulatory requirements.
Investors should also consider the following red-flags:
-Cold-Calling or Spam: Brokers selling problematic private BDOs often use unsolicited telephone calls or email to sell private BDOs.
-High Pressure Sales Tactics: Dishonest brokers often use boiler room sales tactics, hounding investors to invest in BDOs/
-Initial Public Offering is Imminent: Investors should be wary of brokers who tell you that in the near future the brokerage firm will conduct an IPO, which will reap large profits once the securities are traded on the open market.
-Promises of Unusually High Returns: Brokers make optimistic price projections about future performance with no research to back up their assertions.
-Risk-free Investments: Some private BDO frauds involve promises that you cannot lose money.
Refusal to Provide Current Financial Documents on Request: Brokers should supply financial and other supporting materials upon a client's request.
Brokerage firms that use the above mentioned tactics oftentimes provide little or no supervision of their salespersons. Such firms may materially misrepresent experience and financial soundness of the company to attract investors. Firms will also go as far as omitting information about disciplinary actions against the firm or individuals associated with the firm.
Have you suffered losses in a broker-dealer self-offering? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

INVESTORS NATIONWIDE BEWARE - PROMISSORY NOTES ARE NOT SO PROMISING!

Securities and Exchange Commission (SEC) investigations have revealed that promissory note scams are on the rise. In fact, promissory note schemes have robbed hundreds of investors of tens of millions of dollars. The promise of high guaranteed rates of interest combined with today's volatile markets should alarm investors to make an adequate investigation before investing. This is because unlike many investments today, promissory notes tout a simple and safe concept, but they also offer returns as high as 25 percent. Even though they can be legitimate investments, some promissory notes sold widely to individual investors turn out to be fraudulent. Therefore, investors need to fully understand the promissory note they are considering, and they need to be aware of warning signs that may signal a scam.
A promissory note is a debt instrument that companies use to raise capital. The company issues the notes and promises to return the purchaser's funds and to make interest payments to the buyer in exchange for the borrowed money. Promissory notes have set repayment periods ranging from a few months to several years. Legitimate promissory notes oftentimes face significant risks - the issuing company may have problems such as competition, bad management, or severe market conditions that make it nearly impossible for the company to fulfill its promise to pay interest and principal to note buyers. Investors should also note that bona fide notes are marketed almost exclusively to corporate and other sophisticated investors, who have the resources and expertise to make a sound investment decision.
Problems with promissory notes fall into three main categories: fraud and deception, unregistered securities, and unregistered sellers. Fraudulent promissory note programs often consist of deceptive statements to lure in investors. Callers tout high, guaranteed returns and collateral to back the notes. Promissory note schemes usually target the elderly and their retirement savings. Promissory notes must be registered with the SEC or the state in which they are sold if they are not subject to a registration exemption. If the note is unregistered, it will not be subject to review by regulators before it is sold, and investors have to do their own research to verify that the company can meet its obligations. If registered brokers are involved, they may be selling the notes without a license or without their firms' approval.
Investors should consider the following before investing in a promissory note:
-Ask why the seller wants to sell to you: Bona fide corporate promissory notes are generally sold to sophisticated investors. The fact that promissory notes are being sold to individual investors is itself a danger signal.
-Be wary of pushy sales tactics: No reputable investment professional should push an investor to make an immediate decision about an investment or tell you to act now.
-Use on-line resources: The SEC's EDGAR Database and the state's securities regulator offer information on whether the notes are registered. The Financial Industry Regulatory Authority's (FINRA) BrokerCheck will reveal if the individual selling the promissory notes is registered or has a disciplinary history.
-Broker role: The promissory note should be sold through the broker's firm. If not, it is being "sold away," which means that the associated broker-dealer has not approved the note for sale.
-Guaranteed returns: Salespersons cannot guarantee returns. Even if the seller says that the promissory notes are insured, be wary - the insurer may not be legitimate or offshore.
-High returns: Promissory notes usually offer double digit returns - those greater than 10 percent while other fixed income investment are yielding much less. The rule is: the higher the return, the greater the risk.
-Commissions: The salesperson's commission is important. Normal commissions rarely exceed 5 percent. Promissory notes offer much more - as high as 30 percent or more.
-Issuing Company: How the company issuing the promissory notes plans on generating returns to make the interest payments should be vital to an investor's decision to commit to the notes.
Have you suffered losses in a promissory note investment scam? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.