Artificial Intelligence & Crypto Scam Alert.

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The SEC’s Office of Investor Education and Advocacy (OIEA) is issuing this Investor Alert to warn investors about investment scams that purport to offer investors the opportunity to buy “pre-IPO” shares of companies. SEC staff continue to receive complaints — and to bring enforcement actions — involving these types of scams, which may be promoted on social media and websites, by phone, by email, in person, or through other means.

Pre-IPO Offerings May Violate Federal Securities Laws."Pre-IPO" investing involves buying a stake in a company before the company makes its initial public offering of securities, also known as “going public.” Many stock promoters entice potential investors by promising an opportunity to make high returns by investing in a start-up enterprise at the ground floor level.

But investing at the pre-IPO stage can involve significant risk for investors, including the risk that you could lose your entire investment. The early-stage company may never be successful, and the share price of the stock may never appreciate in value. In addition, the company may never go public, a market for the company’s shares may never develop, and investors may be unable to resell their shares.

Further, pre-IPO offerings are not registered with the SEC. Unregistered securities offerings are prohibited under the federal securities laws unless an exemption from registration is available, and many potential registration exemptions do not permit companies relying on them to broadly offer their securities to the general public. As such, many pre-IPO offerings targeted at the general public may be illegal.

Fraudsters may also use unregistered offerings to conduct investment scams. Investors should be mindful of the risks involved with an offer to purchase pre-IPO shares in a company and watch out for red flags that an unregistered offering may be a scam. As with any investment, we encourage investors to research thoroughly both the investment product and the professional offering the product before making any investment decision.

Watch Out for Common Red Flags.

Unregistered Investment Professionals: Unlicensed, unregistered persons commit much of the investment fraud in the United States. Before making any investment, including purchasing pre-IPO shares, you should check to see whether the seller is currently registered or licensed. You can do this quickly and easily using the free tool on Investor.gov. 

Aggressive Sales Practices: The organizers of pre-IPO investment scams may set up so-called “boiler rooms” and hire unregistered sales agents to solicit investors. These boiler rooms often purchase lists of investors’ contact information. An unregistered sales agent will typically start a relationship with an investor after “cold calling” them. The agent will often use a formulated script that includes answers and rebuttals to the investor’s anticipated questions. The agents may ask investors to cash out liquid investments in their 401(k) accounts and invest in pre-IPO funds. Sometimes they facilitate setting up new brokerage accounts for the investors.

Social Media Solicitations: Fraudsters also may use social media to solicit victims for pre-IPO investment scams. Never make investment decisions based solely on information from social media platforms or apps.

Trending Topics: Fraudsters conducting pre-IPO investment scams often pitch the securities of companies claiming to focus on emerging technologies or industries — for example, crypto assets or artificial intelligence (AI) — to entice investors.

Claims About Pre-IPO Offerings May Be False or Misleading.The people and companies that promote fraudulent pre-IPO offerings often use impressive-looking websites, online postings, and email spam to entice potential investors. To lure you in, they may make unfounded comparisons between the company they are promoting and other established, successful companies. They may make claims about the timing of the IPO – for example, they may say the IPO is “imminent” or will be “this year.” But these and other claims that sound so believable at first often turn out to be false or misleading.

Fraudsters perpetrating pre-IPO scams may tout that they have created investment opportunities for you (as opposed to just for the wealthy) and falsely claim that they won’t make money until you make money. 

You should be wary of any investment opportunity where the offering is unregistered and there are no investment limits or net worth or income requirements for investing. Those promoting fraudulent pre-IPO offerings may tell you that there are no upfront fees on pre-IPO offerings when they are actually charging you exorbitant, undisclosed markups. They may falsely claim to have a very limited amount of shares or to have shares at a lower price than the anticipated public offering price. In some cases, fraudsters may not even own the pre-IPO shares that they are offering and may use investor funds for personal use rather than to purchase shares. They may also try to hide the identity of involved individuals who have red flags in their backgrounds such as disciplinary actions by a government regulator (including the SEC) or a self-regulatory organization (including FINRA).

Again, thoroughly research any investment before handing over your hard-earned money.
The SEC Continues to Combat Pre-IPO Scams.Here are some cases that the SEC has brought involving alleged pre-IPO schemes:

• SEC Charges Three New Yorkers for Raising More Than $184 Million Through Pre-IPO Fraud Schemes (June 7, 2024); SEC Obtains Emergency Relief to Halt Pre-IPO Stock Fraud Scheme by Unregistered Broker-Dealer (June 27, 2023)
• SEC Charges Five Unregistered Brokers, Four Companies in Widespread Pre-IPO Fraud Scheme (Dec. 7, 2023)
• SEC Obtains Emergency Relief, Charges Recidivist in Offering Fraud (Aug. 18, 2023)
• SEC Charges Three Sales Agents At StraightPath Venture Partners with Fraud and Unregistered Broker Activity (Mar. 23, 2023); SEC Obtains Emergency Relief to Halt Pre-IPO Stock Fraud Scheme by Unregistered Broker-Dealer (May 16, 2022)
• SEC Charges Vika Ventures and its CEO in $6 Million Fraudulent Offering (Dec. 7, 2022)
  
  

If you suspect that you have been solicited for a pre-IPO scam, report it to the SEC. 

Additional Information
Social Media and Investment Fraud – Investor Alert
Resources for Victims of Securities Law Violations
Ask a question or report a problem concerning your investments, your investment account or a financial professional.
Visit Investor.gov, the SEC's website for individual investors. Receive Investor Alerts and Bulletins from OIEA by email or RSS feed.
 
This Investor Alert represents the views of the staff of the Office of Investor Education and Advocacy. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. This Alert, like all staff guidance, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.
Follow the SEC on X, Facebook, Instagram, and YouTube.


​The more you know, the less likely you are to be prey to a scam. 

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.