Be wary of pre-IPO stocks like Facebook, regulators warn

Too late for 50 investors who bought an alleged con man's story about access to Facebook shares and then $9.6 million worth of stock that prosecutors say didn't exist.

Don't get snookered by con men baring access to pre-IPO shares of a stock like Facebook, regulators warned consumers today in a statement from the Financial Industry Regulatory Authority (FINRA).

Too late for 50 investors who bought an alleged con man's story about access to Facebook shares and then $9.6 million worth of stock, including shares of Facebook and Google, that prosecutors say didn't exist. Federal prosecutors in Chicago charged the man, Randy M. Cho, with one count of wire fraud and one count of filing a false federal income tax return.

According to the indictment, Cho offered investors access to pre-IPO shares of Facebook and "friends and family" discounts on shares of Google for $1 when the share price was actually $425, prosecutors alleged.

FINRA offered this advice to protect against deals that are too good to be true:

  1. Consider the source.
  2. Always ask: "Why me?"
  3. Be alert to persuasion.
  4. Verify whether the person touting the stock or investment is licensed.
  5. Determine if you're being conned by a convicted criminal.
  6. Be a search engine sleuth.
  7. Never send money to an individual or firm that you are hearing from based on an unsolicited communication.
  8. Get an unbiased second opinion.

Related Content: