Beware of IPO frauds

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In November 2016, Securities and Exchange Commission alerted investors to a new scam about initial public offerings (IPOs).

SEC says scammers pose as brokers, so they can tell investors about opportunities in regard to IPO or pre-IPO shares of well-known companies. The scammers use fake forms that seem to come from legitimate sources, including SEC Form 4. (The latter typically doesn’t have to be filled out by an individual but rather by the director or executive of a company or the holder of at least 10 percent of any class of a company’s securities.)

The scammers make detection more difficult because they use an email address that ends in .gov, .mil or or use the email address EDGAR (Electronic Data Gathering, Analysis and Retrieval) is an SEC online public database. The website domain name was registered by an unknown private entity that didn't have SEC authorization. SEC obtained an order to suspend the domain name but warns that scammers use similar official-looking domain names.

IPOs are handled by investment bankers, says Teresa Verges, who is the director of Investor Rights Clinic at University of Miami School of Law and was a lawyer for SEC. “If you’re given this opportunity, it’s almost certainly a fraud,” Verges says.

Unfortunately, victims of the fraud have little opportunity to recover their money, Verges says. When a scammer is caught, his/her assets are frozen and his/her possessions are auctioned off, but that typically recovers only a small portion of what was scammed from consumers, Verges says.

If you suspect that you received a scam email, you should submit a complaint form to SEC’s Office of Inspector General or call 877/442-0854.