Investment scammers are targeting their victims through social media and Internet sites, and advisors should be on the lookout, according to the Securities and Exchange Commission.
The SEC office of Investor Education and Advocacy issued an investor alert, urging investors to be on the lookout for pre-initial public offering investment scams being touted through Facebook, Twitter and Groupon, as well as through e-mail and telephone.
The SEC says in September 2010, a district court in northern Illinois issued a judgment against Randy M. Cho, ordering him to pay $7.78 million in disgorgement, $289,320 in prejudgment interest, and a statutory civil penalty of $150,000.
The SEC found that between 2001 and 2009, Cho stole approximately $3.7 million from at least 45 investors in four states. The SEC alleges that Cho lied to investors saying he would pool their funds to invest in shares of specific well-known companies in anticipation of expected IPOs of those companies, including Centerpoint, AOL/Time Warner Inc., Google Inc., Facebook Inc. and Rosetta Stone Inc. Cho instead used those funds for personal trading, personal expenses and also operated a Ponzi scheme.
The SEC further alleged that Cho told investors he had previously worked at Goldman Sachs, and still had an account there to make investments. He also told some investors he needed additional funds to satisfy a U.S. tax liability in connection with their supposed purchase of Google and Rosetta Stone shares, when there was no tax liability and when the shares had not even been purchased for the investors.
In the alert, the SEC reminds investors and advisors that while the sales of pre-IPOs are not uncommon, unregistered offerings may violate federal securities laws unless they meet certain exemptions.