Trade & investment

FIB uncovers pre-IPO scam

  • 4 August 2011

The ICC Financial Investigation Bureau (FIB) is warning investors based in the Middle East to be wary if offered the opportunity to invest in any pre-IPO (Initial Public Offering) companies. The FIB is also recommending that caution be exercised in responding to any large-scale regional glossy magazine or newspaper advertisements making similar offers.

The warning comes after an FIB investigation into a recent pre-IPO scam in Muscat, Oman. In this case, a customer was called by a representative of what he believed to be a firm of brokers. After repeated phone calls, he was persuaded to buy shares in an alleged pre-IPO company based in Anguilla, West Indies. The money for the shares was sent to a bank in the Netherlands. Once this money had been received, the “broker” made further offers of shares at an increased price and tried repeatedly to sell numerous other investments.

Commenting on the case, FIB Assistant Director Jon Merrett said: “There were a number of irregularities that caught our attention. Not the least of which were the large, glossy ads in regional print media promoting pre-IPO investing. Such widespread, high profile marketing is quite unusual for this kind of financial instrument and a rather brazen move by the fraudsters. No doubt they are gambling on quickly securing a large number of victims, and maximizing their return before disappearing.”

The FIB investigation discovered that the name of the bank account in the Netherlands that received the money was the same as the alleged pre-IPO company. This was suspect as such monies are normally channelled through a broker.

The pre-IPO company named on the documentation was registered, but there was no evidence that it actually undertook any trading activity. The addresses provided all turned out to be serviced accommodation facilities located in the USA, Scotland and the Netherlands. FIB was eventually able to contact the individuals behind the offer to ask further questions. Their answers proved to be highly evasive at best. Immediately after the FIB telephone call, the victim was reimbursed in full.

Mr Merrett added: “The operation targeting Oman had all the classic hallmarks of a boiler room scam. It was very well put together and the documentation accompanying the share certificate looked very professional. The victim was asked to sign multiple disclaimers as part of the deal, provide a copy of his passport, and confirm that he was not a US citizen or resident. Pre-IPOs are illegal in the United States, so in this context the verification of US citizenship was certainly a warning sign of fraudulent activity.”

Pre-IPO investing is illegal in a number of countries, and risky business in most others. Offers made to the general public via email or cold calling are usually fraudulent and anyone thinking of investing in any pre-IPO should take steps to ascertain as much information as possible about the named company and investigate thoroughly with regulators.