Divine Connections March IssueFF

14 | DIVINE CONNECTIONS - MARCH 2012
Dear Cali Pearl,
I’ve been hearing a lot about the Facebook stock that will be out in a few months and now my friend tells me he has
a deal where we can buy stock before it’s issued to the public. I am definitely interested in all the money I can make
but I’m not sure if the opportunity is really real. Is it possible to buy stock before it’s listed on the stock market? Do
you think I should?
I have been handling calls from interested potential Facebook investors since Facebook announced their IPO. Most
investors want to get in on the ground floor, buy Facebook stock while it’s “cheap” and sell it once it becomes public
for a huge return. Who wouldn’t want the “next hot stock?” Unfortunately, however, there is no Facebook stock available
to the public at this time.
Fraudsters would have investors believe that virtually anyone can get in on pre-IPO deals of small, little-known startups
as well as those of large, popular companies. One sure-fire way to avoid being taken in by an unsolicited offer is
to ignore it—regardless of how you heard about it. Someone claiming to have shares of Facebook or some other social
networking company may very well be a paid promoter or, more likely, a con artist trying to take your hard-earned
money.
To steer clear of potential scams, follow these tips:
• Consider the source. If you received an unsolicited offer to invest in a pre-IPO opportunity—by any means—
don’t take the bait. The stories a con artist might spin are innumerable but share one trait—they are all built on lies
and deception.
• Always ask: “Why me?” An unsolicited offer to buy pre-IPO shares raises the obvious question: Why would a
total stranger tell you about a really great investment opportunity? The likely answer is that there is no such opportunity.
• Be alert to persuasion. Virtually all pre-IPO scams dangle the prospect of exclusive access to eye-popping returns
(an example of the “phantom riches” tactic) at a discount (the “reciprocity” tactic) if you act quickly (“scarcity”).
Many scams also exploit “source credibility,” trying to build your trust by claiming falsely to be with a reputable firm.
And others, such as those purporting to involve well-known companies, use “social consensus” to suggest that everyone
wants in so the deal must be good.
• Verify whether the person touting the stock or investment is licensed. A legitimate investment salesperson
must be properly licensed, and his or her firm must be registered with the Financial Industry Regulatory Authority
(FINRA), the SEC or a state securities regulator—depending on the type of business the firm conducts.
• Determine if you’re being conned by a convicted criminal. Check the Federal Bureau of Prisons Inmate Locator
to determine if a solicitation is coming from someone who has served time in a federal prison.
• Be a search engine sleuth. Use search engines to learn as much as you can about a solicitation and those behind
it. For instance, if the individual promoting the investment has a history of fraud or criminal activity, you might
find news reports and court documents with details.
• Never send money to an individual or firm that you are hearing from based on an unsolicited communication.
Even if you have met or spoken directly with someone selling an investment, never write a check out to the
individual. Your money is apt to end up in a personal bank account, never to be seen by the investor.
• Get an unbiased second opinion. The only way to verify whether a particular pre-IPO opportunity is legitimate
is to conduct in-depth due diligence. To fully understand the terms of the deal and any restrictions that apply,
you will likely need to enlist the aid of professionals who are in no way connected to the deal.
(Source: FINRA)
Cali Pearl is a NC registered investment advisor committed to financial literacy and investment
education. For more information about Cali Pearl please visit: calipearl.com.