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APA’s philosophy is to work closely with our clients to develop an in-depth understanding of their unique needs and objectives. We then customize a municipal bond portfolio that best meets their specific goals and needs. APA manages high quality municipal bond portfolios in four strategies: Short-Term, Intermediate-Term, High Income, and Taxable.

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IPO Investment Scam Halted by SEC

An investment scam promising non-existent private shares of Facebook and other companies is halted. How do IPOs create opportunities for fraud?

| BY Adriana Reyneri

An investment scam promising pre-IPO shares of Facebook, Groupon and other companies was halted yesterday through emergency action taken by the U.S. Securities and Exchange Commission. 

The latest enforcement action calls attention to the uncertainties surrounding initial public offerings, and the risks investors take when they seek private shares of companies soon to go public. 

The SEC alleges the $12 million scam was carried out using a newly minted hedge fund named The Praetorian Global Fund. According to the SEC, a group of individuals falsely claimed the fund and affiliated Praetorian entities owned shares worth tens of millions of dollars in Groupon, which went public on November 4, and Facebook and other companies expected to go public soon.

 Florida resident John A. Mattera, working with several other individuals, exploited the desire of investors “to get an inside track on a wave of hyped future IPOs,” said George S. Canellos, director of the SECs New York Regional Office.

 Mattera was arrested yesterday and faces criminal charges filed by the U.S. Attorney’s Office for the Southern District of New York.

  According to an SEC statement, Mattera and others gave investors “a false sense of comfort” by telling them their money was being received by an escrow service. In reality, Matter and his cohorts never owned the promised pre-IPO shares in the companies, according to the SEC, and the escrow service transferred funds to a personal account controlled by Mattera and another Florida resident, John R. Arnold.

 “After Arnold took a cut of the money for himself, Mattera stole most of the remaining funds to afford his lavish personal expenses and pay others for their roles in the scheme,” said the SEC. Plundered accounts bankrolled a lifestyle of private jets, luxury cars and fine art. The SEC is moving to freeze the assets held by Mattera and his partners, and eight entities charged in the SEC complaint.

 Desire for privately held shares of such companies as Google and Facebook, which is expected to go public next year, has been exploited in more than one investment scam, according to the Financial Industry Regulatory Agency, a self-governing agency. “Seizing upon investor demand for shares of the private stock of high-profile companies, the con artists behind theses scams are swindling the public by peddling non-existent shares of these companies.”

 Pre-IPO speculation involves unregistered shares in a private company, said FINRA, explaining that the investments can be “fraught with risk” and are typically available only to high net worth investors. Investors solicited in an IPO scam may think they are getting in on the ground floor, but are actually handing over real money for non-existent shares, said John Gannon, senior vice president for Investor education at FINRA.

 Investors should exercise a healthy dose of skepticism when receiving an unsolicited pre-IPO offer, said FINRA, and ask themselves, “Why would a total stranger tell me about a really great investment opportunity?” Investors should also be alert to classic persuasion tactics that can be the sign of an investment scam, such as the promise of “eye-popping returns at a discount” if they act quickly.