Know the Risks of Pre-IPO Funds and Potential Fraud
These transactions carry significant risk, and some are outright scams designed to steal your money.
Overview
When a hot company is in the news, it might be tempting to take advantage of offers to invest before it goes public through an initial public offering (IPO). That's what "pre-IPO" investing promises: a chance to buy shares of a private company before it lists on a stock exchange.
If you're offered early access to shares of a popular private company or a fund that claims to own shares of the private company, be aware that these transactions carry significant risk, and some are outright scams designed to steal your money.
Details
Many pre-IPO opportunities today, especially those involving highly publicized private companies, aren't direct purchases of company stock. Instead, you're likely buying indirectly through a fund formed to acquire interests in the company. Such funds raise money from many investors to attempt to acquire shares or future interests in shares of one or more companies anticipated to conduct an IPO. Some of the risks of these investments include the following:
Source
Originally published at www.fool.com.