Con artists taking advantage of Facebook buzz

Wed Mar 16, 2011 8:08am EDT
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By John McCrank

TORONTO (Reuters) - The wild popularity of Facebook and other social media sites has spawned a cottage industry of con artists promising average investors a chance to cash in on the frenzy through shares in the companies ahead of their initial public offerings.

While the pre-IPO offerings may be real, investors must be aware that the people touting them may be frauds, the U.S. Financial Industry Regulatory Authority (FINRA) said on Tuesday.

"Investors need to understand that it's extremely rare and extremely unlikely that the average Main Street investor will have access to these kinds of shares in social media companies, before those companies go public, if they ever go public," said Gerri Walsh, FINRA's vice-president for investor education.

A simple search of the Internet reveals YouTube videos telling investors how they can get in on the ground floor of exciting investment opportunities in social media companies, as well as blogs that are devoted to thinly traded, unregistered securities.

The touts aim to connect investment ideas to the buzz surrounding the concept of social media to lure unsuspecting investors in, said Walsh, whose agency is looking into potentially fraudulent schemes attached to social media.


In September, the U.S. Securities and Exchange commission settled a civil action against securities broker Randy Cho, who bilked investors out of nearly $10 million in pre-IPO scams involving well-known companies between 2001 and 2009.

Self-employed Cho was telling investors he worked for Goldman Sachs and had access to shares in companies like Google, Facebook, and Rosetta Stone, and that he would invest their collective funds in these companies ahead of their widely anticipated IPOs.   Continued...

<p>The Facebook logo is displayed on a computer screen in Brussels April 21, 2010. REUTERS/Thierry Roge</p>