Stand:updated on 08.12.2023 | Topic Consumer protection Pre-IPO shares: BaFin warns against dubious offers
When a prominent company plans an initial public offering (IPO), investors are often eager to get in on the action. Criminals take advantage of this enthusiasm – they attempt to scam investors by fraudulently offering the chance to purchase pre-IPO shares in the company before they are offered to the public.
Again and again, there are reports of dubious offers of securities: investors receive an unsolicited phone call (see note on cold calling). An alleged company offers them the chance to invest in shares of well-known companies that have announced an intention to float either their own shares or those of an affiliated company on the stock market. But beware: prior to a planned IPO, these pre-IPO shares either do not exist yet or are still held by the existing shareholders. The latter would never sell their shares in this manner. Licensed companies, too, would never cold call consumers to offer them pre-IPO shares.
What is cold calling?
Have you received an unsolicited call from someone offering you pre-IPO shares in a prominent company? Never take advantage of these offers! Such unsolicited calls are prohibited. Investment services enterprises and other companies are expressly forbidden from making “cold calls”.
After making a purchase and paying, consumers then wait in vain for their pre-IPO shares to be delivered and are no longer able to reach the alleged offerors. Those who fall victim to these scams lose all the money they invested.
Important to know: companies offering shares of other companies to consumers need prior authorisation from BaFin. The same applies for pre-IPO shares. Information on whether a particular company has obtained such authorisation can be found in BaFin’s database of companies.
Consumers often have trouble assessing the legitimacy of offers
It is virtually impossible for consumers to recognise these fraudulent companies and check the integrity of an offer. This is because the perpetrators go to great lengths to make a trustworthy impression:
- Their websites seem professionally designed and feature legal notices that appear to be genuine. The perpetrators often misappropriate the data of other companies and even licensed institutions without their knowledge.
- Using free online portals where users can share their experience with calls from specific phone numbers, the criminals post an entire “business card” for the fake company complete with numerous glowing reviews that boast the gains achieved or praise the excellent service.
- They also upload fake press releases to online media portals, announcing the company’s ten-year anniversary or a donation to relief for the flood victims in western Germany, for example. As with all content posted on websites or social media, you should be suspicious and use different sources to check whom you are dealing with.
What is an IPO?
An initial public offering (IPO) is the first offering of shares for trading when a company goes public. This is also referred to as a new issue. The process usually takes place in the regulated market of a stock exchange. However, it is also possible to offer shares in less strongly regulated stock exchange segments, such as the regulated unofficial market. When going public, companies usually receive guidance from a bank or a consortium of several banks.
If a company wants authorisation to trade on a regulated market and/or to offer securities to the public, it must first draw up a securities prospectus. In order to ensure that investors have the opportunity to learn about the securities on offer and their issuers, prospectuses must be published in advance of, or at the latest at the beginning of, the offer to the public. Prospectuses require prior approval from BaFin before they are published. You can check whether an approved prospectus for an offer of securities to the public has been filed with BaFin by consulting the Prospectuses filed database on the BaFin website.
BaFin approves a prospectus if it includes the minimum information required by law, the wording is comprehensible and it contains no contradictory statements. However, investors should be aware that BaFin does not inspect the securities on offer or analyse the issuer’s integrity and business model during the prospectus approval process.
How can consumers take part in an IPO?
Consumers who would like to participate in an IPO (new issue) must first open a securities account, for example with their primary bank or with a broker. This page explains what consumers should look out for when opening a securities account.
Interested consumers should also conduct thorough research – including on the company planning the new issue and the current market situation.
During a subscription period, consumers can then submit buy orders (subscriptions) to the banks guiding the IPO process. Only these consortium banks may allocate shares. After the subscription period, these securities can usually be publicly traded on the stock exchange.
What investors should look out for in securities transactions
Consumers looking to invest in securities have many questions. Which securities should I purchase? Where do I open my securities account? How do I find information on companies? This page explains what you should consider before investing in securities. More information about common scams and how to protect yourself can be found here.
