Initial public offerings (IPOs) are an exciting opportunity for investors to be part of a young, promising company’s early success. But, the IPO markets also have been a new frontier for fraudsters seeking to use demat account based on investors’ enthusiasm and FOMO (fear of missing out) for illegitimate gains. Scammers try to fleece the general public using a variety of tactics, such as penny stocks schemes, false price floors, and pump-and-dump schemes, to name just a few.
IPO scams are on the rise, as evidenced in public reports, and investors must be careful when investing in IPOs. Although the investment industry has several robust monitoring and fraud prevention mechanisms, some IPO scams can be cleverly disguised and have affected even experienced investors in the past. Here are some steps to avoid IPO scams while investing in public offerings. Check more on the upcoming ipo.
Research the company before investing
IPOs come with initial SEC 424B4 filings, public performance reports, and other disclosures. Analyzing these documents for risks, management strength, and business model viability is crucial. Check the SEC’s EDGAR database to find the financial filings of the company. Specifically, read the prospectus filed with the U.S Securities and Operations Commission (SEC) before investing using demat accounts for your savings.
Beware of Fraudulent Investment Advisers
Beware of fraudsters who present themselves as investment advisers with skilled advisory teams or firms that guarantee high returns from investing solely in IPOs. They will ask you to hand over your funds or sign-up for their service that provides early access to attractive investment opportunities. Do your own research before signing up for investment management services or trusting someone else to make your investment choices. Check more on the upcoming ipo.
Consult licensed investment professionals.
Consult with a licensed investment adviser using a demat account, broker, or consultant before making an IPO investment. The advisor must be duly licensed in your jurisdiction and have clients of good reputation. You can review their credentials, credentials, and track records. Evaluating the history of their professional track records, quality of advice, suitability, and conflict of interest prevention mechanisms in their advice is important. An investment adviser is made accountable by regulation and compliance mechanisms and puts you in a stronger negotiating position.
Don’t buy into false price floors.
Some IPO scams create false price floors to trick investors into thinking that the investment shares are available at a bargain price. You may have received texts, emails, or unsolicited investment advice, or you may have seen posters advertising this “next big thing.” You must conduct your own research or consult an expert investment advisor to determine whether the price you pay is fair based on the performance history, industry standing, and other crucial factors. Furthermore, it’s better to avoid buying any shares sold by parties outside of the underwriter. Check more on the upcoming ipo.
Don’t participate in Pump-and-Dump Scams
Another common IPO scam is a pump-and-dump scheme. It involves less reputable firms that inflate the value of their weak or non-existent stock. In that case, the price of stocks skyrockets, investors buy in droves, and then the insider team sells these stocks off and pockets the profits before the stock’s value drops like a rock. In this scenario, individual investors lose significantly.