Among the regulations that could be reconsidered are traditional restrictions and an easing of a requirement that once a company has 500 shareholders it register with the SEC and disclose financial information. (Various loopholes, such as the defined difference between the reporting of a "holder of record" and a "shareholder" have allowed some companies to skirt that requirement.)

Until the rules change, investors need to be leery of any pitch to buy pre-IPO securities directly.

Recently, Finra, the largest independent securities regulator in the U.S., issued a warning that "social media has become the latest hook on which con artists can hang a scam." The regulator warns that "fraudsters dangle the promise of wealth from the sale of 'pre-IPO' shares," pointing to a 2010 federal prosecution against a self-employed securities trader who, claiming he worked for Goldman Sachs, bilked more than 50 U.S. and foreign investors out of more than $9.6 million in a series of pre-IPO scams spanning eight years.

Even the legitimate sale of unregistered shares in private transactions -- often called "private placements" -- can be "fraught with risk, including the fact that you can't be certain the company being touted will actually complete an IPO," the advisory says.

"This means you cannot be sure whether you will ever be able to sell the shares you purchased and ... the fair market value of your shares may be based solely on speculation," Finra adds. "And privately purchased shares typically come with restrictions, such as lock-up periods that prevent you from selling your shares for up to a year even if the company goes public in the interim."

As for fraud, a "promoter might be offering shares he doesn't have or that he acquired in a questionable transaction" and pre-IPO offerings "that target the general public -- especially those that are publicized through 'spam' emails -- often violate the federal securities laws."

At the very least, check on the seller's credentials; a legitimate seller of investments must be properly licensed, and his or her firm registered with Finra, the SEC or a state securities regulator.

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.


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