Scam - Investment in restricted US shares

Some of the firms’ offer schemes based on US restricted shares, where the investors are lured into buying some non-listed US shares i.e. the shares that are rejected or not listed to US stock exchange as they do not meet the regulatory standards – also called the Regulation S shares. There are restrictions in the US on the sale of such shares to non-US buyers. Fraudsters may offer discounts on the price of such shares or discounts, which are mostly taken as fee by the broker himself.

How it works?

If you buy such controlled shares (restricted shares), you may be asked to remain invested for a specified duration, to earn money from its sale, which, as promised by the firm, may become saleable on completion of the investment duration.  These cannot be sold to US buyers due to restrictions, or one will have to pay heavy legal charges for lifting the restrictions.

Once the term of investment is over, a US lawyer is hired to remove the restrictions on the sale of such shares. Paying fees to the legal advisor can cost you more than the shares itself.

Investors are often caught up in scams where they are guaranteed - no legal hassles on sale of such US shares.

People are assured there will be no restrictions on investment, and they are given advice to remain invested, or are ensured of no loss on investment on paying a minimum fee. These are scams where the investor may not receive the amount he is promised.  

How to prevent such scams?

Find out more about share trade in US and regulations involved in sale of such unregistered shares. Check the status of the firm offering the scheme and warning list at authorised government sites. One can look into the US SEC to know more about investing in shares and bonds.  Also check FINRA to find out more about such schemes.

People who have already invested in restricted shares will have to pay to US lawyer to uplift the restrictions on trade of such shares and the investor will have to pay a fee, which may involve the administrative fee.

One can wait for few months and hold the shares, or wait until it automatically becomes tradable, although, there is no guarantee that these shares will become tradable in a few months. Especially, if it is purchased from unauthorised sellers, it can hold no value in the end.  

You can even try to sell the stock with private buyers. It happens in conditions when the restrictions are not there but the shares cannot be sold. One will not be able to sell it in US markets and may have to seek for clients to buy it. Even some authorised UK brokers are unable to trade such shares.  

The investors can check such deals with SEC and know more about restrictions on such deals.

How to avoid it?

Do not be pressurised into buying such shares, if the investors contacts you upfront through emails and mobile phone, and is claiming to get you exceptional returns.

Contact an expert (the one authorised by the authorities), and get a proper supervision into such deals to prevent frauds.  The firm invested in should be authorised / registered by the government, or you can find a financial advisor or authorised website such as PIMFA to know more about such deals.

If you have already invested or are considering investment in such deals, the scammers may call you again once the deal is over or give your money back offers for a small fee. Report about such calls immediately to the consumer helpline number, more than ever, in case, you suspect a future scam.