Scam - Investment in restricted US shares

Some of the firms’ offer schemes are 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 the 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, mostly taken as fees by the broker himself.

How it works?

Suppose you buy such controlled shares (restricted shares). In that case, 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 selling such shares. Paying fees to the legal advisor can cost you more than the shares.

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

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

How to prevent such scams?

Find out more about share trade in the US and the regulations involved in selling 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 a US lawyer to uplift the restrictions on the trade of such shares, and the investor will have to pay a fee, which may involve an administrative fee.

One can wait a few months and hold the shares or until they automatically become 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 ultimately hold no value.  

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

Investors can check such deals with the SEC and learn more about restrictions on such deals.

How to avoid it?

Do not be pressured into buying such shares if the investors contact you upfront through emails and mobile phones and claim to get you exceptional returns.

Contact an expert (the one authorised by the authorities) and get proper supervision into such deals to prevent fraud. 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 such calls immediately to the consumer helpline number, more than ever, in case you suspect a future scam.