The fake allocation: anatomy of a pre-IPO scam

InvestNow Fraud & Scams Center · Updated for 2026

The pitch arrives with a name you know — a rocket company, an AI lab, the startup everyone wants — and a story about access: a fund with “excess allocation,” an insider “forced to sell,” a block that must move “before the news.” The scheme needs the name because the name does the diligence in your head. What it can never produce is the thing that matters: verifiable shares.

The script, beat by beat

First, borrowed credibility — real company, fabricated connection. Second, manufactured scarcity: a deadline, a shrinking allocation, other buyers “circling.” Third, plausible paperwork: subscription documents and statements that look right because they were copied from real ones. Fourth, the isolation move — “keep this confidential; the allocation is invitation-only” — which conveniently keeps you from asking anyone who’d recognize the fraud. Last, the wire, usually to an LLC or offshore account with a name close enough to pass a glance.

What real access looks like

Genuine secondary shares have a chain you can verify: a named seller, a company transfer process (consent, ROFR, ledger update), and settlement through escrow or custody — never a stranger’s account. Real sellers survive verification questions; a request to speak to the company’s transfer agent doesn’t end real deals. And nobody — nobody — can guarantee an IPO or its price.

The five-minute test

Ask for the share class and how the seller acquired it; ask which transfer process applies and who at the company confirms it; ask where funds are escrowed; then verify each answer independently. Fake allocations fail this test every time, because the shares aren’t there to verify. If one fails on you, keep everything and report — SEC (sec.gov/tcr), IC3.gov, your bank for recall — fast. The Fraud & Scams Center lists every reporting channel.

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