Pre-IPO Investment Lawyer: Private Company Shares, SPVs and Platform Losses

What Is a Pre-IPO Investment?

A pre-IPO investment is a purchase of shares, or an interest in shares, of a private company that has not yet had an IPO. Because the company is private, its shares do not trade on an exchange and there is no public price. Many are sold as private placements under the Securities and Exchange Commission's ("SEC's") Regulation D ("Reg D"), usually to "accredited investors."

Most investors in these deals do not buy the company's stock directly. They buy units in a special purpose vehicle ("SPV") or fund that says it owns, or will acquire, shares of one private company, often bought from early employees or investors on the secondary market.

The SEC and FINRA have both warned investors about pre-IPO offerings. The SEC notes that many pre-IPO offerings marketed to the general public may be illegal, because many registration exemptions do not allow broad offers to the public. In investor guidance published in 2026, FINRA warned that some pre-IPO offerings are outright scams.

SPV Layering: You May Own Less Than You Think

FINRA has warned that a pre-IPO fund may own the company's stock only indirectly, "leaving you several layers removed from the actual stock." Each layer matters:

• No direct ownership. You own an interest in a vehicle, not shares of the company. If the vehicle's paperwork is defective or its manager fails, your rights may depend on a bankruptcy or receivership court.

• Fees at every level. Each layer can charge its own management fee, a share of the profits and other costs, so the company must grow a great deal before you make money.

• Transfer restrictions. Many private companies must approve any transfer of their shares. FINRA warns that without that approval the transaction might be void, and the fund could end up not owning the stock.

• The shares may not exist. FINRA warns that some managers cannot get, or do not own, the shares they claim.

The Hidden Cost: Undisclosed Markups

The biggest cost in many pre-IPO deals is one you never see on a statement: the markup. The seller buys shares at one price and sells them to you, or to an SPV you invest in, at a much higher price, while telling you that you are paying the "market" price.

The SEC's investor alert warns that promoters may claim there are "no upfront fees" while charging exorbitant, undisclosed markups. In an August 2026 case, the SEC alleged that one promoter's funds told investors they would pay no upfront fees, or at most 12.5%, when the prices investors paid were on average about 46% higher than what the promoter paid. For FINRA member firms, FINRA Rule 2121 requires prices and commissions that are fair, and FINRA's own guidance says a firm's contemporaneous cost is usually the best evidence of the market price.

Illiquidity: Your Money Can Be Locked Up for Years

There is generally no market to sell an SPV interest into. You may have to wait for an IPO, an acquisition or a tender offer, and even after an IPO, lock-up periods can delay a sale. FINRA cautions that the company may never go public. If the platform or SPV manager fails first, your interest can be tied up in court.

The Linqto Collapse

Linqto, Inc. was an online platform that let investors buy units in SPVs tied to private companies. In March 2025 it suspended its platform, and in July 2025 it filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas. In its first-day filing, Linqto stated that customers "do not hold title to or direct beneficial interests in" the underlying shares. The bankruptcy court confirmed a plan of reorganization in February 2026.

In September 2026, federal prosecutors in Manhattan unsealed an indictment charging Linqto's founder, William Sarris, with securities fraud, broker-dealer fraud, wire fraud and conspiracy. According to the U.S. Attorney's Office, the indictment alleges that Linqto charged a median markup of about 60%, with some markups exceeding 200%, while telling customers they were buying at "market" prices, and that the scheme drew over $450 million from more than 13,000 customers. A former chief executive pleaded guilty and is cooperating. In October 2026, the SEC filed a civil complaint against both men in federal court in California, alleging misleading pricing, false claims that offerings were "sold out," and sales to investors who were not accredited. These are allegations. Mr. Sarris is presumed innocent unless and until proven guilty.

Who Can Be Responsible?

Pre-IPO losses can involve several different parties, and which ones you can pursue, and where, depends on who did what:

• The brokerage firm or platform. If a FINRA member brokerage firm sold you the investment, you can generally bring a claim in FINRA arbitration. A platform that is not a FINRA member may be pursued in court or in the arbitration forum its customer agreement names.

• Your financial advisor. A financial advisor who recommended the deal can be responsible for that recommendation, and the firm can be responsible for supervising them.

• Sponsors, SPV managers and executives. Fund managers, promoters and company insiders who are not FINRA members cannot be taken to FINRA arbitration, but may face claims in court under federal and state securities laws, including claims against people who control the seller.

• Bankruptcy. Claims against a bankrupt platform generally go through its bankruptcy case. Claims against separate parties, such as the firm that recommended the investment, may continue outside it.

Which Rules Apply?

Under the SEC's Regulation Best Interest ("Reg BI"), a brokerage firm and its financial advisors must act in your best interest when they recommend an investment, and may not put their own interests ahead of yours. That includes understanding the product's risks, rewards and costs, and having a reasonable basis to believe it is in your best interest given your age, goals, finances and risk tolerance. The SEC has made clear that cost must always be considered, and that a firm generally should consider reasonably available alternatives. For private placements, SEC staff say firms generally should apply heightened scrutiny and ask whether lower-risk or less complex options could meet the same goals. Reg BI protects accredited investors too.

Brokerage firms must also reasonably investigate any private placement they recommend. In Regulatory Notice 23-08, FINRA reminded firms that this means, at a minimum, looking into the issuer and its management, business prospects and assets, the claims being made and how the money will be used. In its 2025 regulatory oversight report, FINRA flagged pre-IPO private placements as an emerging problem. It found that some firms failed to disclose selling compensation and failed to confirm that the issuer actually held or had access to the shares it was selling. Firms must also supervise their financial advisors and act on red flags.

Common Claims in Pre-IPO Cases

• Reg BI violations: an illiquid, high-cost, single-company bet that was not in your best interest given your age, goals, need for access to your money, or its cost compared with reasonably available alternatives.

• Undisclosed markups and fees: a price far above what the seller paid, hidden behind claims of "market" pricing or "no upfront fees."

• Failure to investigate: a firm that never confirmed the SPV actually owned, or could get, the shares it was selling.

• Misrepresentation and omission: false scarcity ("only a few shares left"), promises of a quick IPO, or silence about the SPV layers and transfer restrictions. See fraud and misrepresentation.

• Unregistered sales: offerings sold to investors who did not qualify, or without a valid exemption.

• Overconcentration and failure to supervise: too much of your savings in one or several private companies, unchecked by the firm.

When many investors bought through the same platform, financial advisor or firm, see group cases.

Warning Signs in Your Account

• You were told you were buying "shares" of a famous company, but your paperwork names an LLC, a "series" or a fund.

• You were never told what the seller paid for the shares.

• You were pushed to buy fast because supply was "almost gone."

• You cannot sell, and no one will tell you what your interest is worth.

• You are retired or nearing retirement, and a large share of your 401(k) and IRA savings went into private companies. See poor retirement advice and senior fraud and elder abuse.

How Brokerage Firms Defend These Cases

Daren spent years on the defense side, so he knows the playbook:

• "The offering documents said there could be a markup." Saying there "may" be a markup is not the same as disclosing how large it was. FINRA has cited decisions holding that written disclosures in an offering memorandum do not excuse misleading oral statements.

• "You wanted in on the hot company." Wanting a famous name does not make a high-cost, illiquid SPV in your best interest.

• "The platform failed, not us." The question is whether the firm reasonably investigated the deal, and whether it should have been recommended to you at all.

Documents That Help

• The private placement memorandum, subscription agreement, SPV or series operating agreement and any sales materials

• Your purchase confirmations, showing the price you paid per share or unit

• Screenshots, emails or texts about pricing, availability or "sold out" offerings

• Account statements and any bankruptcy or receivership notices

• Account opening forms and any accredited investor questionnaire

• Emails, texts and your notes of calls with your financial advisor

Deadlines

Under FINRA Rule 12206, a claim cannot be brought in FINRA arbitration once six years have passed since the event that gave rise to it. Other legal deadlines can be much shorter. Some federal securities claims, for example, must be brought within one year, and bankruptcy cases set their own deadlines. If you suspect a problem, talk to a lawyer promptly.

Why Investors Choose Daren A. Luma

Daren has 26 years of extensive experience in litigation, arbitration and regulatory matters involving the financial industry. He worked for 10 years at one of the largest defense law firms in the world, representing financial firms in litigation, arbitration and regulatory matters, and before that served as in-house counsel at one of the largest brokerage firms. He has seen how brokerage firms review customer complaints and build their defenses, and he now uses that experience for investors. Since founding the firm in 2018, he has represented over 400 clients and recovered over $130mm for investment victims. Prior results do not guarantee a similar outcome. He personally handles each case from start to finish.

• Strong Reputation — Over 26 years of practice specialized in the financial industry. I’ve achieved successful results in a wide variety of legal forums. Since 2018, I have represented over 400 investment victims and successfully recovered over $130 million for them.

• Individualized Attention — At my firm, unlike some securities litigation firms, you can trust that your case will be handled from start to finish by me instead of being handed off to a lower-level associate without the requisite knowledge or experience.

• Strategic Counsel — With experience as in-house counsel within a large brokerage firm and 10 years with one of the largest (defense) law firms in the world, I offer clients a well-rounded perspective on their investment loss issue. From there, my firm develops a comprehensive plan to achieve the best possible outcome.

Fees

Your first consultation is free and carries no obligation. Investor cases are handled on a contingency fee basis, with no hourly fees, and the firm is paid only if you recover.* How case costs and expenses are handled depends on the case and the client, and is discussed at your free consultation. In FINRA arbitration, each side generally pays its own lawyer and an award of attorney's fees is not automatic, which makes choosing the right lawyer even more important.

More on Private Placements and Alternative Investments

Pre-IPO deals are a type of private placement. See private placements, non-traded real estate investment trusts ("REITs") and business development companies ("BDCs") and alternative investments for the other products we handle, and Ponzi schemes if the shares were never bought at all.

Frequently Asked Questions

I bought through Linqto. Do I have a claim?

It depends on who sold or recommended the investment, what you were told, and what has happened in Linqto's bankruptcy. If a financial advisor or brokerage firm recommended Linqto or its SPVs to you, you may have a claim against them that is separate from the bankruptcy. A free consultation can sort out which paths are open.

The platform says I own units in an SPV, not shares. Does that matter?

Yes. You are relying on the SPV's paperwork and its manager, not on direct ownership of the company's stock, and each layer can add fees and risk. Whether that was explained to you can matter to a claim.

The company went public. Why did I still lose money?

Because the price you paid, including any markup and fees, may have been higher than the company's value even after the IPO, and lock-ups can delay a sale while the price falls. A gain for the company is not always a gain for you.

Lost Money in a Pre-IPO Investment?

If a financial advisor, brokerage firm or platform sold you pre-IPO shares or SPV units that were not in your best interest, or misled you about what you were paying, talk to Daren before a deadline passes. Call (914) 304-4051 or request a free consultation. The consultation is free, and investor cases are handled on a contingency fee basis, with no hourly fees: the firm is paid only if you recover.*

*Investor cases are handled on a contingency fee basis, with no hourly fees. How case costs and expenses are handled depends on the case and the client, and is discussed at your free consultation.

Attorney Advertising. Prior results do not guarantee a similar outcome. This page provides general information, not legal advice, and contacting the firm does not create an attorney-client relationship. Responsible attorney: Daren A. Luma, Daren A. Luma, PLLC, 75 South Broadway, Suite 400, White Plains, NY 10601, (914) 304-4051.

Share certificate photo: Julie Ceccaldi, CC0 1.0, via Wikimedia Commons. SPV layering diagram: Daren A. Luma, PLLC (original).