Find out how restricted US shares work, how to avoid scams and what to do if you are scammed.
The sale of restricted or controlled US shares isn’t always a scam, however it’s often not made clear to investors that they can be very difficult or expensive to trade.
The restriction comes from a US ruling that allows firms in America to sell stocks that don’t meet listings standards (and therefore have tight restrictions on their sale in the US) to non-US investors.
These shares are often issued at a discount to their normal US price, but most of this discount is kept by the broker.
Restricted or controlled shares are also known as ‘Regulation S shares’.
We are aware that scammers are targeting consumers searching for investments online, in particular through search engines like Google and Bing. Although some scammers offer high returns to tempt you into investing, they may also offer realistic returns to make their offer appear more legitimate. Those offering or promoting products or investment opportunities found through search engines are not necessarily authorised or regulated by the FCA. You can check the FCA Warning List for firms to avoid.
How restricted US shares scams work
If you buy restricted or controlled US shares, you will have to keep them for a set period, usually six months or one year. You can’t sell them back to buyers in the US during this time without paying to lift the restriction.
Once the holding period has passed, you have to pay a US lawyer to remove the legal restriction from the share certificate before selling the shares, which could cost more than your shares are worth.
For this reason, investors are often targeted by scams offering to get the restriction removed or saying they can minimise the loss on the investment.
But this is often a scam and you are unlikely to ever receive the money from the sale of the shares.
Find out more about share fraud and boiler rooms.
How to protect yourself
Firms authorised by the FCA are unlikely to contact you out of the blue with an offer to buy or sell shares.
You should check how you can sell the shares before investing – check with the US financial services regulator, The US Securities and Exchange Commission (SEC).
If you have already bought restricted or controlled shares, you generally have three options:
1. Pay a US lawyer to have the restrictions lifted
This will make the shares tradable but is also likely to involve an administrative fee.
2. Wait for the six-month or one-year holding period to end
The restriction will then be lifted and the shares may become tradable. However, there is no guarantee your shares will have held their value by the end of this period. If you purchased them from an unauthorised broker, it is likely they will have little or no value.
3. Arrange for a private sale of your stock
It will be difficult for you to sell the shares privately before the restriction has lapsed. As restricted shares can’t be traded in the US while the restriction is in place, you will be faced with a limited market. Authorised UK brokers are also unlikely to help you with arranging a sale or giving you advice about restricted shares.
Always be wary if you’re contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true.
You should seriously consider seeking financial advice or guidance before investing. You should make sure that any firm you deal with is regulated by us and never take investment advice from the company that contacted you, as this may be part of the scam.
Read more about how to find an adviser.
If you have been scammed
If you have already invested in a scam, fraudsters are likely to target you again or sell your details to other criminals.
The follow-up scam may be completely separate or related to the previous fraud, such as an offer to get your money back or to buy back the investment after you pay a fee.
If you have any concerns at all about a potential scam, contact us immediately.