It seems everyday lucky investors reap millions when companies offer stock for the first time to the public. Obviously instant treasure for those in on the ground-floor. Ground-floor investments can end up in the basement. Too often, investors caught up in the hype of a new, hot issue, ignore some of the common warning signs of investing. With a hot issue, demand can exceed supply and an oversubscribed condition exists.
Underwriters allocate IPOs to their best customers.
With the deck stacked against the average investor, suspicions should be raised when a participation opportunity arises. Extreme due diligence is required. The best place to start is with the prospectus . The prospectus is a document designed to reveal all material facts about the company. Although the prospectus is the primary sales document concerning the new issue, it also is a legal document that protects issuers and underwriters from law suits.