SEBON Warns Against Illegal Share Trading in the Name of Pre-IPO

The Securities Board of Nepal (SEBON) has warned that buying or selling shares in the name of “pre-IPO” is illegal and punishable under existing laws.

The board issued a public notice on Monday stating that any share transactions without SEBON’s approval are unlawful. The warning comes after a growing trend where companies are reportedly raising funds through pre-IPO schemes by charging prices higher than the face value of shares, even before issuing an Initial Public Offering (IPO).

SEBON said it has received complaints from investors alleging that various entities have been soliciting funds through unauthorized channels, particularly social media, under the pretext of selling shares before a public issuance. The board urged investors not to engage in such transactions and clarified that there is no legal provision for pre-IPO trading under current regulations.

According to Section 29(1) of the Securities Act, 2063, if an institution intends to sell securities to more than 50 individuals at once, the company must conduct a public issue. SEBON emphasized that no company is allowed to publicly buy or sell shares without the regulator’s approval. Any activities violating these provisions will be deemed punishable.

Reports indicate that some investment firms are inviting investors to purchase founder shares of companies planning to go public in the future. One investor shared that such firms promise a tenfold return after the three-year lock-in period ends.

“I was approached to buy founder shares of a pharmaceutical company at Rs 100 per share with assurances that the price would exceed Rs 1,000 within three years,” the investor said. He added that many of his friends have already invested millions under similar promises.

“This is not a new issue,” the investor remarked. “It used to happen informally in the past, but now it has become institutionalized.” He admitted to having purchased pre-IPO shares of one or two companies in the past but stressed that such practices should now be stopped as regulators are trying to make the securities market more transparent.

He further noted that some investors engaging in these deals are now demanding that the rule against having multiple beneficiary accounts be relaxed, as they want to manage multiple shareholdings acquired through these informal transactions.

SEBON has reiterated its call for investors to avoid falling prey to fraudulent schemes, warning that the lure of quick profits could result in significant financial losses.