It may have been one of the biggest bloopers in the stock market this year.
In October, when Twitter Inc. announced its impending IPO, thousands of eager stock buyers raced to be the first to invest.
Unfortunately, they swooped in a tad too quickly. Instead of buying Twitter shares, those investors wound up purchasing thousands of shares of a bankrupt electronics company, Tweeter Home Entertainment Inc.
The real Twitter went public Thursday morning.
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This mix-up is not the only example of investor folly tied to recent news events, say securities regulators.
"Twitter was the biggest reason we're alerting investors, but we've seen other circumstances where investors buy large quantities of bankrupt companies," said Gerri Walsh, vice president for investor education at the Financial Industry Regulatory Authority, or FINRA, which oversees the securities industry. "It doesn't happen every day, but it does happen when there's big news about a company or an IPO."
News events can shake, rattle and roll investors, both those who make their own mistakes or those who fall victim to scam artists.
Currently, there's also a buzz connected to another source of potential stock scams: legal marijuana. Now that 20 states allow medical marijuana and two — Colorado and Washington — have legalized recreational use, FINRA is warning consumers about scams involving cannabis-related stocks.
"When the next big thing is in the news," said Walsh, "fraudsters start swimming like sharks." And with more than 20,000 companies listed on U.S. stock exchanges, investors have plenty of opportunities to either fumble or be defrauded.
Here's how to avoid those mistakes:
Check the symbols: Most U.S. stocks have three- or four-letter ticker symbols, some of which can sound confusingly similar. Check the symbols carefully, especially if it ends in the letter "Q."
When a company enters bankruptcy, a "Q" is often added to its ticker symbol. That's your tip-off that the stock is risky. (It's also how Tweeter's symbol TWTR became TWTRQ.) Typically, those stocks no longer qualify to be listed on the NYSE or Nasdaq but instead are traded on over-the-counter markets, such as the OTC Bulletin Board or the Pink Sheets.
Ask 'Why Me?' Prior to a company going public and actually issuing shares, scam artists may try to entice unsuspecting investors into "exclusive," pre-IPO offers that supposedly no one else can obtain. These come-ons can arrive by phone, email and tweets, or online via social media sites or investing blogs.
"When somebody comes to you with a deal, you need to ask some hard-hitting questions: Why me? Why would they give me this opportunity?" Walsh said.
Check the licensing: "So often, the frauds we see are unregistered professionals selling unregistered securities," said Walsh. Use FINRA's Broker Check, at Brokercheck.finra.org, to be sure the investment broker is registered and doesn't have a serious complaint history. If it's an IPO, check that it's registered with the Securities and Exchange Commission.
Know where it trades: If a company is listed on the NYSE or Nasdaq, there are certain standards of financial soundness that must be met in order to be listed. But over-the-counter stocks aren't required to meet stringent standards; they often trade infrequently and can have highly volatile prices.
Do your research: Check the SEC's EDGAR database to get details on a company's revenue, growth projections and history. Read the prospectus. Remember that just because a company has registered with the SEC does not mean it's necessarily a good investment. On its website, the SEC notes that it reviews a company's filing for compliance with reporting requirements but that "is not a guarantee that a company's disclosure is complete or accurate."
Also, look beyond a company's self-promotions.
Be cautious: When looking at an initial public offering, investors should not leap in too quickly, as IPOs can be risky. For tips on IPOs, go to SEC.gov and search for "Investing in an IPO."
Also, some investors mistakenly figure that buying a company's shares during bankruptcy is a shrewd investment because the share price will jump when the company is reorganized. But that's often not the case. Typically, when a company emerges from bankruptcy, its old shares are canceled and the company resumes trading with a new ticker symbol, as happened with General Motors. In most cases, the old shares become worthless.