Red flags for flashy IPOs

Robinhood, the flashy trading platform that appeals to many novice investors and has powered some stocks to dizzying heights, has debuted as a public company.

Earlier this year, Robinhood took heat for blocking customers from buying shares of stocks that had been boosted by social media hype. It paid a record $70 million to settle an industry watchdog’s allegations, including that it issued misleading information.

The Securities and Exchange Commission warns of a significant risk of loss in short-term investing based on social media buzz and potential market manipulation. Mobile apps make it easy for small investors to trade. But inducements such as free initial stock can cause problems.

Robinhood took the unusual step in its IPO of

offering a large portion of shares to its customers, ideally putting ordinary investors on a closer footing with the financial institutions that typically corner an IPO.

IPOs in general can be risky investments, so it’s important to review offering documents and to research an IPO. Useful information includes the risk factors identified by management.