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Tim Harper has written several excellent articles on Prime Bank schemes and offshore investment scams. He has graciously consented to have a few of them reproduced here. For more information about this freelance writer and his work visit www.timharper.com He is the author of License to Steal: The Secret World of Wall Street Brokers and the Systematic Plundering of the American Investors. The book recently won a Book of the Year 2000 award from the American Society of Journalists and Authors. Too Good To Be True: The Lure of Offshore Investing A self-employed nutritionist was trying to pay for her elderly mother's nursing care. An executive was looking for capital to start his own business. A business consultant wanted to increase an inheritance to pay for her own retirement. A wealthy charity worker was seeking seed money for a new foundation. A software engineer and web site architect simply was investing for a better return on his money. Those people all trusted a long-haired man in flowing robes who refused to tell them much about himself, even his real name, but persuaded them that he could help them earn huge returns, up to 200% a year, in offshore investments.The five investors put hundreds of thousands of dollars into those offshore investments. They were told, among other things, that their money would be used to buy and sell super-secret bank notes that are traded among the world's largest financial institutions. They were warned that lawyers, accountants, bankers and law enforcement officials would deny that such investments even exist. In the end, all five lost every penny they invested. When they protested, they were warned that if they complained to the authorities, the investors themselves could be targeted by the FBI and the IRS. This is just one of many offshore scams and frauds going on every day, according to authorities. They ensnare a broad range of people. Some are crooks, and some are model citizens. Some are sophisticated investors, and some are novices who have never owned a stock or bond. Some are government-hating, privacy-loving conspiracy theorists trying to snatch a share of the riches they think the wealthy and powerful get from manipulating world financial markets. And some simply want to hit the big time. Take the case of software engineer and Web site designer Bob Giuli. Based in Carson City, Nevada, he has helped design Internet sites for the Los Angeles Times, Sun Microsystems, Siemens, Oracle, Motorola, Lucent and other Fortune 500 companies. He runs his own business, has interests in other companies and has been involved in many different types of investments. He regarded himself as a sophisticated investor, and most other people would regard him as one, too -- at least until he went offshore.For years, Giuli had heard vague things about the advantages of investing offshore. Last year, he decided it was time to learn more. He got in touch with a firm that sponsors informational seminars on offshore investing. In April 1999, Giuli went on a weeklong Caribbean cruise that featured a program of lectures and discussions on offshore investing. One of the speakers was Taansen Fairmont Sumeru, who described his book Sovereignty Consciousness and his theory that new technology is making the traditional concept of government outdated. His message was that every person could be a world citizen -- in effect, his or her own sovereign, with no allegiance or obligations, including the requirement to pay taxes to governments formed under the old notion of nationhood. Giuli, a high-tech entrepreneur and self-made man who believes governments can and do impose on people's natural rights, was intrigued with Sumeru, beginning with his appearance -- a slender, balding, middle-aged white American who wore silky pajamas and robes, with his hair flowing down his back and mustaches that reached down his chest. Amid the other more buttoned-down speakers who talked earnestly and urgently about investing and tax avoidance, Sumeru generated an aura of calm and peace. After Sumeru's lecture, he and Bob Giuli talked. They went to dinner with Shirsha, the woman Sumeru calls his consort. Sumeru told Giuli about some of his own offshore investments, particularly Quantum Gold, a commodities fund based in the Bahamas that was offering 10% to 14% interest -- per month. Investors pooled their funds, Giuli was told, and an expert commodities trader managed it. They talked about meditating, and Giuli learned that Sumeru was a longtime transcendental meditation instructor who had been living in Santa Barbara, California, for several years. Taansen Sumeru was a name he had taken for "spiritual reasons" years before, but he did not volunteer his original name or other details about his past. "He seemed responsible, spiritual," Giuli said. "He was very charismatic." Giuli was particularly struck with the way that Sumeru (pronounced soo-MARE-oo) talked about abundance, and how accumulating wealth was part of the "natural way of the universe." Giuli, like other investors, was impressed that Sumeru did not seem particularly concerned about making money. He told them about investments and told them how they could get in on those investments, but he never seemed pushy. He wanted to get to know Giuli personally and was keen to share ideas on how people can "evolve" to do good in the world. Even when Sumeru could not or would not answer specific questions about the investments, Giuli and others did not feel like they were about to be cheated. They figured that Sumeru did not know or care about the gritty details of how the money was made. Sumeru seemed above all that. Back home, Giuli read Sovereignty Consciousness and began meditating. He also moved quickly to invest in Quantum Gold. He returned forms that Sumeru asked him to sign, including a non-disclosure agreement prohibiting investors from divulging details of the investment. Another form was a non-solicitation agreement requiring investors to assert that they came to Sumeru asking for information and that he had not solicited investments from them or offered investment advice. The printed materials Sumeru sent to Giuli said in part: "An old age is dying and a new age is being born. The new age is one of the decentralization of power, and the spread of power and freedom to individuals planetwide. Congratulations on being among those rising into these higher ways of living." Sumeru also required potential investors to write a letter about their work, their "philosophical background" and what they would do with the money. They were asked to tell him whether they practiced meditation, and if so what kind. And they were asked what they thought of his book, available online for $17. "If we feel you are okay, the Quantum packet will be sent to you," Sumeru's printed materials advised. Giuli filled out the forms, received a Quantum Gold application from Sumeru, filled that out and then mailed it back to Sumeru's address -- Mail Boxes Etc. in Santa Barbara. In June 1999, he deposited $150,000 in Quantum Gold, wiring the money to the coordinates, a Barclays Bank in New York, given him by Sumeru. He assumed Sumeru was getting a commission on his deposit, presumably at least $15,000, since materials from Quantum Gold offered 10% commissions to "intermediaries" for bringing in new deposits. Giuli received a statement from Quantum Gold on August 10, 1999, showing that his account had risen to $166,113.93 -- an increase of more than 10%. He thought about taking some out, he said, but he consulted Sumeru, who convinced him to let it roll. The next statement, on September 10, showed $182,723.32 -- up 10%. On September 28, Giuli faxed Quantum Gold asking for $50,000 out of his account.He never got it. He never got back any of the money he invested in Quantum Gold, interest or principal. At least, Giuli said, he was smart enough not to put any money into another offshore investment recommended by Sumeru. It was a bank founded by Sumeru himself in 1999, as he was telling Giuli and other investors about Quantum Gold. Sumeru urged them to put money into his new bank based in the island nation of Grenada -- supposedly a better, safer and more profitable investment than Quantum Gold. The Sattva Investment Bank, the Bank of World Peace, would pay interest of up to 200% a year on certificates of deposit, Sumeru said. Giuli said many Quantum Gold investors also put money into Sattva, but he fortunately decided to wait to see how Quantum Gold performed. Sumeru explained that Sattva Bank would earn its remarkable returns not from commodities trading, like Quantum Gold, but from "high-yield investment programs" operating in complex, little-known areas of high finance typically available only to the top banks in the world. According to Sumeru and others who promote them through small offshore banks, these prime bank instruments, also known as "prime bank debentures," "prime bank guarantees," "medium term notes," and "standby letters of credit," allow the World Bank, the Federal Reserve and the biggest banks in the world to move money back and forth by discounting large notes they trade among themselves.A key selling point used by Sumeru and the many others who promote prime bank instruments around the world is that governments and large banks do not want investors to know that such notes even exist. The con men's line goes something like this: "Banks will tell you these notes don't exist. Government agencies will tell you that you're being swindled. Don't listen to them. They're just trying to keep these huge profits for themselves." The sales pitch appeals to the many people who are suspicious of governments and banks anyway and who think that "the establishment" is conspiring to hoard wealth and keep common people from getting rich, too. The con men warn them that no one will confirm the existence of prime bank notes and, sure enough, no one does. Taansen Sumeru's Sattva Bank was supposed to have access to these high-yield bank trading programs through First International Bank of Grenada, a relatively new bank founded by Van Arthur Brink, who was known as Gilbert Ziegler when he grew up and worked in Oregon. Ziegler, 49, arrived in Grenada in 1997 traveling on a passport
from the Dominion of Melchizedek, an "ecclesiastical state" that
apparently exists only on the Internet, the Los Angeles Times reported
in a recent story about the bank. Gigi Carroll, a travel agent who arranged transportation and hotels for participants in some offshore information seminars where Sumeru spoke, laughed at Sumeru's assertions that he did not actively advise or encourage people to invest. "He solicited people. People came to him, and he made recommendations," she said in a telephone interview. She speculated that the reason he required people to sign a nonsolicitation agreement was to protect himself from securities laws. " I always wondered why he wanted those letters if he wasn't soliciting," she said.Carroll said she invested $10,000 in Quantum Gold. She heard Sumeru and his clients talking about how much money they were earning. She didn't realize until it was too late that those profits were all on paper. "I got beautiful invoices every month. On paper it was going up," she said. But that's all she ever got -- beautiful invoices. She never got any of her money back. A number of people, including Bob Giuli, said they were suffering not only financial losses but also "spiritual abuse." He believed he had found in Sumeru a kindred soul, someone who was different than most financial advisers, someone who could be trusted and would never intentionally hurt others, much less steal their money. One woman who invested in Quantum Gold said she trusted Sumeru because of his transcendental meditation connections. Carole Speight, who grew up in Dallas and moved to Hawaii several years ago to start a TM center, said a fellow meditator in Hawaii introduced her to Sumeru. The two of them told her about Quantum Gold. Speight, who prefers to be called Lalita, admitted that she was and is an inexperienced, unsophisticated investor. But her 90-year-old mother needed extensive nursing and medical care, and Lalita was afraid her mother's $30,000 in life savings would quickly be eaten up. On the other hand, Quantum Gold's promised 10% to 14% monthly returns would provide a steady cash flow for her mother's expenses. So Lalita put her mother's $30,000 savings, plus another $10,000 she borrowed against a credit card, into Quantum Gold. She believed her mother would receive at least $4,000 a month from that $40,000 investment. Lalita, who works as an herbal nutritionist and no longer practices TM, never received any monthly payments. When she wrote to Sumeru asking what had happened, he wrote back that he was not at fault. "The caveat emptor was very clear in the contract," he told her. "No guarantees. Period. Each investor was given the responsibility upon himself or herself to accept the risk. The risk was clearly stated. By speaking in a poisonous way to me, you are only amusing and saddening me. You are biting the very hand that could be a blessing to you." Sumeru blamed the Quantum Gold problems on "dark forces." When Lalita suggested hiring a private investigator, Sumeru told her that he already had arranged for an investigator to work on the case, but could not give her any details: "All I know is that a recent acquaintance who is on a very, very high level in the trading and financial world was sympathetic to my description of what happened to the Q investors, and he called one of his very highly placed investigators. He did this only on the condition that his name stay out of any mention to anyone else, because he has a powerful career and has no direct concern with our problem." Finally, Sumeru scolded her: "Rather than contributing to the solution, you have simply consumed my time, and you have shown no respect for the blessings I have been trying to bring to the world." Lalita said she talked with the FBI in Hawaii, but decided against pursuing criminal charges -- for now -- because it is still difficult for her to believe that she was intentionally cheated. "I thought, these people can't be criminals, they're my friends. They're meditators," she said. Besides Sumeru's laid-back, peace-and-love appeal, some investors were all too eager to disdain the normal returns available to the unadventurous and supposedly uninformed masses -- people who put their money into traditional banks, mutual funds and even a raging bull market. A Santa Barbara business consultant who inherited $150,000 wanted to put it away for her retirement, but she decided traditional bank returns and mutual funds did not pay enough. She talked to several stockbrokers, but didn't trust them. Speaking on the condition of anonymity, she recalled, "I was drawn in by the spiritual aura of Taansen." She also believed what he told her about prime bank notes. It made sense to her that the government would deny that prime bank notes exist. She was convinced that government and bank conspiracies keep everyday people poor and ignorant, and the warnings about prime bank notes were mere scare tactics so that the banks would not have to share those profits with anyone else. She said that after she invested in Sattva Bank, she began recruiting friends to invest. Sumeru told her she would be rewarded as a registered contractor (RC), and would receive commissions. A few weeks later, after she reckoned that she would be owed at least $25,000 in commissions, she asked Sumeru when she would start getting the money. He told her that he and other bank officials had decided she could not be an RC after all. "He told me I was not spiritually evolved enough," she said. Incredibly, she said she is preparing to invest $50,000 in another offshore program promising returns of 100% or more a year from prime bank note trading. Yes, she knows that the government says prime bank notes do not exist, but she said, "I do believe they exist." Her $150,000 loss the first time, she insisted, was merely bad luck, the result of investing with the wrong people. On the new investment, she said, she had found the right people, people she could trust. Another California investor, speaking on the condition of anonymity, said the thing that attracted him to Sattva Bank was Sumeru's assurance that the bank's emphasis was going to be on attracting investors who wanted to use their high returns for good works. " It was philanthropic. It was a way to make money and to do good," said the investor, who has done considerable volunteer work with charities and foundations. "One person wanted to start a cancer clinic, and they thought the bank would help." Other investors were raising money for foundations and charitable programs to help children, the poor and deprived ethnic minorities, he said."A lot of people today are trying to reconcile spirituality and money. Here's a guy who comes along and says he's figured that out. They take your vision or your project you're involved with, and they describe how you can accomplish that. It's a pretty compelling thing," he said. The investor said he had hoped to make enough money to finance a new charitable foundation of his own. He admitted, however, that 200% annual returns also were attractive to him as a personal investor, and so was Sumeru's offer for each investor to become a "conduit" or agent who could get commissions for getting their friends and relatives to make deposits, too. "The bank attracted a certain kind of people -- naïve, for sure, but they were interested in putting forward some kind of social project," the California investor said. "They played upon the good intentions of the investors. It was so insidious." He said that when he complained to Sumeru and other officials of Sattva Bank, they claimed that they had lost their money, too, and warned him that asking questions could jeopardize the return of everybody's money. "That enabled them to say they were in the same boat we were in. There was a lot of blaming the victims. They said, ‘Because you're asking questions, you're creating fear.' Their response was, ‘That hurts what we're trying to do.'" He concluded: "I can't tell you how many people I've heard from who have been devastated, common people -- people all over the world, people living on farms, people trying to send their kids to college." Unhappy investors set up e-mailing lists and newsgroups to share information and try to lay the groundwork for an effort to recover their money. Many of the postings railed against Brink and Sumeru, and there was considerable discussion about Quantum Gold's assertions that the money apparently had been taken by the fund's commodities trader, identified by Quantum Gold as Peter Dennis, who supposedly was handling the Quantum Gold money. A number of e-mail updates from Quantum Gold, signed only by the "administration," reported
on efforts to track down Peter Dennis, urged investors to be patient,
cautioned against asking too many questions for fear of slowing
down the investigation, and ultimately asked investors to send
in more money to help pay for the recovery. Last August, Grenada's government took over First Bank operations. The government announced that funds were missing, and that it was cooperating in an investigation with the U.S. Department of Justice and the FBI. For the first time, Grenada government officials publicly expressed doubt about First Bank. They admitted to the Associated Press that they did not know if the bank's reported income for 1999 --$26 billion -- was accurate. If true, that would have made it the most profitable company in the world. The government official put in charge of the bank's operations said it appeared that millions had been taken out of First Bank by Brink and various associates.Bob Giuli and other investors hired a private investigator, Lyle Smith, president of Intercontinental Capital Management, Ltd., of Sacramento, California, who specializes in recovering foreign assets. Giuli, who has prepared a 105-page declaration for use in any legal action, said he hopes that criminal charges can be brought against Sumeru. He said he had not been in contact with the FBI, but other U.S. investors have told him they are cooperating with authorities. "It is my testimony that the net effect of solicitations of Dr. Taansen Fairmont Sumeru, Ph.D., is in violation of United States Code in multiple instances, he did profit by these transactions, that he did collect money through the mails, and last that he has, individually or in concert with others, failed to honor written warranties, failing to return invested monies," Giuli said in his declaration. However, the private investigator, Lyle Smith, said he will concentrate on recovering assets. He said he was uncertain about what charges could be brought against Sumeru. "He never touched any money directly. He knew better than that," Smith said. Giuli and other investors also hired a Grenada law firm and obtained an order from the Grenada Supreme Court that restrains Brink, Sumeru, Quantum Gold, First Bank, Sattva Bank and others from spending any of the up to $372 million that the investors say they invested. In a telephone interview and in e-mail exchanges this fall, Sumeru seemed bewildered that the investments have gone sour, and that anyone would blame him. He said he does not feel that he has done anything wrong. He emphasized that he has not fled, that he is still in Santa Barbara, and that he is still talking to investors. However, about a month later, Sumeru was making plans to leave the country in search of a "spiritual community" where he could settle. Sumeru insisted that he had no idea where the missing money might be. He said he still believes that prime bank notes are real, and it is possible -- as Brink claims -- that the money was secretly seized by governments and big banks that want to keep the public from learning about prime bank notes. However, Sumeru also said he reluctantly accepts the possibility that Brink absconded with money from First Bank. "Some people are firmly convinced he is a crook," Sumeru said in an e-mail. "Others are firmly convinced he is a victim. I really don't know. I wish I did. Time well tell." No matter who took the money, Sumeru said he, too, was a victim who had lost money. Unlike investors in his bank, however, Sumeru refused to divulge any particulars: How much he had invested, how much he had withdrawn in commissions or interest, and how much he was owed in commissions and interest. Brink, in an exchange of e-mails from Uganda for this article, said he did not have any of the money. He intimated that the money had been spirited away and that he had been defamed in the media as part of a conspiracy that included American intelligence agents and the Organization for Economic Cooperation and Development. The Paris-based OECD, made up of 29 of the world's most industrialized countries, has been spearheading an international effort to clean up banking practices in tax havens known for secrecy, fraud and money-laundering. In response to a question about whether investors would ever get their money back, Brink said, "Not if the forces (OECD-oriented operatives/sympathizers) that wish to crush private offshore banking have their way." Brink said it is understandable for Sumeru to suspect him of taking the missing money: "Taansen is a genuinely sincere man and, I believe, an honest man. Taansen now suggests that it now appears that I ran off with a lot of money? My guess is that he's in the infancy of his awakening to how truth is mishandled in the press. But since he's a good man and an intelligent man, he'll figure it out on his own soon enough." Brink also suggested that Sumeru might be distancing himself from Brink publicly because Sumeru would need credibility before offering any new investment opportunities to friends and acquaintances. After being interviewed for this article, Sumeru put forth a number of friends and business associates to vouch for his character. Even those who had invested with Quantum Gold or Sattva Bank and lost their money said they did not blame Sumeru. But everyone who spoke up for Sumeru had one thing in common with the unhappy investors: they had all lost money. One man, Ed Spencer, who said he is an Alaska-based businessman and traveling Baptist evangelist, said he bought CDs in Sattva Bank. He said he believes he may have been defrauded, but added, "Taansen had nothing to do with it.""The problem apparently was with First Bank's management," Spencer said. An Australian woman, a mother of two young children who said she manages money she inherited, said she had been friendly with Sumeru for several years. Speaking on the condition of anonymity, she said Sumeru had "referred" her to Quantum Gold and received a commission from her deposit. But she emphasized that she did not blame him for what appears to be a lost investment. She said other investors have made Sumeru out to be the bad guy because of his appearance and his beliefs. "Taansen is being targeted irresponsibly, simply because he is different," she said. "I'm not happy with my investment choices, but I'm willing to accept the responsibility for my decisions." She said she is not convinced that Bob Giuli or anyone else can produce any evidence against Sumeru. So where are the missing funds from Quantum Gold, First International Bank of Grenada and Sattva Bank? Where's the money? Who can answer the questions about what happened to the Quantum Gold and First Bank money? Bob Giuli believes Taansen Sumeru can answer all the questions. But Taansen Sumeru is not answering any more questions. In his last telephone interview for this story, he said he had been "bankrupted" by the Quantum Gold and Sattva Bank scandals and had been forced to give up his Santa Barbara home because he could no longer afford to live there. He said he was "going traveling," planning to visit a series of "spiritual communities" around the world in hopes of finding one where he would settle. The Santa Barbara woman who lost $150,000 in Sattva Bank said she believes Sumeru is trying to avoid prosecution. "I think he is a scared little rabbit," she said. "The problem is we trusted him," Bob Giuli said. "We had confidence in him. But the word ‘con' comes from confidence." Giuli knows it will be difficult to find any of the missing money, let alone retrieve it, and it will be difficult to bring criminal charges against Sumeru or Brink or anyone else. "The secrecy laws are rigid in these countries," he said. "The problem is that the laws not only protect the innocent, but they also protect the guilty." The paper trail is convoluted, and parts of it are either missing or obscured by the offshore banking structures that allow fraud to hide behind secrecy laws. A PricewaterhouseCoopers creditor's liquidation report contains the results of an analysis of the hard drive taken from Van Brink's laptop, which shows that about 80% of the settings on his browser pointed to porn sites. They also discovered the bogus assets "assignment" to FIBG of the "carved red ruby" which was said to be known as "Boy on a Water Buffalo". $470,403 of assets have been recovered so far and it is estimated that "net realizations before professional fees and other administrative costs will range from a high of $7.4 million to a low of $1.7 million". They also estimate that $125 million of clients' principal was deposited at FIBG and its many sub-banks, which is down from the estimate of $206 million when the liquidation began. The liquidator says that finding out what happened to clients' funds and establishing accurate figures for FIBG's assets and liabilities has been difficult because of the chaos in which it was operated. Many records have disappeared, along with the people who operated the bank. Offshore Alert says that Van Brink is currently hiding out in Uganda. Authorities say it is difficult to recover money lost in offshore scams and difficult to send the con men to prison. Frauds are often hard to prove, with convoluted paper trails stretching across many different jurisdictions. Offshore scams have become so prevalent that authorities simply don't have the resources to prosecute them all. In addition, many victims are reluctant to help authorities. Some refuse to believe they were conned. Some are too embarrassed to admit it. And many fear that they will get in trouble themselves -- for evading taxes, for example, or illegally hiding assets -- if they step forward. A number of investors who lost money in Quantum Gold or Sattva Bank
said they were considering going to law enforcement authorities, but
they were afraid. SEC Rules Against Offshore Scams Investors who believe they have been the victims of an offshore securities fraud should remember that the Securities and Exchange Commission regulates only the issuers and sellers of securities -- not buyers. " There are no provisions that prohibit people from buying illegal securities -- only against selling them," said John Heine, a spokesman for the SEC.People selling securities or advising on investments -- offshore or onshore -- are subject to prosecution for a number of potential violations, including:
In addition to SEC violations, people promoting offshore investments may also face prosecution for mail fraud -- using mail to send promotional materials for investments that may be illegal or fraudulent. |
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