Terms Used in Prime Bank Investment Fraud, Medium Term Note High Yield Bank Debenture Scams
Below is a glossary of terms and promotional material taken from a Prime Bank Scheme site ( www.toerien.com ) which intermingles actual financial terminology with those used by investment fraud scammers to impress their victims.
Arbitrage
Buying securities in one country, currency or market and selling in another to take advantage of price differentials.
Articles of Association
Regulations for governing the rights and duties of the members of a company among themselves. Articles deal with internal matters such as general meetings, appointment of directors, issue and transfer of shares, dividends, accounts and audits.
Asset Protection Trust
A trust established offshore to protect settlor's assets against those who may attempt to make claims against them: creditors, former spouses and dependents on death. Some offshore jurisdictions provide protection from creditor claims against persons who have guaranteed bank loans.
Back to Back Loan
A loan structure when "A" deposits a sum of money with a bank in country "X" on condition that a related branch, agency, edge corporation or bank located in country "Y" will lend an equivalent sum to "A" or a designee in country "Y".
Bare Trusts
Also known as dry, formal, naked, passive or simple trusts. These are trusts where the trustees have no duties to perform other than to convey the trust property to the beneficiary(s) when called upon to do so.
Bear
An investor who has sold a security in the hope of buying it back at a lower price.
Bearer Share Certificate
A negotiable share certificate made out in the name of the bearer and not in the name of a particular person or organization.
Bearer Stocks/Shares
Securities for which no register of ownership is kept by the company. Dividends are not received automatically from the company and must be claimed.
Beneficial Owner
The actual or economic owner of an offshore company as distinct to the registered or nominal owner.
Best Efforts
A designation that a certain financial result is not guaranteed, but that a good faith effort will be made to provide the result that is represented.
BIS - Bank for International Settlements
Bank for International Settlements, Basle, Switzerland. The bank’s bank.
Blind Trust
A trust in which the trustees are not allowed to provide any information to the beneficiaries about the administration of the assets of the trust.
Blocked Funds
Term for "reserving" funds by one bank for the benefit of another bank. Blocking of funds is an often used banking procedure to ensure that the same funds are not used twice. Often more beneficial to an investor than a bank guarantee.
Blue Chip
Term for the most prestigious industrial shares. Originally an American term derived from the color of the highest value poker chip.
Bond
Any interest-bearing or discounted government or corporate security that obligates the issuer to pay the holder of the bond a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity. A secured bond is backed by collateral, whereas as an unsecured bond or debenture, is backed by the full faith and credit of the issuer, but not by any specified collateral.
Bridge/Mezzanine
Financing for a company expecting to go public usually within six months to a year. Often bridge financing is structured so that it can be repaid from proceeds of a public underwriting.
Broker
An intermediary. An individual or organization in-between the person/organisation that controls the funds and the provider/trader. A broker often knows someone who knows somebody else who may provide program trading. This chain of brokers is known in the business as a "daisy chain". There are thousands of "want-to-be”-, "hope-to-be”- and "wish-they-were”brokers in the high-yield business who are giving the industry a bad name.
Bull
An investor who has bought a security in the hope to make a profit from rising prices.
Buyout
Funds provided to enable operating management to acquire a product line or business, which may be at any stage of development, from either a public or private company.
Cap
An option-like contract for which the buyer pays a fee or premium, to obtain protection against a rise in a particular interest rate above a certain level. For example, an interest rate cap may cover a specified principal amount of a loan over a designated time period such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the seller of the rate cap pays the purchaser an amount of money equal to the average rate differential times the principal amount times one quarter.
Capitalization Issue
The process whereby money from a company's reserves is converted into capital and then distributed to shareholders as new shares, in proportion to their original holdings, also known as bonus or scrip issue.
Certificate of Deposit (CD)
A deposit with a fixed time period and a fixed rate of interest.
Clearing System
A mechanism for calculation of mutual positions within a group of participants with a view to facilitating the settlement of their mutual obligations on a net basis.
Collar
The simultaneous purchase of a cap and the sale of a floor with the aim of maintaining interest rates within a defined range. The premium income from the sale of the floor reduces or offsets the cost of buying the cap.
Collateral Provider
An entity which has the contractual ability to purchase bar instruments directly from the issuer. Also known as Master Collateral Commitment Holders.
Conditional S.W.I.F.T
A method which uses the Society for Worldwide Interbank Financial Telecommunications to transfer funds conditionally between banks subject to the performance of another party.
Commission
The fee that a broker charges clients for dealing on their behalf.
Commitment Holder
A wealthy private party buying guarantees from the issuing banks, reselling them to other banks/brokers. Commitment holders are not allowed to trade or do business on their own behalf. Other designation: provider.
Compound Yield
The total return on investment, consisting of the distribution (dividend, interest) and the capital gain or loss, in % of the investment amount.
Consideration
The money value of a transaction (number of shares multiplied by the price), before adding commission, stamp duty, etc.
Contract Exit for Non-performance
A conditions in a financial agreement that enables the investor to take back his funds if the result represented is not achieved.
Contract Note
The day that a transaction takes place, the broker sends the client a document detailing the transaction, including full title of the stock, price, consideration and stamp duty (if applicable).
Cover
The total net profit a company has available for distribution as dividend, divided by the amount paid, gives the number of times that the dividend is covered.
Credit Equivalent
Value amount representing the credit risk exposure in off-balance sheet transactions. In the case of derivatives, credit equivalent value represents the potential cost at current market prices of replacing the contract's cash flows in the case of default by the counter-party.
Credit Risk
The risk that a counter party to a transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss.
Currency Swaps
A transaction involving the exchange of cash flows and principal in one currency for those in another with an agreement to reverse the principal swap at a future date.
Current Account
A bank deposit that can be withdrawn by the depositor at any time.
Current Exposure Method
Term used in the Basle Capital Accord to denote a method of assessing credit risk in off-balance sheet transactions, consisting of adding the market to market replacement cost of all contracts and an amount for potential credit exposure arising from future price- or volatility changes.
Debenture
A general debt obligation backed only by the integrity of the borrower, not by collateral. Depository Trust Corporation (DTC): A domestic custodial clearing facility owned by all of the major banks and securities firms which is monitored by various banking regulatory agencies and the Securities and Exchange commission.
Demand Deposit
A bank deposit that can be withdrawn by the depositor at any time.
Demand Guarantees
General term for payment undertakings arising on the presentation of a written demand (plus possible other documents specified in the guarantee), not conditional on proof of default by the principal in the underlying transaction. They ensure often that the lender will be paid the principal on maturity and possibly, depending on the instrument, interest when due. Example: SLC’s.
Depository Trust Company (DTC)
A custodial clearing facility owned by the major banks and securities firms and monitored by various banking regulatory agencies and the Securities and Exchange Commission.
Discount
When the market price of a newly issued security is lower than the issue price. If it is higher, the difference is called a premium.
Discretionary Trust
The form of trust usually established offshore. The discretion's are vested in the trustee who can usually decide which of the beneficiaries is to benefit, when and to what extent. Discretion's are exercised under advice of, or suggestions from the settlor or protector.
Dividend
The part of a company's post-tax profits distributed to shareholders, usually expressed as an amount per share.
Domicile
The place of a person's permanent home and the means by which the person is connected with a certain system of law related to issues such as marriage, divorce, succession of estate and taxation.
Double Exit
Use of two passports for the purpose of confusion or convenience.
Draft
A signed, written order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight or at a specific date.
ECU
European Currency Unit.
EMS
European Monetary Unit.
Equity
Equity is ownership interest in a corporation, represented by the shares of stock which are held by investors.
Equity Offerings
Raising funds by offering ownership in a corporation through the issuing of shares of a corporation's common or preferred stock.
Equity Options
A class of options giving the purchaser the right but not the obligation to buy or sell an individual share, a basket of shares or an equity index at a predetermined price, on or before a fixed date.
Equity Related Loan
Equity related loans are loans convertible into equity ownership or loans collateralized with equity positions
Equity Swaps
A transaction that allows an investor to exchange the rate of return (or a component thereof) on an equity investment (an individual share, a basket or index) for the rate of return on another non-equity or equity investment.
Eurobond
A bond issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.
Eurocurrency
Currency that is owned by people not being a national of the nation that issued the currency.
Ex
Latin for 'without', the opposite of Cum. Used to indicate that the buyer is not entitled to participate in whatever forthcoming event is specified, for example, ex cap, ex dividend, ex rights.
Exercise Price
The fixed price at which an option holder has the right to buy, in the case of a call option, or to sell, in the case of a put option, the financial instrument covered by the option.
Exit Buyer
The buyer of a security arriving on the secondary (retail) market.
Expatriation
The removal of ones legal residence or citizenship from one country to another in anticipation of future restrictions on capital movements or to avoid estate taxes.
FED
Federal Reserve, the US Central Banking system, established in 1913 and responsible for managing the US Dollar, both within and outside the US.
FIBV
World Federation of Stock Exchanges.
Fresh Cut
Security arriving on the secondary (retail) market.
Fiduciary Account
An amount typically deposited with a Swiss Bank which will redeposit the sum with a third party bank outside Switzerland in its own name (to eliminate Swiss withholding tax on interest).
Final Dividend
The dividend paid by a company at the end of its financial year.
Fixed Deposit
A bank deposit for a fixed period of time.
Flight Capital
The movement of large sums of money from one country to another to escape political or economic turmoil, aggressive taxation or to seeking higher rates of interest.
Floor
A contract whereby the seller agrees to pay to the purchaser in return for the payment of a premium, the difference between current interest rates and an agreed (strike) rate times the notional amount, should interest rates fall below the agreed rate. A floor contract is effectively a string of interest rate guarantees.
Flotation
The occasion on which a company's shares are offered on a market for the first time.
Foreign Currency Account
An account maintained in a bank in another currency than the currency of the country in which the bank is located. Foreign currency accounts can be maintained for depositors by banks in the United States.
Forfaiting
The process of purchasing at a discount registered bank "paper" which will mature in the future without recourse to any previous holder of the debt-generated bank paper.
Fully Paid
Applied to new issues when the total amount payable in relation to the new shares has been paid to the company.
Futures
Securities or goods bought or sold for future delivery. There may be no intention to take them up but to rely upon price changes in order to sell at a profit before delivery.
Glass-Steagal Act
A portion of the Banking Act of 1933 which prohibits banks from entering into the securities business and prohibits securities firms from accepting deposits. However, any security which is issued or guaranteed by any bank is not subject to the Securities Act of 1933. Therefore bank instruments, by virtue of being issued by a bank, are not considered a form of securities.
Grantor Trust
Under US tax law, income of the trust is taxed as the income of the grantor.
Grossing Up
Calculation of the amount that would be required in the case of an investment subject to tax to equal the income from that investment as if it were not subject to tax.
Hard Currency
The term "hard currency" is a carry-over from the days when sound currency was freely convertible into "hard" metal, i.e. gold. It is used today to describe a currency which is sufficiently sound so that it is generally accepted internationally at face value.
Hedge Funds
Speculative funds managing investments for private investors (in the US, such funds are unregulated if the number of investors does not exceed one hundred).
Hot Money
(1) Large quantities of money that move quickly in international
currency exchanges due to speculative activity.
(2) Foreign funds temporarily transferred to a financial center and subject
to withdrawal at any moment.
Initial Margin
Initial margin is simply the minimum amount of money you must have in your account (at the close of trading) on the first day you establish a new position. Think of it as an initial requirement you must have to enter an exclusive club. In order to pass through the front door of the “Sugar Club”, you have to have at least $700 in your pocket, and it can not be $700 that you have committed to anything else.
Initial/Seed
A relatively small amount of capital provided to an investor or entrepreneur, usually to prove a concept. It may involve product development, but rarely involves initial marketing.
Insider Dealing
A criminal offense involving the purchase or sale of shares by someone who possesses inside information about a company's performance and prospects which is not yet available to the market as a whole, and which, if available, might affect the share price.
Interbank Rate of Exchange
The rate at which banks deal with each other in the market.
Interest Rate Swap
A transaction in which two counterparties exchange interest payment streams of differing character based on an underlying notional principal amount. The three main types are coupon swaps (fixed rate to floating rate in the same currency), basis swaps (one floating rate index to another floating rate index in the same currency) and cross-currency interest rate swaps (fixed rate in one currency to floating rate in another).
International Business Company (IBC)
A term used to define a variety of offshore corporate structures. Common to all IBC's are the dedication to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation and minimal filing and reporting requirements. An increasing number of offshore jurisdictions are permitting the use of nominee shareholders, directors and officers.
International Chamber of Commerce (lCC)
An international body which governs the terms and conditions of various financial transactions worldwide, it is headquartered in France and has no affiliation with the local Chamber of Commerce offices.
Investment Banks
An investment banking firm acts as underwriter or agent, serving as intermediary between an issuer of securities and the investing public. Investment bankers handle the distribution of blocks of previously issued securities, either through secondary offerings or through negotiations, maintain markets for securities already distributed, and act as finders in private placements of securities.
Investment Trust
A company whose sole business consists of buying, selling and holding shares.
IPO / Initial Public Offering
A company's first offering of stock to the public.
Key Tested Telex (KTT)
An older form of transferring funds between banks using a telex machine on which the messages are verified by use of key code numbers.
Laundering
Laundering is the process of cleaning illicitly gained money so that it appears to others to have come from, or to be going to, a legitimate source.
Letter of Intent (LOI)
A document by which the investor states that he intends to enter into a High-Yield transaction.
Letter of Wishes/Memorandum of Wishes
A document prepared by the settlor or grantor of a trust providing guidance on how trustees should exercise their discretion's.
Leverage
Company debt expressed as a percentage of equity capital. High leverage means that debts are high in relation to assets. The equivalent UK term is gearing.
Leveraged Programs
Programs which use leased assets (such a United States government obligations) to increase the amount of instruments purchased and resold for a profit. The benefit of leased assets is that such programs generate substantially larger profits.
Limit
In relation to dealing instructions, a restriction set on an order to buy or sell, specifying the minimum selling or maximum buying price.
Limited Power of Attorney
A legal document that empowers the trade manager to deal with the various parties of the transaction on behalf of the owner of the funds (the Principal). Transactions will not happen without this instrument.
Listed Company
A company that has obtained permission for its shares to be admitted to the London Stock Exchange's Official List.
Maintenance Margin
The amount of money you must have in your account after the first day. The amount is always slightly less than the Initial Margin . In other words, after the first day in the club, you no longer have to have the full $700 in reserve. You can spend a little of it, as long as you keep, say, $500 (the theoretical maintenance margin) in your pocket at all times.
Man of Straw - Straw man
Effectively a nominee settlor or grantor who creates an offshore trust but often has no further connection with the trust once it is created.
Managed Bank
An offshore bank also known as a Class "B" or Cubicle Bank. The Managed Bank is not required to maintain a physical presence in the licensing jurisdiction. Its presence in the licensing jurisdiction is passive with nominee directors and officers provided by a managing trust company with a physical presence. The Managed Bank is not permitted to transact business within the licensing jurisdiction but may maintain its books, records, etc., to assure secrecy of operations.
Margin Calls
Occur anytime your account balance falls below your total margin requirement. If you do not have enough money to satisfy your total margin requirement, you are placed on a Margin Call.Technically you have up to 5 days to satisfy a margin call, which can be done by increasing your account value or by liquidating some of your positions. Many brokerage firms, however, will insist that you correct a margin call immediately.
Medium Term Note (MTN)
When discussing bank trading programs, a standard form of debenture with a term of ten years and a annual interest rate of 7.5 %. Also known as Medium Term Debenture (MTD).
Merchant Bank
A European form of an Investment Bank.
Mini-Trust
A short (usually preprinted) form of a trust, often used as a confidentiality enhancer, to bridge the ownership and management of an International Business Company. The Mini-Trust is intended only to pass assets on the death of the settlor, i.e. a will substitute.
Money Supply
The total of all money and money substitutes (demand deposits and currency outside of banks).
MT 100 Field 72
A means of irrevocably transferring funds between banks using computers.
Mutual Legal Assistance Treaty
A treaty which provides for mutual legal assistance, including the exchange of information, etc., in cases where criminal offenses have been committed.
Net Asset Value
The value of a company after all debts have been paid, expressed as an amount per share.
Nominee Company
A company formed for the express purpose of holding securities and other assets in its name or to provide nominee directors and/or officers on behalf of clients of its parent bank or trust company.
Nominee Director
A director whose function is passive in nature. The director receives a fee for lending his or her name to the organization. Nominee directors are subject to director responsibilities.
Nominee Name
Name in which security is registered and held in trust on behalf of the beneficial owner.
Off-balance sheet financing
The process whereby a contingent (dependent on certain events) liability is not recorded as a liability on the balance sheet but typically appears in the notes to the financial statement. Off-balance sheet financing is therefore not reflected in the balance sheet total, although possible related reserves will.
Offshore Banking
By popular usage, the establishment and operation of US or foreign banks in such offshore tax havens as the Bahamas, The B.V.I. and the Cayman Islands.
Offshore Banking Unit (OBU)
A bank in an offshore financial center, not allowed to conduct business in the domestic market but only with other OBU’s or with foreign persons.
Offshore Booking Centers
An offshore financial center used by international banks as a location for "shell branches" to book certain deposits and loans. Such offshore bookings are often utilized to avoid regulatory restrictions and taxes.
Offshore Company
See International Business Company.
Offshore Financial Centers
A country or jurisdiction where an intentional attempt has been made to attract foreign business by deliberate government policy such as the enactment of secrecy laws and tax incentives.
Offshore Group of Banking Supervisors (OGBS)
Established in October 1980 at the instigation of the Basle Committee on Banking Supervision with which the Group maintains close contact. The primary objective of OGBS is to promote the effective supervision of banks in their jurisdictions and to further international cooperation in the supervision between the Offshore Banking Supervisors and between them and Basle Committee member nations and other banking supervisors.
Current OGBS members are: Aruba, Bahamas, Bahrain, Barbados, Bermuda, Cayman Islands, Cyprus, Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Lebanon, Malta, Mauritius, Netherlands Antilles, Panama, Singapore and Vanuatu.
Offshore Limited Partnership
A partnership, the general partner of which is an offshore company. The limited partners may be onshore entities.
Offshore Profit Centers
Branches of major international banks and multinational corporations located in a low tax financial center which are established for the purpose of lowering taxes.
Offshore Trust
The quality that differentiates an offshore trust from an onshore trust is portability. The offshore trust can be transferred to additional jurisdictions to maintain confidentiality and to advantage desirable facets of the new jurisdictions laws.
One-year Zeros
An obligation of a bank due in one year and sold at a discount from face value in lieu of an interest coupon.
Ordinary Shares
The most common form of shares. Holders receive dividends which vary in accordance with the profitability of the company and the recommendations of the directors. The holders of the ordinary shares are the owners of the company.
Par
Equal to the nominal or face value of a security. A bond selling at par is worth the same dollar amount as it was issued for, or at which it will the redeemed at maturity.
Parallel Account
A separate account established at the transactional bank.
Pay Order
Document which instructs a bank to pay a certain sum to a third party. Such orders are normally acknowledged by the bank which provides a guarantee that the payment will be made.
Portfolio
A collection of securities held by an investor.
Principal
The party that controls the funds and seeks a secure high-yield investment.
Private Placement
The sale of securities to a small group of investors (generally 35 or fewer) which is exempt from SEC registration requirements. The investors execute an investment letter stating that the securities are being purchased for investment without a view towards distribution.
Private Trustee Company
A company incorporated in certain offshore jurisdictions, such as Bermuda, to act as a trustee for a limited class or group of trusts. Private trustee companies are not permitted to offer trustee services to the public generally.
Privatization
Conversion of a state run company into a public company, often accompanied by a sale of its shares to the general public.
Proof of Funds (POF)
A document by which the principal's bank states that the principal owns the funds required for the transaction. Usually, proof of funds can also be delivered in the form of a recent bank-, security- or custody statement.
Proper Law
The body of law which governs the validity and interpretation of a contract or trust deed.
Protector
A person appointed by the settlor/grantor of a trust, who has limited powers to control the trustee. The protector usually has the right to change trustees.
Provider
A wealthy private party buying guarantees from the issuing banks, reselling them through banks/brokers. Other designation: commitment holder.
Purpose Trust
A trust created for an express purpose without any individually ascertained or ascertainable beneficiaries. A purpose trust is typically used in circumstances where the trust is of philanthropic nature.
Resident Company
A bank, trust company or holding company permitted to deal only in local currency. Foreign currency transactions must be approved by the appropriate regulatory authority.
Retail Buyer
The buyer of a security when it arrives on the secondary (retail) market.
Re-domiciliation Corporations
Some offshore jurisdictions allow corporations incorporated in other jurisdictions to reincorporate in their own at will.
Rights Issue
An invitation to existing shareholders to acquire additional shares in the company in proportion to the number of shares they already own - usually at a preferential price.
Roll Program
A broker term describing a trade program. The use of the term “roll program”should be avoided.
Safekeeping Receipt
A document issued by a bank which obligates the bank to unconditionally hold certain funds separate from other bank assets and return them when requested by the depositor. In this way, the funds are not an asset of the bank nor are they directly or indirectly subject to any of the bank's other obligations or debts.
Seasoned
Securities owned by a participant in the secondary (retail) market.
Secondary Public Offering
This refers to a public offering subsequent to an initial public offering. A secondary public offering can be either an issuer offering or an offering by a group that has purchased the issuer's securities in the public markets.
Secondary Purchase
Purchase of stock in a company from a shareholder, rather than purchasing stock directly from the company.
Securities
General name for shares and bonds of all types. Shares produce a variable dividend and bonds a fixed interest.
Service Company
A company located in an offshore financial center to provide management, invoicing and other services for client companies located in other countries. Initially used to advantage double taxation treaties. Service Companies are now frequently used to facilitate flight capital outflow and are often involved in money laundering schemes.
Settlement
Exchanging money or securities for securities.
SLC - Standby Letter of Credit
Stand-by Letter of Credit. A financial guarantee or performance bond issued by a bank on behalf of a customer and regulated by the ICC-500 rules.
Stages
First Stage
Financing provided to companies that have expended their initial capital and require funds, often to initiate commercial manufacturing and sales.
Second Stage
Working capital for the initial expansion of a company that is producing and shipping and has growing accounts receivable and inventories. Although the company has clearly made progress, it may not yet be showing a profit.
Third Stage
Funds provided for the major growth of a company whose sales volume is increasing and that is beginning to break even or turn profitable. These funds are typically for plant expansion, marketing and working capital development of an improved product.
Follow-on/Later Stage
A subsequent investment made by an investor who has made a previous
investment in the company -- generally a later stage investment in comparison
to the initial investment.
Sub Account (Segregated account)
Where an entity has established a relationship with a bank that includes the bank acting on the entity's behalf a sub account is opened to hold funds in the name of the entity's client. The funds can only the used according to the terms of a written agreement that is given to and approved by the bank. The funds are not considered an asset of the entity or the bank, and are not subject to the debts of either the entity or the bank if a safekeeping receipt is issued by the bank.
Sub-account (segregated account)
When a bank acts on behalf of an intermediary, a sub-account is opened for each of the intermediaries' clients, to hold their funds in their name. The account can only be operated, and the funds can only be used, according to the terms of a written agreement (Power of Attorney) that is given to, and approved by, the bank. The deposited funds are not considered intermediary assets nor bank assets if a safekeeping receipt is issued by the bank.
Time Deposit
A bank deposit that is not payable on demand.
Total Margin
Total margin for your futures account is simply all the margin requirements of all your positions added together. As long as your account balance is greater than this total, you have adequate margin.
Trade Program
A term for the participation in the buying and the selling of bank debentures.
Tranche
A specified part of a larger transaction. Each purchase and resale of a separate block of bank instruments in a trading group is known as a tranche. For example, a contract may the signed to buy 10 billion dollars worth of bank paper with an initial tranche (or purchase) of 500 million dollars.
Transfer
The form signed by the seller of a security authorizing the company to remove his name from the register and substitute that of the buyer.
Underwriting
An investment banking firm acting as underwriter sells securities from the issuing corporation to the public. A group of firms may from a syndicate to pool the risk and assure successful distribution of the issue. There are two types of underwriting arrangements: best efforts and firm commitment.
With best efforts, the underwriters have the option to buy and authority to sell securities, or if unsuccessful, may cancel the issue and forgo any fees. This arrangement is more common with speculative securities and with new companies. With a firm commitment, the underwriters purchase outright the securities being offered by the issuer.
Venture Capital
Venture Capital is the process by which investors fund early stage, more risk oriented business endeavors. A venture capital funding arrangement will typically entail relinquishing some level of ownership and control of the business. Offsetting the high risk the investor takes is the promise of high return on the investment.
The investment is usually in the form of stock or an instrument which can be converted into stock at some future date. As the business matures, an initial public offering may take place, or the business merged or sold, or other sources of capital found. Any of these would occur with the intention of buying out the venture capitalists.
Venture capitalists typically expect a 20-50% annual return on their investment at the time they are brought out. Venture capitalists typically invest in high growth companies with the potential to generate revenues of $20MM in any one company, but typical investments range from between $500,000 and $5MM. Management experience is a major consideration in evaluating financing prospects.
Warrant
A special kind of option given by the company to holders of a particular security giving them the right to subscribe for future issues, either of the same or of some other security.
White Knight
A company which rescues another which is in financial difficulty, especially one which saves a company from an unwelcome takeover bid.
Yield
The return earned on an investment taking into account the annual income and its present capital value. There are a number of different types of yield and in some cases different methods of calculating each type.
106/108% Bank Guarantee
A written guarantee issued and payable by a bank which provides for the return of the principal amount plus six or eight percent interest.
What scammers might say to convince you that Prime Bank investments are real.
Introduction
The trading in "debt instruments" is a multi trillion dollar industry worldwide. Top world banks (Money Center Banks) are authorized to issue blocks of debt instruments like Bank Purchase Orders (BPOs), Promissory Bank Notes or Mid-Term Notes (MTNs), Zero Coupon Bonds (Zeros), Documentary Letters of Credit (DLCs), Stand By Letters of Credit (SLCs), or Bank Debenture Instruments (BDls) under International Chamber of Commerce guidelines (ICC - 500 & 600).
The prices of these instruments are quoted as a percentage of the face amount of the instrument, with the initial market price being established when first issued. Thereafter, as they are resold to other banks, they are sold at escalating higher prices, thus realizing a profit on each transaction, which can take as little as one day to complete.
As these debt instruments are bought and sold within the banking community, the trading cycles generally move from the higher level banks to lower level (smaller) banks. Often they move through as many as seven or eight trading cycles, until they eventually are sold to an already contracted retail customer or "exit buyer" such as a pension fund trust fund, foundation, insurance company, security dealer, etc. that is seeking a conservative, reasonable yield investment that is suitable for 8 figure amounts.
By the time the bank debentures ultimately reach the "retail" or secondary market level, they are of course selling at substantially higher prices than when originally issued. For example, while the original issuing bank might sell a "MTW" at 80% of it's face value, by the time it finally reaches the "retail/exit" buyer it can sell for 91% to 93% of it's face value. Since these transactions are intended for large financial institutions, they are denominated in face amounts commonly ranging from US $10 million.
The key to safety and profits
The key to successful trading in Bank Instruments lies in having the contacts, initial cash resources, and wherewithal to purchase them at the maximum discount while also having the necessary resources and contacts to sell the Instruments in the higher priced secondary markets.
The real secret of successful participation lies not in knowing the how, why and wherefore of these transactions, but far more importantly, in knowing and developing a strong working relationship with the "Insiders": the Principals, Providers, Bankers, Lawyers, Brokers, and other specialized professionals who can combine their skills and connections to turn these resources into lawful, secure, and responsible programs with the maximum potential for safe gain. There has been a lot of interest expressed by persons seeking to learn more about risk free capital accumulation by participating in Forfaiting (Trading) Programs.
Essentially, we are discussing a Money Center Bank Instrument or Bank Debenture Purchase and Resale Program in which these monetary securities are bought at a beneficially lower price and then sold in the money markets at a higher price.
Before a trader commits to any transaction, they must always ensure that they have a guaranteed Exit Sale, (another party willing to purchase the bank debentures at an agreed to higher price, at the conclusion of a number of trading cycles). If no end customer is available before the transaction commences, then no trade will take place, as the trader must always protect his positions; This is, of course, vital for the maintaining of the profitability of the program.
Questions and Answers
If this is such a good investment, why have we not heard about it?
The internal trading of bank debentures is a privileged and highly lucrative profit source for participating banks, and as a result, these opportunities are not made known to the public (bank customers). It would be difficult, at best, to entice clients to purchase Certificates of Deposit, yielding 2.5% to 6%, if they were aware that other, equally secure investment accounts yielded more than ten times higher rates of return.
The banks and traders always employ the strictest non-disclosure and non-circumvention clauses in trading contacts to ensure the confidentiality of the transactions. The contracts usually contain explicit language forbidding the contracted parties to disclose any aspect of the transaction for a period of five years.
As a result, it is difficult to locate experienced individuals who are knowledgeable and willing to candidly discuss these opportunities and the high profitability associated with them, since in so doing, they would severely jeopardize their opportunity to participate in further transactions.
There are no smoke and mirrors involved; all of the trading programs are conducted under the specific guidelines set up by the International Chamber of Commerce (I.C.C.)., generally known as I.C.C. 500 & 600. The I.C.C. is the regulatory body for the World's Great Money Center Banks and is based in Paris, France. It has existed for more than 100 years, and exerts strict control on world banking procedures.
The U.S. Federal Reserve is a very important member, but unlike most other central banks, operates independently of the I.C.C., and as a result, the vast majority of U.S. citizens have not been made aware of the money making opportunities already available for forty-five years to qualified European Investors through I.C.C. affiliated banks.
A few major U.S. banks do participate from within their banking operations based in Switzerland and the Cayman Islands, but they do not normally make their programs available to Americans living in the USA, and the chances are very great that your local bank manager has absolutely no knowledge of them, and may even deny their existence.
How are the investor's funds protected?
As the funds are deposited into a transaction they are secured by a Bank Guarantee issued by a Top Money Center Bank, until the completion of the transaction and return of the proceeds to the Investor. This feature makes the investment as secure as buying a CD in a major world bank, at least for the investor with sufficient funds to get his own contract.
The return on the investment is normally not guaranteed by the bank, except for a small portion (up to 12% per year). Oftentimes the return is guaranteed by the trader, who has to perform according to the contract to stay in business.
What is a bank guarantee?
A Bank Guarantee is a bank debenture instrument (or Certificate of Deposit), usually issued by a Top Money Center Bank. Bank Guarantees in the form of Bank Debentures are not available to the general public. They are used to secure the safekeeping of clients' funds while they are committed to a forfaiting (trading) transaction.
Can I participate through my U.S. bank or brokerage firm?
There is no advantage to the U.S. Federal Reserve in making Forfaiting transactions available in the United States. Under the Glass-Steagal Act of 1933, U.S. Banks and Brokerage Houses are prohibited by law from offering such programs in the domestic markets.
In addition, as a result of the 1929 collapse, American bankers are severely inhibited by various regulatory procedures and other requirements which make it impossible for them to offer these transactions to their U.S. clients. Chances are that your attorney, banker and broker have absolutely no knowledge of these programs since they are only conducted by Top Money Center Banks located in Western Europe.
Can I go directly to a European bank to participate?
This type of trading contract is not offered as over-the-counter transactions. Forfaiting (Trading) transactions are highly privileged "insider" opportunities which are only made available to those who have qualified for participation by first completing all of the necessary documents, including bank certified proof of funds, and have followed the established protocol before they are allowed to proceed.
Any attempt to circumvent the established procedures results in automatic blacklisting of the offending party, by the applicable provider, and possible penalties with no possibility of further participation in other programs.
Can the profits be compounded?
Under I.C.C. regulations, all transactions close to new business on December 15th of the year and are not repeated in the following year. Those transactions already in place will continue through to the completion of the agreed period.
Many programs become fully subscribed in a relatively short time, and once closed to new business will not reopen. During the trading year an Investor may, subject to continuing availability, step up to another program or reinvest at the same or higher levels in the currently available program and thus maximize his returns.
Can I use U.S. Treasury Bonds, Bills or other U.S. Government Securities in a Forfaiting Program?
It is possible to use the above types of securities to participate in specific "Blocked Funds" forfaiting (trading) programs, subject to the following requirements:
a) That the securities intended for participation can be authenticated by a Top 25 West European Money Center Bank; that they carry a registered, current C.U.S.I.P. number, and that ownership in the name of the intended participant can be verified to the satisfaction of the bank.
b) That the intended participant provide, from the West European Money Center Bank, under an approved format, Bank Certified Proof of Funds and other required documentation The securities can, of course, be hypothecated to the bank for a cash loan; the cash can then be used for participation in a trading program as usual This is the preferred procedure.
What part does the I.C.C. play?
Regulation of the international banking industry is under the authority of the International Chamber of Commerce. The I.C.C. is based in Paris, France, and has been in existence for more than 100 years. The I.C.C. is the world's monetary policeman and exerts tremendous power in establishing the policies and procedures under which all international banking transactions take place.
Some indication of this can be seen when one realizes that the U.S. Federal Reserve came into being and gained acceptance in the international banking community only after it's approval was granted by the I.C.C. I.C.C 500 and 600 regulations are the controlling authority for all European and international banking transactions. These regulations are not available for public scrutiny any more than are those of the Federal Reserve in the USA.
What role is the Federal Reserve playing?
The U. S. Federal Reserve is a member of the International Chamber of Commerce. As such, it represents the U.S. Dollar, which has been used as the International Reserve Currency since the days the Bretton Woods Agreement came into effect. The Bretton Woods Agreement was signed in 1944 between the major Western Powers, and became fully effective in 1951.
The Federal Reserve regulates the supply of dollars in circulation, and as dollar credits are shipped offshore they are placed with London Bankers for entry into the worlds money markets. The London Banks have been the international monetary clearing house for hundreds of years. The vast majority of nations, large and small, entrust their funds to these bankers which have been the major managers of Eurodollars (offshore dollars) ever since the Dollar became the "pegged" currency, replacing the English Pound
The U.S. Dollar is the sole currency used in Forfaiting (Trading) Transactions, primarily because it is the accepted reserve currency, but also because of the huge amount of Eurodollars which are in circulation worldwide.
The supply of Eurodollars continues to increase on a daily basis as the U.S. Government continues to pay its international trade deficit (which amounted to $166 billion in the 1994 trading year) and national debt interest payments (which now amount to approximately US$350 billion each year) with fiat currency.
It is important to recognize that the European nations in which the Forfaiting transactions take place are financially powerful sovereign nations, with their own well regulated stable banking systems which have proven their worth and stood the test of time. These bankers report to the Federal Reserve, not in a subservient capacity, but as the managing agents for the Eurodollars engaged in transactions and general banking activity throughout the world.
It follows that the Federal Reserve, to some extent, regulates the amount of dollars available for use by the European Banks, and as Forfaiting transactions take place, they are reported to the Federal Reserve. These reports are normally not made on an individual basis, but on the overall volumes of dollars engaged in value building Forfaiting transactions, in support of the U.S. Dollar.
What is the reason for the existence of this market?
The legal and regulatory environment created by the Bretton Woods Agreement which authorized the issuance of fiat paper currencies, provides the necessary mechanism that enables the forfait trading of U.S. dollars in international markets.
The vast majority of currencies in use around the world today are fiat currencies, i.e., not backed by real assets. For example, at the time of creation (printing) by the Federal Reserve, Federal Reserve Notes are literally worth the price of the paper, ink and labor. No more and no less.
Dollar bills are non-redeemable, which means that the Federal Reserve has no obligation to make their notes good or even to hold their value stable at home or abroad. We use Federal Reserve Notes inside the USA as the accepted vehicle of exchange, and they are given value solely by our productivity, labor and taxes.
However, when we ask foreign nations to accept this paper to pay for debt service and/or trade deficit purchases of their oil cars, VCR's, machine tools, wine, food clothing etc., there has to be a process to build value for this otherwise: unsecured and non-redeemable fiat currency. This is what creates the market.
How does the process work?
This is where the European bankers come into the picture. They establish Forfaiting trades in Money Center Bank Debentures which are first issued in U.S. dollar denominations at a discounted price to the Commitment Holders of about 75 to 80 cents on the dollar.
The debentures are then placed at the disposal of major European Money Center Banks and first go into trade at about 82 cents on the dollar. Thereafter, through a series of trading transactions which build value in increments of 1, 2 or even 3 cents on the dollar, the U.S. dollar eventually reaches parity with its perceived street value on any given day.
The importance of this value building process can be seen when it is understood that these trades are taking place in multiples of hundreds of millions of dollars on a daily basis, year in and year out.
Incidentally, the reason that the value of the U.S. dollar continues to decline in world markets is because the Federal Reserve has dramatically escalated the amount of Eurodollars in circulation over the past ten years; there are many trillions in circulation around the world.
It is not a matter of the Yen or Deutche Mark "increasing" in value, as the Fed and the U.S. politicians would have you believe; it is the old rule of supply and demand. As more and more U.S. paper is put into play, the less its perceived value becomes in world markets; and the world's bankers are unwilling to exchange less of their more stable currencies for it.
Are IMF and the World Bank involved?
All fiat currencies are debt instruments, which are issued against a value building transaction. When we accept dollar loans from a U.S. bank they literally created that loan on paper, funded it with paper, and we then redeem the debt with our labor and goods, creating value for the borrowed currency in the process. The International Monetary Fund and the World Bank work to place EurodoIlar into value building projects the world over. The funds used by these organizations originate from Debenture Forfait Trading, and is yet another method to establish value for the U.S. dollar in world markets.
Where are the Money Center banks located?
Major Money Center Banks engaged in Forfaiting (Trading) transactions are primarily located in the financial centers of Paris, London, Brussels, Amsterdam, Vienna Zurich Geneva, Liechtenstein and Luxembourg. Specific banks are not disclosed to potential clients outside the parameters of an approved transaction.
The Teorien site or Turin Group is run by "Rudi" Roelof Stepanus Toerin of:
374 Nicilsan St.
WaterKloof, Pretoria, ZA 0021
South Africa
27121 460 4865
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Les Henderson
Box 159,
Azilda, ON,
P0M 1B0
