Prime Bank Guarantee Scams Investment Fraud Schemes Offering High-Yield Instruments Scam
Impressive names used in prime bank trading programs
Your best friend, knowing you can keep a secret, introduces you to his financial advisor who agrees, after some convincing, to let you in on a special:
|bank secured trading program|
|high-yield investment program|
|bank debenture trading program|
|currency trading program|
|off balance sheet program|
|money center instrument purchase and resale program.|
which deals in the high-finance world of trading in:
|world bank paper|
|Federal Reserve notes|
|blocked fund letters|
|IMF issued bonds|
|standby letters of credit|
|prime bank notes, guarantees or debentures|
|Bills of Exchange or Bills of Equity|
|commercial bank credit lines|
|irrevocable letters of credit|
|"zero interest" credit instruments or letters of credit|
|the arbitrage of senior bank instruments|
|Medium Term Notes (MTN)|
|currencies, commodities, gold and other financial instruments.|
using one or more of the following terms
|freely negotiable, unconditional, irrevocable, clear SWIFT wire transfers|
|callable conditional sight drafts|
|international banking days|
|ICC (International Chamber of Commerce) 400/500|
|UCC (Uniform Commercial Code) form references|
|fresh-cut or seasoned paper|
|collateral houses, sources or suppliers|
|validation of the MCC (Master Collateral Commitment)|
|irrevocable, non-retractable commitment of funds to purchase instruments.|
How Prime Bank Guarantee Scams Work
They offer you extremely high yields in a relatively short period of time through access to "bank guarantees" which they say they can buy at a discount and sell shortly thereafter at an enormous premium.
You are told that institutions like pension funds stand ready to buy "Prime Bank letters of credit" from large banks, with purchases of over $100 million affording the highest return, but because regulatory restrictions prevent the banks from selling directly to institutional investors a middle man is required to handle the transaction at a contractually prearranged profit.
The big banks around the world supposedly lend each other money by issuing notes with face values of $100 million or more. These notes can be resold a number of times at a discount (profit) to other lenders so that the original issuer can reap a handsome profit in a relatively short time. The term of the notes vary from 30 days to a year or more.
As an insider they are able to buy below par at, say 77 cents then sell for 79 cents on a continuous basis. For example, if $10 million worth of "bank guarantees" can be sold at about a two percent profit on ten separate occasions, or "traunches," you will receive a 20% profit in about thirty days.
An Exclusive Club
They say that "the Rothchilds and the Rockefellers set up the process over fifty years ago during the creation of the Marshall Plan as a means of utilizing Eurodollars which were beginning to flow overseas, and to fund "off-the-balance-sheet" rebuilding projects in developing countries."
They further explain: "The prime banks have generally dealt only with the world's wealthiest, such as the Saudis or the top financiers on Wall Street, in London or Geneva but competition has opened it up." "Still, only big corporations, foreign banks and ultra-wealthy investors know about the process."
They divulge that a "Saudi oil sheik wants to invest seven billion dollars" and "the Onassis family wants to invest $250 million dollars" in this very offering which is "based on an arrangement among various governments to stabilize the Eurodollar money supply using a handful of picked traders."
You are told not to bother seeking professional advice because the information is reserved only for those who participate in the program which is 'by invitation only'. You are told that you are one of only a few people who will qualify in this undertaking along with "an elite group of investors with access to extremely valuable and highly confidential information."
The Magic of Pooling
The minimum investment can be as high as $10,000,000, either from an individual, or a group of individuals who pool their smaller investments. It's this pooling of investors' funds which gives you the resources to purchase "prime bank" financial instruments.
Brokers get involved to help small investors pool their money to build it up to the minimum $10 to $100 million. You are also told that potential annual profits of 100% or more are possible with little risk and you could yield up to five times your money in two months, with such returns guaranteed.
For Your Eyes Only
They convince you to transfer assets or borrow the money to invest in the program after signing special non-disclosure and non-circumvention agreements which prevent you from talking about the deal with anyone, including lawyers or financial advisors because you are joining "a privileged group getting in on a very exclusive investment which relies on secrecy."
All transactions are to be kept strictly confidential by all parties and for this reason no client references will be available. In an effort to lull you into inaction, they emphasize that the market for these instruments is so secret that the institutions involved and even regulatory agencies will deny the existence of the program if asked.
You risk being permanently expelled from participating in these transactions along with being hit with a massive bank-backed breach of contract lawsuit should you attempt to independently investigate the offering.
"Keep this information secret. If anyone finds out I am doing this for you, the deal is off."
You are also told not to phone the bank listed on the documents because they cannot acknowledge the existence of such an arrangement unless you are the principle investor ( $10 million on deposit ) and besides, the process is so restricted that even the low level staff, such as bank managers, wouldn't know about it even if you did ask.
He says that the returns offered are considerably higher than are available under normal market conditions and, therefore, if this activity was not kept secret it could not exist for the simple reason that it would make it very difficult for governments to fund treasury securities or for banks to offer conventional instruments such as CDs and GIC's paying far less.
"If it was widely known about, people wouldn't settle for much lower returns. They would seek out this instrument. So the only way it can be handled is on a very private basis where people make the application in highly structured ways and if allowed to participate they get access to a direct contract."
Proof of Authenticity
The notes are shown to be issued and guaranteed by large, well-known international banks like Barclays, Lloyds Bank, Chase Manhattan and Deutsche Bank.
When you ask why the banks offer the paper so cheaply they note that there are several factors involved such as:
|- the banks are currently funding credit card receivables at 28% so 2% is nothing,|
|- the International Monetary Fund is funding covert development aid to African governments,|
|- executives at the bank are taking part of the skim themselves and want it to continue,|
|- the money goes to finance international investments such as roads and health care facilities, and|
|- world bank loans to Third World countries get written off in the end.|
They tell you that they have no interest in stealing your money because they make enough from the deal already and want to have you participate in the next program so you can both get rich together.
Many exotic sounding banking terms are used which are confusing to all but the professional banker or investor. Soon you feel too self-conscious and ignorant to ask further questions. As the investment appears to involve overly complex loan funding mechanisms this makes even a questionable investment appear worthwhile.
When you ask for references you are shown high-quality documents emanating from institutions such as the U.S. Federal Reserve, the IMF, the World Bank, the Bank of England and even the Queen of England to win your confidence but, with the secrecy provisions, there is no way to check their authenticity.
They even question "your" integrity when they suggest you might have to have a background check done by Scotland Yard or Interpol to ensure that your funds are not from money laundering or drug sources.
They may offer the return of your investment in "a year and a day" and produce complex forms required by the International Chamber of Commerce (ICC) under the specific guidelines known as ICC 500.
The U.S. government issued its first warning about prime bank note frauds in 1993, but the publication of the book The Creature From Jekyll Island in 1994 by G. Edward Griffin continues to fuel new investor interest in prime bank notes. The book, which promoters of prime bank notes urge skeptics to read, describes a labyrinth of secret transactions that enable the Federal Reserve system, governments and international banks to control the U.S. and world economies.
As Secure As They Come
You may be told that as an investor, and not a principle (you don't have $10 million), you either have no personal security or that there is no need to worry because every penny is fully secured by a Letter of Credit, a bank-endorsed guarantee or other guaranteed bank certificate backed by the world's top or "prime banks." The word prime is synonymous with the phrase "top fifty world banks" and is used to refer to financial institutions of high repute and financial soundness.
They could also say it is both risk-free and sanctioned by the International Monetary Fund, that it has an "IMF Number", an "IMF Country Registration Number," or an "IMF Approval Number for Projects."
The Charity Angle
You may be told that the profits are so vast that you can’t expect to retain all the money because the Federal Reserve expects you to sponsor humanitarian projects in the Third World. They will often have set up the infrastructure and name for this benevolent organization which is simply another layer of deception to add complexity and an aura of respectability to the whole operation and to counterbalance any twinges of guilt you might have when feelings of greed pass over you.
You are then shown a full-colour glossy brochure complete with pictures of crying malnourished children, maps and graphs and are then asked to pick your favourite amongst such worthy objectives as irrigation projects, cornea transplants for the blind or Nicaraguan housing developments for the poor.
Save Taxes Too!
You are intrigued when told that it is possible for a shrewd investor to utilize a tax haven country, with their help, so that no tax need be paid on your phenomenal returns.
They encourage you to send your money to a foreign bank, where it is eventually transferred to an offshore account that is solely with in their control. Should you wish to make any trouble they will threaten to ruin your credit history with their massive, but non-existent, resources.
You are offered an investment in Global Investments Networks' "High Yield International Private Investment Program". The written materials state that the investment offers an excellent yield of 3% interest per month for a twelve-month period, with very little risk.
They include illustrations of the compounded return that can be achieved at this rate for an investment of $10,000 and multiples of $10,000. Your money is to be managed through a cooperative agreement between a program manager and a "licensed chartered bank."
The funds will be deposited into a "blocked account" at the bank. The funds are secured by a guarantee issued by a "Top Money Center Bank" and are to be used for trading bank debentures which are regulated by the International Chamber of Commerce. The materials characterize these programs as "highly privileged insider opportunities."
The materials do not identify the principals in Global Investments Network Ltd., their track record, the identity of the program manager, the bank where the funds will be deposited, the identity of the "guarantee" bank, what role or compensation Global is to receive, or what basis they have for the claim to be able to pay investors 3% per month.
The materials do include instructions on how to invest, a letter of intent and a private placement application, as well as a form to verify that you have not been convicted of a felony or involved in any white collar crimes, terrorist activities, money laundering or bank fraud.
These are to be completed by you and returned, together with proof of funds on deposit in a financial institution after which they promise to quickly relieve you of your money.
A Big One That Got Away
After a career which started as a registered rep in a small securities firm, a 69 year old MBA graduate eventually started his own firm which specialized in private placements and limited partnerships. From here he tried to get representatives at John Hancock Life Insurance Company in Boston to invest in certain "prime bank guarantees" and "standby letters of credit".
He claimed in correspondence that through these investment vehicles John Hancock would be guaranteed unusually high returns by purchasing credit instruments issued by the worlds top 100 banks at a deep discount, and then reselling them in a secondary market at a profit.
He stated that the instruments were zero-interest Standby Letters of Credit (SLCs) issued for one year and a day, and Prime Bank Guarantees (PBGs) issued for ten years and a day, and bearing interest at the rate of 7.5%, payable annually, in arrears.
He claimed that bankers have been attracted to the use of these off-balance sheet instruments because of regulatory pressure to improve capital ratios, and because they offer a way to improve the rate of return earned on their assets. Further, he stated that while their issuance was unregulated, the instruments are standardized under rules of the International Chamber of Commerce.
He offered investment packages, or roll programs, with various rates of return and minimum investment requirements of millions, to hundreds of millions, of dollars. After the first three letters had been received, John Hancock staff began questioning the legitimacy of the instruments offered and asked for verification from him.
He explained in subsequent correspondence that the instruments are not well known because they are not required to be registered; that transactions are private, almost entirely bank-to-bank; and there are strictures against solicitation.
He encouraged John Hancock representatives to learn about the instruments by requesting from their bank a letter confirming the company's availability of funds to engage in such investments. In later correspondence he said he tried to contact the banks used by John Hancock, but that "because of the extreme privacy of the transactions, and the great confidentiality with which all parties treat their relationships with all other parties, it has been slow and difficult going."
With one memorandum, he purported to attach as proof of the existence of PBGs an agent's quote on $250 billion in PBGs issued by top 25 European banks.
Eventually John Hancock representatives contacted Morgan, Lehman Brothers, Goldman Sachs, and the London office of IBCA, John Hancock's foreign bank rating agency, and received responses that confirmed that the investment scheme was likely a scam. They continued their investigation and received confirmation that the instruments were of a type found in an internationally recognized, fraudulent scheme.
Confronted with these facts the promoter stated that he believed that the securities were legitimate, and did not know that the securities did not exist. He also believed that he was to receive a commission, after the successful sale of prime bank securities, from the issuer or seller of the securities, rather than John Hancock.
You Don't Even Look Japanese
Even after being advised by his employer that Certificates A-1263 and A-1266, purportedly representing Japanese Yen Bonds valued at approximately $1.6 billion, appeared to be a scam, one broker contacted officials at Prudential Securities for the purpose of depositing the certificates for eventual sale to the public, still of the opinion that his employer did not understand these instruments.
Prudential themselves established that the certificates were fraudulent but he still arranged a meeting in New York in an unlawful effort to deposit them.
Clinging to his delusion, he later even dismissed the sworn deposition testimony of a longtime deputy of the Japanese Ministry of Finance (which stated that they were counterfeit and fictitious), because he was not the "actual" Minister of Finance.
An Attorney With Power
Continental Capital Markets, Inc. who claim to be the lawyers and trustees of several large trusts, offers an investment program in which they say that your money will be used to trade in Prime Bank instruments and discounted letters of credit. They say that they have the ability to trade the instruments at the prime banks of the world, buying them at a discount, and then selling them at a guaranteed profit. They tell you that trading in such instruments will double your money in a year's time without ever putting your money at risk.
They encourage you to travel to their intermediaries' lavish, but temporarily rented, suite of offices in London or Switzerland where cigars and brandy are offered all around. You are excited to be a part of this mysterious and affluent world of international finance as they explain how they are successfully trading millions of dollars in such instruments.
You sign a power of attorney which provides that at all times either your money or documents evidencing the purchase of these instruments will be in your account. The powers of attorney are to give them access to the money solely for the purchase of the investment instruments. They tell you that your money is safe because the account is in your name and the money can only be withdrawn in order to purchase the Prime Bank instruments.
Despite the provisions of the powers of attorney limiting its use, they withdraw your money almost as soon as it is deposited. They also arrange to have the bank send the account statements to them, rather than to you, so as to hide from you the fact that they have taken the money out of your account.
They use some of the funds to make payments back to you as interest every week or two representing the profits from trades, in order to lull you into believing that your investments are safe while they lure others into the scheme with your enthusiastic help.
The sad part is that you may not fully appreciate your true fate until years later. The brokers will keep the dream alive by saying that the profits have been reinvested and may even attempt to lure you into another scheme before you realize what you are into.
No Poor Victims Allowed
Con artists reach investors in different ways; over the phone, in person and via the Internet. One company sought investors with a web offering which referred to Bank Debenture Trading programs under the heading: "An Introduction to the International Chamber of Commerce - How the Rich Make Money."
Even group seminars are arranged for savvy investors at local hotels and convention centers where investors are told their minimum investment requirements of $25,000 will yield $1.9 million in two years.
Many prime bank scam victims are senior citizens. With interest rates at 30-year lows and the stock market setting record highs, many investors, especially the elderly who favour interest and dividend income, are vulnerable to bogus prime bank investments that promise "risk free" annual returns of 20% to 200% or more.
Individuals are not the only victims however. County treasurers and small town financial officers are considered easy prey. In New Mexico, the city of Clovis lost $3.5 million in a prime bank scheme. Victims of a $600 million prime bank fraud involving securities purportedly issued by Banka Bohemia A.S., a bank located in Prague, Czech Republic, included charitable organizations, municipalities, and other institutional investors.
For example, the National Council of Churches of Christ, a not-for-profit charitable organization, paid $7.98 million to purchase $13.2 million face value of "prime bank guarantees" purportedly issued by Banka Bohemia. The Chicago Housing Authority's Benefit Plan invested at least $12.5 million in a purported "Roll Program."
One fictitious trading program which involved the pooling of investor funds to purchase and resell deeply discounted bank instruments at a profit sold at least $6,239,000 worth of hot air to at least four groups of investors, including an Ecuadorian charity for underprivileged girls.
He lured investors into the program by saying the investments would be risk-free and would generate tremendous profits ranging from 20% to 100% at least every ten international banking days. Regardless of his "personal guarantee" they lost all of their principal.
The simple rule of investing is the higher the possible profit the higher the risk. If anyone claims that a high yield investment has no risk, don't believe it.
There are no risk-free returns of 18%; not with 30-year Treasury bonds yielding 5% today but there will always be a group of investors who insist on believing that there are "secret investments" which pay high returns with no risk.
While foreign banks do use instruments called "bank guarantees" in the same manner that U.S. banks use letters of credit to insure payment for goods in international trade, such bank guarantees are never traded or sold on any kind of market.
The International Chamber of Commerce makes rules for the conduct of trade, among them the uniform Customs and Practice for Documentary Credits (UCP), whose current version is known as UCP 500, but it does not issue or endorse any financial instruments that can be traded, nor does it provide guarantees for such instruments.
The IMF is an intergovernmental organization whose financial transactions and operations are carried out directly with its member countries and only through a fiscal agency designated by each member for this purpose (such as the member's Central Bank or its Ministry of Finance). The IMF does not operate through other agents and it does not endorse the activities of any bank, financial institution, or other public or private agency.
The Office of the Comptroller of the Currency which oversees national banks sees an increasing volume of bogus investment proposals being promoted towards banks and municipalities to leverage investment portfolios through some type of secondary market activity.
These programs purport to generate high yields - up to 10% or more per month - at no risk to the original investment because they are alleged to be under management or the personal supervision of the Federal Reserve Bank and the chairman of its board.
These programs may utilize deposit, trust, or safekeeping accounts at major financial institutions and although they purport to remain under the investor's control at all times, this is not assured because of ambiguous working, program changes, or other seemingly insignificant events that provide opportunities for access by other than the institutions authorized employees.
How Big Is Big?
According to the International Chamber of Commerce's commercial crime bureau, this type of scam involves $10 million U.S. daily in North America alone. They believe that the millions of dollars in losses reported every year represent only 10% of the total.
It is a crime which flourishes particularly strongly in today's global markets, with its voracious appetite for capital. The ease and speed with which documents and vast sums of money can be exchanged electronically makes vigilance all the more necessary.
There Must Be A Law
A number of prime bank securities fraud cases have been prosecuted by the SEC and federal criminal authorities. For example, one group which raised at least $10 million from a nonprofit corporation through the sale of prime bank notes were subsequently charged with wire fraud, money laundering and conspiracy, with sentences ranging from 11 to 19 years.
Prime bank fraud can currently be prosecuted under a variety of federal criminal statutes such as mail fraud (18 U.S.C. 1341), wire fraud (18 U.S.C. 1343) and conspiracy (18 U.S.C. 371).
Should you require more information on this topic the SEC has a special section devoted to Prime Bank Scams.
I have read your info on bank guarantees and letters of credit and how the con artist does it. When I was approached it was all very similar, placing money in an offshore account etc, but the difference was he said to me:
"Say you want to make $1 million, what you do is place about $35,000 or 3.5% in your account. That goes to The Bank of Cyprus where you are getting a corporate loan guarantee from them for $1 million with the 3.5% as security and collateral."
"That gets presented to the Deutchse Bank from the Bank of Cyprus. Deutchse Bank then releases into your account about 85% of the money. Then what you do is trade for 6 months, move money away over that time, then go into liquidation."
Does what I am saying make any sense. I would love to have your feedback on this.
One bond scam works as follows:
Client offers to come into the financial institution wanting to buy $500 million Medium term discount notes (issued by various institutions, including, ABN AMRO, Deutsche Bank and Anker Bank ) in lots of $100 million each at a price of 82% if face value.
The offer continues to state that the market value for these instruments is 95% of face value and therefore offers no risk to the Company purchasing the notes or to the lending institution. Transactions are to be done via a SWIFT Communication. Similar request may involve US Treasury medium term notes.
Paperwork falsely references Wachovia specifically and other prominent banks and broker-dealers.
These are posed as international deals and the names that are mentioned in the communication include:
Trijar Trading Company
Safekeeping Investment Trust
Michael Cottrell (Mr. Cottrell may present an Australian passport)
Vail W. Pischke
Manchester Capital Co. LTD
John C. Bright, Q.C. (Canadian)
Robert Hryniak (Canadian)
Investors United - Precursor to a book on being victimized by a high yield offering.