Bank Debentures and High-Yield Investment Programs
Also known as (among others):
High-Yield Bank Notes
Guaranteed Bank Notes
Intermediate Bank Notes
Medium-Term Bank Notes
High-Yield Investment Programs (HYIP)
Bank Debenture Trading Program
Bank Debenture Roll Program
Seasoned Bank Debentures
Collateral First Debentures
Fresh Cut Bank Debentures
Renting or Leasing of Treasury Securities
Blocking of Assigned Treasury Securities
"Limited Edition" Treasury Securities
U.S. Dollar Bonds
Federal Notes
De-Facto Treasury Securities
High-Yield Promissory Notes
Generally
Much like the Pure Trust scam, this scam uses many names and company fronts, which boil down to this: a very high return on your investment (with, of course, no risk). Folks, the "riskless" rate of return is about 5-6%, per year. Anything else has some risk attached to it.
Of course, the opening chapter of the scam is that there is an entire banking and trading system which is not open to the general public (but of course, you and 10 friends can get in, IF YOU HURRY). This sort of trading produces AMAZING returns, usually at least 50% for short term trades, but often more like 1,000% returns per month with no risk.
This is of course, false.
The Contents of the Scam
The scam revolves around a "secret private banking system." This, of course, sounds very sexy to the average Joe who banks at his local retail bank and earns a paltry 2-3% interest on his account. Of course, this "secret private banking system" is only open to the rich, and "you don't qualify to place $10 million with them, so you are out of luck, UNLESS you pool your money in with other investors you too can participate in this institutional trading and also make at least 50% on your money in the short term. I have already got $1 million in it with other people, so if you put your money with me I can get you the 50% on it."
The Scam
Result #1: You invest your money. You lost it. The end. Very common.
Result #2: You invest some money, say $1,000. A couple of days later, the scam artist comes to you and says "You have done really, really well. You're $1,000 is now $10,000." You are thrilled, and invest your entire life savings of $150,000. Now, of course, the scammer sends you a new report showing that your investment has grown to $1.25 million. You show these reports to all your friends and get them into it, too. One day, however, you attempt to actually OBTAIN some of this newfound wealth, and low and behold, the "money was lost through bad trades, but if you help bring some more people into the program," the nice scammer will try to get some of your money back. [NOTE the ponzi element to all of this.]
Result #3: On rare occasions, the scammer plays the victim a "three-card monte" hand, i.e., let the pasty win a few hands, and then cream him in the end. Here's how that works. You are one of the "smarter investors" so you only place $1,000 with the promoter. A week later, the promoter gives you $1,500 back. You are amazed, but still a little skeptical. You then place $20,000 with the promoter. A week later, the promoter gives you $30,000 back. Wow! You then give the promoter your life savings, say $200,000. A month goes by (without any communication), and so you call the promoter (if you can find him). Of course, your particular trade (and surprisingly, ONLY your trade) didn't work and you lost all your money. Sorry. "Oh by the way," the promoter tells you, "what you were doing was very illegal under the securities acts so whatever you do don't say anything to anybody else you will go to jail for securities violations."
Common Sense
Common sense should tell you that fantastic returns simply don't exist (except for the rare, HIGHLY RISKY AND VOLATILE micro-cap stock).
THE BIG LIE: "The U.S. government is covering up this secret banking system."
Oliver Stone would be proud. Of course, trading in currency is tightly monitored by literally hundreds of private groups worldwide, and even a small trade would instantly be recognized by these private groups.
MLM Meets the Bank Debenture
The ultimate insult is adding the multi-level marketing aspect to this scam. There are some groups selling books and tapes which for only $199 relate how to be successful in bank debenture trading programs! How about those vitamins!
Don't Believe Us? Then believe the FBI . . .
Here is a direct quote from the Fraud Alert page of the U.S. Federal Bureau of Investigations:
What is a Prime Bank Note?
International fraud artists have invented an investment scheme that offers extremely high yields in a relatively short period of time. In this scheme, they purport to have access to "bank guarantees" which they can buy at a discount and sell at a premium. By reselling the "bank guarantees" several times, they claim to be able to produce exceptional returns on investment. For example, if $10 million worth of "bank guarantees" can be sold at a two percent profit on ten separate occasions, or "tranches," the seller would receive a 20 percent profit. Such a scheme is often referred to as a "roll program." To make their schemes more enticing, con artists often refer to the "guarantees" as being issued by the world's "Prime Banks," hence the term "Prime Bank Guarantees." Other official sounding terms are also used, such as "Prime Bank Notes" and "Prime Bank Debentures." Legal documents associated with such schemes often require the victim to enter into non disclosure and non circumvention agreements, offer returns on investment in "a year and a day" and claim to use forms required by the International Chamber of Commerce (ICC). In fact, the ICC has issued a warning to all potential investors that no such investments exist.
The purpose of these frauds is generally to encourage the victim to send money to a foreign bank, where it is eventually transferred to an off-shore account that is in the control of the con artist. From there, the victim's money is used for the perpetrator's personal expenses or is laundered in an effort to make it disappear.
While foreign banks 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.
Some Tips To Help You Avoid These Frauds:
1. Think before you invest in anything. Be wary of an investment in any scheme, referred to as a "roll program," that offers unusually high yields by buying and selling anything issued by "Prime Banks."
2. As with any investment, perform due diligence. Independently verify the identity of the people involved, the veracity of the deal, and the existence of the security in which you plan to invest.
3. Be wary of business deals that require non disclosure or non circumvention agreements that are designed to prevent you from independently verifying information about the investment.
Don't believe the FBI? Then believe the SEC:
The U.S. Securities & Exchange Commission has also run warnings on this scam:
SO-CALLED "PRIME" BANK AND SIMILAR FINANCIAL INSTRUMENTS
The Securities and Exchange Commission is alerting investors to the recent rise in possibly fraudulent schemes involving the issuance, trading or use of so-called "prime" bank, "prime" European bank or "prime" [Endnote 1] world bank financial instruments. These instruments typically take the form of notes, debentures, letters of credit, and guarantees. Also typical in the offer of these instruments is the promise or guarantee of unrealistic rates of return, for example, a 150 percent annualized rate of "profits." Common targets of these schemes include both institutional and individual investors, who may also be induced to participate in possible "Ponzi" schemes involving the pooling of investors' funds to purchase "prime" bank financial instruments.
On October 21, 1993, federal financial institution supervisory agencies [Endnote 2] issued an Interagency Advisory to their regulated financial institutions. The Interagency Advisory warned of the use of schemes involving "prime" bank financial instruments and noted that: * Individuals have been improperly using the names of large, well-known domestic and foreign banks, the World Bank, and central banks in connection with their "Prime Bank" schemes. * The named institutions "had no knowledge about the unauthorized use of their names or the issuance or anything akin to 'Prime Bank'-type financial instruments." * The staffs of the federal supervisory agencies are unaware of the legitimate use of any financial instrument called a "Prime Bank" note, guarantee, letter of credit, debenture, or similar type of financial instrument. * Financial institutions should watch for the attempted use of traditional types of financial instruments that are referred to in an unconventional manner, "such as a letter of credit referencing forms allegedly produced or approved by the International Chamber of Commerce."
As to this latter point, the Interagency Advisory referred to examples of "bogus schemes involving the supposed issuance of an 'ICC 3034' or an 'ICC 3039' letter of credit by a domestic or foreign bank." The Interagency Advisory also noted that many of the illegal or dubious schemes "appear to involve overly complex loan funding mechanisms."-- In the eyes of an unsophisticated investor, this complexity may make a questionable investment appear worthwhile. The SEC warns investors and those who may advise them, particularly broker-dealers and investment advisors, of this possible hallmark of fraud and reminds them of a basic rule for avoiding securities fraud, "If it looks too good to be true, it probably is!"
ENDNOTES
[1]- These schemes do not involve the offer or sale of financial instruments issued by any financial institution having the word "prime" in its name; rather, that word (or a synonym, as in the phrase "top fifty world banks") is used to refer, generically, to financial institutions of purportedly high repute and financial soundness.
[2]- These agencies are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
See sec.gov
Still Not Convinced?
Maybe your review of actual litigation on some of these cases will convince you. Just click and read:
SEC ACTION TAKEN AGAINST:
SEC LITIGATION RELEASE LINK
Marshall Neil Craig Ronald ("Ronald"), Rudolf Alexander Victor Linschoten ("Linschoten"), and Frieda G. Freitas ("Freitas")
LITIGATION RELEASE NO. 15882 / September 16, 1998
Teddy Wayne Solomon ("Solomon"), Lisa Stevens ("Stevens") and Quantum Group ("Quantum")
LITIGATION RELEASE NO 15880 / September 14, 1998
Terry Koontz ("Koontz"), Jeffrey DeVille (J. DeVille") and Mykael DeVille (M. DeVille"), Private Pool, LLC, Richard J. Fulcher, Thomas Dolan, Lawrence E. Seppanen, Walter Lapp, and Kurt Fox
LITIGATION RELEASE NO. 15892 / September 21, 1998
Kenton Capital, Ltd. and Donald C. Wallace
LITIGATION RELEASE NO. 15945 / October 26, 1998
Unique Financial Concepts, Inc. ("Unique"), of Boca Raton, Florida; Frederick N. Hollander, Ernest J. Patti, and Nicholas D. DeAngelis
LITIGATION RELEASE NO. 15944 / October 23, 1998
Austria Trust Company, Ltd., Glen Moyer and Bobby Lee Rodgers, defendants, and City (U.K.) Ltd., relief defendant
LITIGATION RELEASE NO. 15976 / November 13, 1998
Funding Resource Group ("FRG"), Quentin D. Hix ("Hix"), Gene Coulter ("Coulter"), Steven C. Roberts ("Roberts"), MVP Network, Inc., a/k/a MVP Network (Trust) ("MVP"), FMCI Trust ("FMCI"), Funders Marketing Company, Inc. ("Funders"), Raymond G. Parr ("Parr"), Willard Vearl Smith ("Smith"). Earl D. McKinney ("McKinney"), Fortune Investments, Ltd. ("Fortune"), Robert Cord, a/k/a Robert F. Schoonover, Jr. ("Cord"), Winterhawk West Indies Ltd. ("Winterhawk"), IGW Trust ("IGW"), Carolyn Don Hicks ("Hicks") and Carl LaDane Weaver ("Weaver")
LITIGATION RELEASE NO. 15980 / November 18, 1998
Zappa International Corporation, Scott L. Simpson, Scott B. Walker, Equity Management Services, Eagle Vision Holdings Inc., Wayne Nattrass, and Westminster Trading Trust
LITIGATION RELEASE NO. 15984 / November 20, 1998
Vincent Setteducate
LITIGATION RELEASE NO. 15986 / November 24, 1998
Lennox Investment Group, Ltd. ( Lennox ), Active International, Inc. ( Active ), Randall W. Randall W. Law ( Law ), James F. Wardell ( Wardell ), Monica M. Iles ( Iles ), Frank L. Peitz ( Peitz ), and Daniel B. Benson ( Benson ), and relief defendants P.B.F. Capital Corp, Inc., Benson Financial, Inc., Robert Paladino, People s Residential Mortgage Corp., Benny Griffis, and L. E. Consultant Company
LITIGATION RELEASE NO. 15789 / June 24, 1998
Lauren D. Baumann, Accelerated Funding Mortgage Corp. ( Accelerated Funding ), Bali Financial, Inc. ( Bali Financial ), and Odyssey Financial Group, Inc. ( Odyssey Financial )
LITIGATION RELEASE NO. 15751 / May 20, 1998
George Wallace Stewart, Patrick J. Madden, Allen B. Gottlieb, Kenneth R. Lagonia, Salim El Hage, H.D. Inc., St. Barth Limited, Eastland American Bank Limited, Foreign Trade Bank International, and Mecis Insurance and Reinsurance Company
LITIGATION RELEASE NO. 15705 / April 14, 1998
Lloyd R.Winburn, Swiss Trade & Commerce Trust Ltd., and Eddie R. Blackwell, Banner Fund International
LITIGATION RELEASE NO. 15689 / March 30, 1998
Shmmuel Emmanuel Abijah Quijano ("Abijah"),Daniel T. Todt, et. al.
LITIGATION RELEASE NO. 15960 / October 28, 1998
Rob Nite, Phillip L. Thomas, David V. Simms
LITIGATION RELEASE NO. 15938 / October 19, 1998
Six Capital Corporation ("Six Capital") and Anthony Bukovich ("Bukovich"), JEROME C. PINCKNEY, RICHARD L. ARNOLD, DONALD E. ELDER, FERNANDO CRUZ, SHAUN K. R. MAXWELL
LITIGATION RELEASE NO. 15557 / November 12, 1997
ELLIS L. DEYON, BRADLEY T. GULLETT (INDIVIDUALLY, AND D.B.A. "GULLETT & ASSOCIATES"), WILLIAM HANKE, DOVE INVESTMENT GROUP, INC., AND SHERWOOD H. CRAIG
LITIGATION RELEASE NO. 15469 / September 3, 1997
Richard Warren & Associates, Inc. (RWA) and Richard E. Warren (Warren)
LITIGATION RELEASE NO. 15455/August 21, 1997
MANY MORE Such Litigation Available via a Search of the SEC non-EDGAR documents ARCHIVE
Hopefully this page has served only as a warning, and not as an epitaph. Be on the lookout for increasingly sophisticated versions of this scam.
Arnold S. Goldstein & Associates, P.A.
384 S. Military Trail
Deerfield Beach, FL 33442-3007
Phone: (954) 420-4990
Fax: (954) 698-0057 |
