Prime
Bank Investment Scams
Are Making A Comeback
By Kathy Kristof
Richard
Sutherland doesn't consider himself a gullible man. But he got
taken and taken big in a scam that is once again sweeping the
country.
So-called prime bank
and high-yield investment schemes, which all but died out in
the late 1990s, are making a comeback as some investors, weary
of the bear market, grasp at any chance for better returns. These
cons, which promise "guaranteed" double-digit returns,
are particularly attractive to older investors who are struggling
to squeeze extra dollars out of their fixed-income investments
at a time when money market yields are running at less than 1
percent.
"Prime bank scams
were very common in the mid-'90s but died off a little,"
said Steven Olson, assistant U.S. attorney in Los Angeles. "Now
they're roaring back."
| Although
it's difficult to quantify the prevalence of prime bank fraud,
the scams have snared so many hapless investors that nine government
agencies post warnings about the schemes on their Web sites. "This is just symptomatic of the infection in the entire economy," said Sutherland, a 62-year-old Los Altos, CA, salesman who lost $75,000 in a Los Angeles-based prime bank con. "People are being devastated and wiped out by these supposed legitimate businesses." Last month, FBI agents nabbed suspected con artists while executing arrest and search warrants in a 17-city sweep that stretched from Los Angeles and Sacramento to Denver, Dallas, New Orleans, Boston and New York. Together, these suspects were believed to have defrauded U.S. investors of $500 million. "Even though the FBI is preoccupied with tracking down terrorists, we are not going to let greedy individuals empty the pockets of unsuspecting investors," FBI Director Robert S. Mueller III said in announcing the sweep. "Putting an end to high-dollar frauds and other white-collar crimes continues to be one of our top priorities." |
Don't Fall Victim To Prime Bank Cons So-called prime bank scams are making a comeback, according to law enforcement officials. Here are some clues to help investors spot these cons:
In
general, keep in mind this adage: If an investment opportunity
appears to be too good to be true, it is. |
Most prime bank pitches follow the same pattern, said Keith Slotter, chief of the FBI's financial crimes section in Washington. A con artist, usually working by phone or e-mail, dangles "secret" international banking deals that supposedly were available only to the very rich until now. Using a combination of real banking-industry jargon and gibberish, the con artist goes on to explain that he has a connection with one of only a handful of traders able to tap a worldwide lending market in which banks pay one another for loan commitments.
According to the pitch, the loan commitments - sometimes referred to as "prime bank notes," hence the scam's name are discounted and sold in fast-paced trading from one bank to another as banks with lots of cash lend money to banks that need cash. For example, a commitment to lend $100,000 might sell for $60,000 in the first round, then go for $80,000 hours later to another supposedly more cash-strapped institution.
The con artist assures his mark that investors able to buy the commitment in the first round make huge profits in a matter of hours. Concerns about risk usually are addressed with promises of escrow accounts and bonds issued by big insurance companies.
However, there are no discounted loans, no escrow accounts, no bonds. Typically, investors' cash is used to finance a lavish lifestyle for the con artist.
Two Southern California men John M. Thomas and Cenobio Herrera Lanz used money from Sutherland and other victims to buy cars and real estate. Both men pleaded guilty to wire fraud charges. They were sentenced to prison and ordered to pay $1.6 million in restitution.
But Sutherland, who says he also won a civil judgment against the two men, knows there is little chance he will ever get back a penny of his $75,000.
"It's gone," he said.
Caroline Harris, a Memphis, TN, retiree whose husband invested $50,000 in the same con, said she realized early on that their money was lost. But her husband spent an additional $50,000 on cell phone bills and private investigators trying to recover the investment before law enforcement stepped in and arrested the perpetrators, she said.
The net $100,000 loss drained the couple's retirement savings. Now they live on a pension and Social Security.
"My husband is a very sweet, kind, loving, gullible guy. He fell for the snow job," said Caroline Harris. "We could not afford to lose that money - not even close. But it's done. Forget it."
Harris has this advice to others: "If somebody approaches you with some get-rich-quick scheme, run the other way. Don't get involved. It's just a scam. If you haven't sent your ship out, dadgummit, it's not going to come in."
Editor's Note: Kathy Kristof, a Los Angeles Times business writer, reports on a wide range of personal finance issues. She offers specific, actionable advice knowledge about handling finances successfully. In addition to writing, she is a frequent lecturer at investment conferences. She's also appeared on a wide variety of radio and television news programs.
© 2003 Tribune Media Services, Inc.
