If someone approaches you about investing in a Prime Bank investment program, walk away. Do not give them your time or money. It’s a scam.
There is an undercurrent of distrust in the financial markets, thinking that the big players have some secret way to make massive amounts of money with no risk. What better way to prey on this distrust that to hook a gullible target into investing alongside these players in this dark, international market.
The fraudsters have an air of secrecy and promise extraordinary returns to leverage the acquisition of prime bank instruments. For some reason, these prime banks sell notes at greatly reduced prices to quickly and secretly raise capital.
The SEC recently shut down one of this scams. Unfortunately, the fraudsters managed to lure in 45 investors and $3.6 million of their cash. The fraudsters added a new wrinkle to the scam by promising to keep the investors’ cash in an attorney’s escrow account until the attorney received proof that the bank had received a stand-by letter of credit which the investors were leasing from a European banking group.
“Leasing” a standby letter of credit?!?
Even after falling for that, there was the lure of a respectable attorney holding their cash. Unfortunately, the Securities and Exchange Commission claims that the attorney, Bernard H. Butts, was in on the scam. (It’s up to the SEC to prove his guilt.)
Interestingly, Butts himself had apparently fallen for an investment scam. According to news report, he had apparently “invested” with Jason Meyer who held out no-risk investments in Mexican historic bonds, tropical timber and fantasy Ecuadorean gold mines. Meyer had claimed that Butts’ initial investment was performing well and arranged to have $1 million of profit wired back. Instead, Butts doubled down and reinvested that cash. Then he sent another $1 million for more investments. Meyer was fraudster. Butts lost nearly all of that cash.
What motivated Butts to get involved in the prime bank scam? Maybe he had learned techniques from Meyer. Maybe he was desperately trying to get back some of the cash he had lost. Maybe he was duped into acting as escrow agent and didn’t realize there was a scam going on again.
But we can learn from this. There is no such thing as a lucrative market for prime bank investments.
References:
- Prime Bank Investment Fraud in Investor.gov
- How Prime Bank Frauds Work by the Securities and Exchange Commission
- SEC Halts Florida-Based Prime Bank Investment Scheme
- SEC Complaint against Bernard H. Butts, Jr., Fotios Geivelis, Jr., and Worldwide Funding III (.pdf)
- Promised returns never materialized, investors allege
- Rochester Man Pleads Guilty to Wire Fraud and Money Laundering
I was approached by a group looking to do Prime Bank Guarantees about 15 years ago. Two very legitimate guys, one an ex-exec at the Fed in Minneapolis. They asked me if I could help them document the deal and get involved as a partner and were convinced we were going to make a fortune handling about $5B of these transactions. It got to the point that we even opened up a bank account so that our commissions could be wired in. The whole thing smelled, but we spent some time trying to see if this was real on the theory that “there must be a pony in here somewhere”. Every time someone asked us for any up front money, we declined. We also declined from asking for any money from anyone else. Thankfully. About 6 weeks into the back and forth on this, I read an article in WSJ regarding this fraud. I sent this off to my “partners” and happily went along my merry way, albeit with my dreams of owning the Celtics forever dashed.
Even smart people and financially savvy people can be trapped by this scam. See Sam Israel’s downfall with the Bayou Fund: https://www.compliancebuilding.com/2013/07/29/the-fall-of-sam-israel/.
There is the obvious lure of a good investment with big players. But I think there is some deep down, primal instinct that there is a hidden market out there where the super elite have an easy way to make money.