The purpose of this notice is to alert the public to persons who have reportedly marketed investment schemes which appear to be fraudulent. Various "prime bank" trading programs, or similar trading programs which purport to offer above average market returns with below market risk through the trading of bank instruments are fraudulent. Offering such programs, or claiming to be able to introduce investors to persons who have access to such programs, violates numerous federal laws, including
criminal laws.
It is illegal to engage in fraud in the offer or sale of a security. Under most circumstances, it is also illegal to sell securities which have not been registered with the U.S. Securities and Exchange Commission. A security includes the following items:
"note", "stock", "bond", and "debenture" as well as more general terms - "investment contract" and "any interest or instrument commonly known as a "security".
In the leading opinion, the Supreme Court of the United States held that the definition of a security includes an investment contract, which is "a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or third party..." Designating such instruments as "loans" does not alter their legal status as securities.
The Federal Bureau of Investigation as well as other federal and state agencies have identified several characteristics common to fraudulent schemes. The characteristics include:
*** Claims that investor funds can be placed in a bank account, and then used, without risk, to trade bank debentures, or other financial instruments;
*** Claims that invested funds can be used to lease or rent U.S. Treasury Obligations and then use these same leased securities as collateral for further trading programs;
*** Claims that trading Medium Term Notes (MTN's), Prime Bank Notes, or any other bank instruments, on a riskless basis, will yield above market average returns;
*** Claims that Letters of Credit or Standby Letters of Credit can be traded for profits.
In general, investment programs which offer secret, private investment markets, which offer above market rates of return with below market rates of risk, for privileged customers in Europe are fraudulent. There are no "secret" markets in Europe, or in North America, in which banks trade securities. Any representations to the contrary are fraudulent.
In addition, investment programs in which a financial institution is asked to write a letter commonly referred to as a "Blocked Funds Letter", advising that funds are available in the account, that they are "clean and of non-criminal origin" and are free of "liens or encumbrances" for a certain time frame are frequently used to perpetrate fraud schemes. These letters have no use within legitimate banking circles.
Some phrases are commonly seen in documents presented by fraudsters in the course of marketing fraudulent investment documentation. It should be treated with suspicion. these include, but are not limited to:
Non-Circumvention, Non-Disclosure
Good, Clean, Clear and of Non-Criminal orgin
Blocked Funds Investment Program
Prime Bank Trading Program
Federal Reserve Approved
Roll Programme
Irrevocable Pay Orders
Prime Bank Notes, Guarantees, Letters of Credit, Fresh Cut Paper
Sources which can corroborate the above information include:
U.S. Treasury Department
Comptroller of the Currency
Enforcement and Compliance Division
250 E. Street, SW
Washington DC 20219
Securities and Exchange Commission
San Francisco District Office
44 Montgromery Street, Suite 1100
San Francisco, CA 94104
Telephone: 202=973-3021
As noted above, the marketing of fraudulent investment schemes violates federal criminal laws. In order to report instances of suspected fraud, please contact Special Agent John M. Cauthen of the Federal Bureau of Investigation, Sacremento California Division at telephone (916)481-9110 or any of the above federal entities.
FBI Notice for your information
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