‘Prime bank’ is a term usually used to describe the top three or four dozen banks in the world. Prime banks trade high quality and low risk instruments such as world paper, International Monetary Fund bonds, and Federal Reserve notes. You should be very wary when you hear this term--it is often used by fraudsters looking to lend legitimacy to their cause. Prime bank programs often claim investors' funds will be used to purchase and trade "prime bank" financial instruments for huge gains. Unfortunately these "prime bank" instruments never exist, at least not in the hands of these third parties and people lose all of their money.

Lured by the promise of astronomical profits and the chance to be part of an exclusive, international investing program, investors are once again falling prey to bogus "prime bank" scams. These fraudulent schemes involve the purported issuance, trading, or use of so-called "prime" bank, "prime" European bank or "prime" world bank financial instruments, or other "high yield investment programs" ("HYIP"s). The fraud artists who promote these schemes often use the word "prime" – or a synonymous phrase, such as "top fifty world banks" – to cloak their programs with an air of legitimacy. They seek to mislead investors by suggesting that well regarded and financially sound institutions participate in these bogus programs. But prime bank and other related schemes have no connection whatsoever to the world's leading financial institutions or to banks with the word "prime" in their names. The Securities and Exchange Commission and other federal and state agencies are continuing to warn investors about these scams.

How Prime Bank Frauds Work

Prime bank programs often claim investors' funds will be used to purchase and trade "prime bank" financial instruments on clandestine overseas markets in order to generate huge returns in which the investor will share. However, neither these instruments, nor the markets on which they allegedly trade, exist. To give the scheme an air of legitimacy, the promoters distribute documents that appear complex, sophisticated and official. The sellers frequently tell potential investors that they have special access to programs that otherwise would be reserved for top financiers on Wall Street, or in London, Geneva or other world financial centers. Investors are also told that profits of 100% or more are possible with little risk.

Individuals and entities are targeted, including municipalities, charitable associations and other nonprofit organizations. The promoters of these schemes have demonstrated remarkable audacity, advertising in national newspapers, such as USA Today and the Wall Street Journal. Some promoters of these schemes avoid using the term "Prime Bank note," and tell prospective investors that their programs do not involve prime bank instruments in an effort to demonstrate that their programs are not fraudulent. Regardless of the terminology, the basic pitch – that the program involves trading in international financial instruments – remains the same, and investors should continue to be vigilant against such fraud.

Signs of Banking-Related Investment Fraud

Below are warning signs of prime bank or other fraudulent bank-related investment schemes.

Excessive Guaranteed Returns

These fraudulent investment pitches typically offer or guarantee spectacular returns of 20 to 200 percent monthly, absolutely risk free. Promises of unrealistic returns at no risk are hallmarks of prime bank fraud.

Fictitious Financial Instrument

Despite having credible-sounding names, the supposed "financial instruments" at the heart of any prime bank scheme simply do not exist. Exercise caution if you've been asked to invest in a debt obligation of the top 100 world banks, Medium Term Bank Notes or Debentures, Standby Letters of Credit, Bank Guarantees, an offshore trading program, a roll program, bank-issued debentures, a high yield investment program, or some variation on these descriptions. Promoters frequently claim that the offered financial instrument is issued, traded, guaranteed, or endorsed by the World Bank (Department of Institutional Integrity (INT) or Operations Evaluation Department), International Monetary Fund (IMF), Federal Reserve, Department of Treasury, International Chamber of Commerce (ICC), or an international central bank.

Extreme Secrecy

Promoters claim that transactions must be kept strictly confidential by all parties, making client references unavailable. They may characterize the transactions as the best-kept secret in the banking industry, and assert that, if asked, bank and regulatory officials would deny knowledge of such instruments. Investors may be asked to sign nondisclosure agreements.

Exclusive Opportunity

Promoters frequently claim that investment opportunities of this type are by invitation only, available to only a handful of special customers, and historically reserved for the wealthy elite.

Claims of Inordinate Complexity

Investment pitches frequently are vague about who is involved in the transaction or where the money is going. Promoters may try to explain away this lack of specificity by stating that the financial instruments are too technical or complex for non-experts to understand.

You should be especially watchful for prime-bank related schemes promoted over the Internet. Despite numerous SEC actions charging prime bank promoters with multiple violations of the federal securities laws, prime bank offerings continue to proliferate in cyberspace.

My Personal Experience with one of these Hucksters

About 8 or 9 months ago, a colleague of mine called me at work virtually breathless, telling me that I had to get to a secure phone and talk to this ‘guy’, apparently a ‘friend’ of my colleague.  This was the ‘big one’ I was told—‘just hear him out’.

Very quickly, I knew it was a ‘Prime’ scam.  Not wanting to be rude to my colleague’s friend and informing him that he was lower than a snakes’ belly, I choose instead to do two things:

1.      I went to sec.gov and looked up Prime Note Fraud—by the way, the huckster did an excellent job of following the script—Almost everything he said matched what the SEC website said would happen.

2.      I threw out some Wall Street lingo i.e.  “Sounds great, what’s the CUSIP number of the issue?”  And send me the paper work—(Apparently, this opportunity was such a secret that I was to turn over $10,000,000.00 with absolutely no documentation whatsoever because a ‘lawyer’ was involved and he (or she) would serve as ‘escrow agent’ so my money would be safe.  (Unbeknownst to ‘Leroy the Lowlife, I don’t yet have an extra $10 million sitting in my sock drawer—it is currently tied up in a pyramid scheme—just kidding.

After the call ended, I called back my colleague and informed him that I had just prevented him from losing a considerable amount of money (he doesn’t have $10 million either but he was being let into the inner sanctum as one of the ‘paymasters’, apparently, paymasters make more with a smaller investment)

What I found most amazing was that my colleague initially seemed upset that I was ‘negative’ about the prospects of this opportunity.  It was then that I realized that when the greed button has been pushed enough times, rational thinking gives way to an irrational need for greed.

All scams have two things in common which should tip you off:

1. You are being promised outsized returns

2. There is little or no risk.

These two sentences or variations of these two sentences should immediately result in you hanging up the phone or heading to the door.