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Advisory Alert by the Federal Reserve Bank of New York
"Prime Bank" Financial Instruments and Scams
following statement was issued by the Board of Governors of the Federal
The Federal Reserve Board has issued an Investment Scheme Advisory alert
cautioning the public about the continued proliferation of illegal "prime
bank" financial instruments and scams.
Investment Scheme Advisory updates an October 1993 interagency alert concerning
fraudulent "prime bank" financial instruments and investment
programs that supposedly invest in them.
Advisory also states that, contrary to statements in some of the written
materials used by individuals involved with the fraudulent schemes, the
Federal Reserve does not, among other things, authorize, sanction or oversee
any investment programs or plans involving "prime bank" products.
The Federal Reserve also does NOT license traders in "prime bank"
instruments or have agents abroad to sell or redeem such financial instruments.
on the following pages is the Board's current Investment Scheme Advisory,
together with a copy of the October 21, 1993 Advisory. Please contact
the appropriate federal agency in the event you become aware of illegal
"prime bank" scams or similar transactions.
regarding this matter may be directed to Timothy D. Mahoney, Enforcement
Officer or your respective portfolio manager in Bank Supervision.
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
June 11, 1996
INVESTMENT SCHEME ADVISORY
October 21, 1993, the Federal Reserve Board and other federal banking
agencies issued an Interagency Advisory concerning "prime bank"
financial instruments, a copy of which is attached. The 1993 advisory
warned that there were illegal schemes claiming to involve financial instruments
issued by a "prime bank" and claiming unrealistic rates of return
or other benefits. Since the issuance of the advisory, law enforcement
and regulatory authorities in the United States and abroad have prosecuted
numerous individuals for their participation in "prime bank"
scams, and millions of dollars in illegal proceeds have been seized.
one federal case involving a program that supposedly invested in "prime
bank" financial instruments, a U.S. Court of Appeals stated unequivocally
that "Prime Bank Instruments do not exist". (Securities and
Exchange Commission v. John D. Lauer, 52 F.3d 667,669 (7th Cir. 1995)).
Despite the notoriety given to illegal "prime bank" scams and
the efforts of law enforcement authorities over the past several years,
fraudulent investment schemes supposedly involving "prime bank"
financial instruments and other investment opportunities involving extremely
unusual rates of return, which are sometimes referred to as "roll
programs", are still proliferating. Unlike the schemes the Federal
Reserve encountered in 1993, many of the recent frauds state that the
Federal Reserve sanctions the investment program, oversees trading in
secret "prime bank" markets, licenses or registers traders of
"prime bank" financial instruments, has agents in offices around
the world to handle investments and redemptions of "prime bank"
instruments, or is in some other manner involved with an investment opportunity.
This advisory reiterates that the Federal Reserve is not aware of any
legitimate use of any type of "prime bank" financial instrument.
Also, the Federal Reserve does not participate in any manner in any "prime
bank"-related investment program. The Federal Reserve does not license
or register traders, does not have agents who process or oversee investments,
and does not sanction, authorize, license, or otherwise administer any
type of investment program or plan for the public in the United States
of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
National Credit Union Administration
Office of the Comptroller of the Currency
Office of Thrift Supervision
October 21, 1993
concerning "Prime Bank" notes, Guarantees and Letters of Credit
and similar financial instruments
enforcement staffs of the federal financial institutions supervisory agencies,
who work with federal law enforcement officials responsible for investigating
and prosecuting bank fraud-related matters, have noted an increase in
the use, or attempted use, of questionable financial instruments in connection
with complex, and possibly illegal, schemes. Many of these schemes have
been aimed at defrauding borrowers and investors in the United States
and abroad, as well as domestic and foreign banks. The questionable instruments
are often denominated as "Prime Bank Notes", "Prime Bank
Guarantees", or "Prime Bank letters of Credit". They are
also called by such other names as "Prime European Bank Letters of
Credit", "Prime World Bank Debentures", or "Prime
Over the past several years, federal and state law enforcement authorities
have prosecuted, or are presently in the process of investigating, wrongdoers
who have defrauded individuals and entities by promising, for example,
to arrange loans that would be funded in some manner by "Prime Bank-types
of financial instruments, or would, in some other way, involve such instruments
and advance loan fee payments. Many of the illegal or dubious schemes
that have been brought to the attention of various regulatory agencies
by law enforcement officials, foreign banks, the World Bank, and central
banking authorities appear to involve overly complex loan funding mechanisms
necessitating the use of "Prime Bank"-type documents.
suspicious schemes involve "investments" in "Prime Bank"-type
financial instruments and promises of unrealistic returns on multi-million
dollar investments. In many recent situations, the agencies have been
advised 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. When contacted
by potential borrowers, investors or regulators, the institutions had
no knowledge about the unauthorized use of their names or the issuance
of anything akin to "Prime Bank"-type financial instruments.
Because the staffs of the federal bank, thrift and credit union regulatory
agencies are not aware of any legitimate use of any financial instrument
called a "Prime Bank" note, guarantee, letter of credit, debenture,
or similar type of financial instrument, you should be alert to the potential
dangers associated with any transaction involving these types of instruments.
you should be attentive to the attempted use of any traditional type of
financial instrument--such as a standby, performance or commercial letter
of credit--that is somehow referred to in an unconventional manner, such
as a letter of credit referencing forms allegedly produced or approved
by the International Chamber of Commerce. Examples of these include bogus
schemes involving the supposed issuance of an "ICC 3034" or
an "ICC 3039" letter of credit by a domestic or foreign bank.
The staffs of the regulatory agencies, in cooperation with the Department
of Justice, the Federal Bureau of Investigation, the U.S. Secret Service,
and the Securities and Exchange Commission, want to alert you to this
situation and request that, in the event you become aware of any transaction
involving any of the aforementioned types of financial instruments, you
advise one of the following federal regulatory agency officials:
of Governors of the Federal Reserve System
Deputy Associate Director
Enforcement and Special Investigations Sections
Division of Banking Supervision and Regulation
Mail Stop 175
Washington, D.C. 20551
Credit Union Administration
Office of the General Counsel
1775 Duke Street
Alexandria, Virginia 22314
Deposit Insurance Corporation
Special Activities Section
Division of Supervision
550 17th Street, N.W.
Washington, D.C. 20429
of the Comptroller of the Currency
Enforcement and Compliance Director
250 E Street, S.W.
Washington, D.C. 20219
of Thrift Supervision
Deputy Director for Regional Operations
1700 G Street, N.W.
Washington, D.C. 20552
Also, if you suspect that a criminal offense is being committed, it is
required that you promptly make a criminal referral to the appropriate
federal law enforcement agencies in accordance with applicable criminal
- These and similar
financial instruments were the subject of prior regulatory agency alerts
issued by the Office of the Comptroller of the Currency. These included
the Office of the Comptroller of the Currency's Banking Circular BC-
141, Supplement 2, dated July 14, 1982, several subsequent supplements
to BC- 141, and BC-243, dated February 7, 1990.
- There are currently
six insured depository institutions with the word "Prime"
in their names in the United States. Two of them are commercial banks
that operate in Florida, one is a commercial bank in Connecticut, another
is a commercial bank in Indiana, and two of them are thrift associations
operating in Wisconsin and Pennsylvania, respectively. There is also
one bank holding company in Illinois with the word "Prime"
in its name. This alert is not associated with any deposit or other
type of legitimate debt obligation or financial instrument issued by
any of these financial institutions.
complete cautionary note can be seen at:
Recommended further reading:
Informed Investor - "Prime Bank" Scams
of FBI on "Letter of Credit" and "Prime Bank Note"
alert on "Prime Bank Instrument" scams
secret market fraud - Price Waterhousecoopers
- So-Called "Limited Edition" United States Treasury Securities
- How Prime Bank Frauds Work
on Financial Instruments
note that this is not a solicitation or an offer to provide these entities.
note that you should consult with your financial and legal advisors
before using the information on this web site. We provide the information
in good faith but as the applicable laws may differ from country to
country, we are not responsible for any actions because of this information.