Negotiable Financial Instruments > This page

ICC alert on "Prime Bank Instrument" scams

Investors alerted to watch out for scams
London, 15 June 2000

A steady rise in the number of victims of fraudulent high yield investment schemes, has prompted the US Securities and Exchange Commission (SEC) to re-issue an alert detailing warning signs for investors.

The SEC Investor Alert is also appealing to anyone with information on so-called "Prime Bank Instrument" (PBI) scams to contact their Division of Enforcement Complaint Centre.

The information can be sent by e-mail to enforcement@sec.gov , while the full alert can be found at www.sec.gov/enforce/pbank/pbnkhome.htm

Victims of PBI frauds are sometimes reluctant to come forward, falsely believing that they are bound by secrecy or confidentiality agreements, or even that they may be liable to prosecution for having taken part in the scam, albeit unknowingly. In fact, investors will be neither sued nor prosecuted for lodging a complaint or cooperating with the authorities to help stamp out these illegal investment programmes.

Con artists who sell PBIs and similar financial instruments frequently tell potential victims that they are among the privileged few whose money will be pooled to invest in secret programmes otherwise reserved for top financiers. Promoters of the scams often tell investors that regulators and banks will, of course, deny the existence of the schemes.
The investments are often described as notes, guarantees, letters of credit, or debentures and supporting documentation is usually extremely complex and difficult to comprehend. Perpetrators of some schemes also try to add false legitimacy to their offers by claiming they have been endorsed by the International Chamber of Commerce (ICC), the Federal Reserve, the World Bank or the International Monetary Fund (IMF), and by providing fake back-up documentation.

The SEC website states emphatically that these so-called securities do not exist and are all scams. You should never invest, it says, if a promoter claims:

  • The investment will generate extremely high or risk-free returns, for example, 150% or more per year;
  • The financial instrument is traded by off-shore banks or on a worldwide secret exchange;
  • The financial instrument is approved or endorsed by ICC, IMF or some other well-known international organization.

ICC's Commercial Crime Bureau (CCB) has repeatedly warned that PBI and similar schemes are little more than pyramid operations. They use the money from one group of investors to show a profit to a subsequent group and, once the final big gamble has been made, the promoters pocket the proceeds and disappear.

"These frauds are still continuing and the number of victims is rising. Recently there has been a significant increase in the use of the internet by fraudsters who are keen to exploit the global exposure the medium gives. Our advice is to check out the legitimacy of any proposed investment scheme with a recognized agency before committing funds," said John Merrett, CCB's assistant director. "This applies especially to schemes promoted on the Internet".

CCB is planning to update its Special Report on Prime Bank Instruments during the next few months to provide members with a comprehensive guide to all the latest scams and their methods of operation

The information are from the ICC web site:
http://www.iccwbo.org/ccs/news_archives/2000/pbi_scams.asp

Recommended further reading:
The Informed Investor - "Prime Bank" Scams
View of FBI on "Letter of Credit" and "Prime Bank Note"
Investment Scheme Advisory Alert by the Federal Reserve Bank of New York
"Prime bank" schemes
Uncovering secret market fraud - Price Waterhousecoopers
SEC - So-Called "Limited Edition" United States Treasury Securities
SEC - How Prime Bank Frauds Work
SEC on Primebank

Books on Financial Instruments

Please note that this is not a solicitation or an offer to provide these entities.

Please 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.