By Patricia Uceda, Spring 2015 Graduate Research Assistant
The SEC recently issued an investor alert warning investors that all “prime bank” investment are scams. “Prime bank” investments are international investing programs that claim to use investors’ funds to buy and trade exclusive “prime bank” instruments. They are marketed as high-yield, risk-free international finance programs in which well-regarded institutions participate in worldwide.
Unfortunately, these types of investments are frauds. If you are approached with one, it is almost certainly a scam. In order to protect yourself from these investments, here are some red flags to look out for:
- Terms such as “prime bank program” or “prime world bank financial instrument”: Promoters may use complex and official-sounding terms such as debenture, standby letter of credit, bank guarantee, prime world bank financial instrument, etc. Do not be persuaded by these official-sounding terms; they are merely attempts to sound legitimate.
- Claiming a connection to a well-known organization: Promoters may falsely claim that the instrument is issued or guaranteed by a legitimate organization such as the World Bank, the International Monetary Fund, the U.S. Federal Reserve, or the International Chamber of Commerce. Unfortunately, “prime bank” schemes have no connection whatsoever to leading financial institutions.
- Claiming exclusivity and secrecy: Promoters may also claim that the investment is “invitation-only” and limited to an exclusive group of customers. They will often imply that these types of investments are the “secret way” wealthy people make money. If investors ask for references, they will cite secrecy and may even ask you to sign non-disclosure agreements.
- Advertisements offering any type of high-yield, risk-free international finance program: Many times promoters will not even use the term “prime bank.” They will often advertise in national newspapers or social media and explicitly deny that their program involves prime bank instruments. However, if it is advertised as a high-yield, risk-free international finance program, it is probably a “prime bank” investment scam.