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Scams Promising Huge Investment Returns Through 'prime' Banks Are on the Rise

WASHINGTON (AP) - Scams promising huge returns on investments with little risk through "prime bank" arrangements are costing people hundreds of millions of dollars, in some cases wiping out retirement savings, state officials said Thursday.

One investor, Vaughn Nelson of Farmington, Utah, said he lost $56,000 after a close friend told him he could make 25 percent per month on his investments.

"No one's immune to being preyed upon," he said.

Regulators in 21 states have taken action against these schemes on behalf of more than 41,000 people who invested $470 million over the past three years, much of it lost. Authorities say the growing appeal is partly due to low returns on more traditional investments and the desire among many older people to increase their retirement incomes.

"People want to believe there are secret ways to make fabulous amounts of money," said Joseph Borg, president of the North American Securities Administrators Association and director of the Alabama Securities Commission. "But investors have a better chance of running into Elvis in the checkout line."

Securities and law enforcement officials held a National Press Club news conference aimed at publicizing the scams so more people are not duped.

"When you feel like you want to make an investment, check it out. Stop and think," said Maryland Attorney General Joseph Curran.

The "prime bank" scams are so named because the perpetrators often promise investors access to a secret network of high-yield investments through top or "prime" world banks. One promoter told people he was among a select few with a special "license" to make these investments, which he claimed were otherwise reserved for a shadowy group of super-wealthy individuals.

"Prime bank promoters promise to open the X-Files of the financial world," said Tony Taggart, director of the Utah Securities Division.

The promise of big payoffs are a key tip-off to the scams. One promoter shut down by Utah and federal authorities, Castlerock Investment Group, lured investors by claiming a $5,000 investment would produce $1 million in just 55 months.

Castlerock actually deposited $110 million of investors' money in its own overseas bank accounts, using some of the cash to buy luxury cars and make investments in other businesses, Taggart said.

Promoters also use a lot of impressive-sounding financial lingo and give their investments names that mimic legitimate ones. Examples include "standby letters of credit," "bank debentures" and "bank-secured trading programs."

Authorities say people should answer these questions before making an investment:

-Is the seller and the investment licensed in your state? Call a state securities regulator to find out.

-Has the seller provided detailed, written documentation about the investment? Watch for jargon that sounds sophisticated but makes no sense.

-Are the claims being made about the investment realistic?

-- Anonymous, January 17, 2002