Recent media coverage mentioning prime bank schemes is a reminder to people that they need to investigate before they invest. Scams come and go, and prime bank schemes are no different. These schemes usually operate as Ponzi schemes that eventually collapse, leaving investors holding the bag.

The information below should help you understand what a prime bank scheme is and how it operates. If you’ve been approached by anyone touting this type of investment, let us know immediately. You can e-mail us at [email protected]bc.ca or 604-899-6854. Our toll-free number is 1-800-373-6393.

What is a Prime Bank Scheme?  

The common offer in this scheme is the purchase of debt obligations (for example, loans, bonds or debentures) guaranteed by the world’s top banks, so-called prime banks, which are offshore. Common terms promoters use to describe these schemes are bank-secured trading programs, high-yield investment programs, standby letters of credit , prime-bank notes, bank-issued debentures or bank guarantees.

How does it work? 

 Scam artists lead investors to believe that they are participating in a secret trading regime with the world’s major banks. They often tell investors that this type of investment is usually reserved for rich, powerful individuals or corporations. Dropping the names of the rich and famous is common in these schemes.

Investors might be required to sign non-disclosure agreements that prevent them from disclosing the identity of the parties involved and the terms of the transactions. The promoters may say these agreements are necessary to preserve the exclusive, secret nature of scheme. However, it’s just a technique used in many investment schemes that buy the fraud artist time to move money offshore before the ruse is up.

The promised returns in these schemes are usually very high—annual returns from 20% to 200%, or more. The returns investors receive usually come from other investors’ money. Payments eventually stop because the promoters take the money offshore or squander it all on themselves.

Watch out for one or more of these common characteristics: 

  • Assurances the investment is guaranteed by the World Bank, International Monetary Fund (IMF), an international central bank, etc.
  • Characterized as a secret, exclusive investment that requires you to sign an agreement not to talk about it
  • Vague, complex terminology used to describe how the investment works, and promoters may claim they are too complex for most people to understand
  • Promises of high returns that you will receive in payments over time  

Assurances the investment is guaranteed by the World Bank, International Monetary Fund (IMF), an international central bank, etc.

 

You can read more about common investment schemes on InvestRight.
 

Suggested Reading

Investing: Back to the Basics

Better Business Bureau Top 10 Scams: Binary Options

CSA Launches National Registration Search Campaign

More Resources

Investing in a Start-Up: Risk Analysis

Some investors have done very well investing in start-up businesses in the private placement market. This is because these investors have done their homework and learned that the company has a good business plan, excellent management and a product that produces profit. Nevertheless, start-up companies can be risky investments because they are new to the […]

Seniors, pre-retirees, and investment fraud

Last week, the Vancouver Sun ran a series on pensions that explored what retirement is looking like for an aging population of Canadians – from living longer, to having an adequate pension (or not), to paying off household debt. We were able to add our voice with an opinion piece that ran in today’s paper. […]