December 6, 2013

Billion-Dollar Investment Fraud

Undercover Agents Uncover the Scheme

Silhouette of People

For a group of financial fraudsters, it seemed like the ultimate get in an investment scam—a victim willing to hand over $1 billion.

However, like victims of financial scams everywhere, these criminals should have paid more attention to the “if it sounds too good to be true, it probably is” adage—the wealthy “victim” in this case was actually an undercover FBI agent. And last month, the last three members of this group of con artists were sentenced to federal prison for their role in this scam. Several co-conspirators have previously pled guilty.

Beginning in 2005, the two-year undercover operation named Collateral Monte took leads from previous complaints, victim referrals, cooperating witnesses, and information from regulatory agencies and specifically targeted criminals who lured potential victims with offers of substantial returns on investments with little or no risk (also known as high-yield investment programs). And because the Orange County, California area served as an ideal backdrop for wealthy victim-investors, it was there that we set up a bogus financial advisory company purportedly to invest money from wealthy residents, including doctors and retirees. Our “company,” however, never interacted with actual investors…just suspected con men.
This particular case got underway with an Internet posting from an individual claiming he had access to a “private placement program” where the funds were guaranteed by the Federal Reserve Bank (the Fed), that a $10 million investment would return $100 million after 50 weeks, and that he also had access to other private placement programs with greater return rates but required higher minimum investments.

We e-mailed the author of the posting and said we had a potential investor interested in the offer. Over the next few months, the scam’s operators appeared to be working directly out of the high-yield investment scam playbook—our investor was first introduced to some lower-level players whose job was to basically vet potential investors to ensure they actually had the money they claimed. Eventually, members of our undercover team were introduced to others higher up the chain with official-sounding titles: Fed trade administrator, compliance officer, underwriter, banking expert, bank liaison, and trader.

The scheme, which offered international investment opportunities through the trading of bank securities, gradually progressed to its ultimate goal—to gain control of all or a portion of the victim’s money.

And along the way, our undercover “investor” was told various lies by the scammers, including:

  • Only a privileged few were invited to participate in these types of investment opportunities and there were only a few traders in the world authorized to offer them.
  • The investment program was regulated by the Federal Reserve Bank, had to follow strict federal guidelines, and was overseen by a Fed trade administrator and Fed compliance officer.
  • The investment’s extraordinary rates of return were the result of conducting multiple trades in rapid succession.
  • One of the primary reasons these trading programs existed was to generate funds for humanitarian purposes and that a portion of the investor’s profits must be used towards that end.

By October 2008, we had enough evidence—e-mails, phone calls, in-person meetings, etc.—to get a criminal indictment against eight co-conspirators. And by going after these criminals proactively, we were able to stop them before they harmed actual victims.

Avoiding Investment Fraud

· Think before you invest in anything, and be wary of any investment scheme that offers unusually high yields.

· Beware of investments that use specific names like “Prime Bank Guarantees,” “Prime Bank Debenture Programs,” “Medium Term Note Trading Programs,” and “Roll Programs”—none of these are legitimate financial instruments.

· Be wary if you’re told that the financial instrument is issued, traded, or guaranteed by a well-known organization such as the World Bank, the International Monetary Fund, the U.S. Federal Reserve, or the International Chamber of Commerce

· Perform due diligence. Independently verify the identity of the people involved, the veracity of the deal, and the existence of the security in which you plan to invest.

· Be wary of business deals that require non-disclosure or non-circumvention agreements that are designed to prevent you from independently verifying information about the investment.