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Zero risk? Gullible victimized by scams

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WASHINGTON — Psst. Have you heard how the world's richest people make astronomical returns with zero risk by investing in "prime bank" notes so secret that the government denies they exist?

By the way, they are blessings for good Christians, too.

International banking regulators said Thursday that too many gullible people are falling for such lies in so-called "prime bank" scams — and used a Utah case as a prime example.

" 'Prime bank' promoters promise to open the X-files of the financial world," said Tony Taggart, director of the Utah Securities Division, at a National Press Club press conference by the North American Securities Administrators Association.

"The X-files (claiming government conspiracy to hide aliens) are science fiction. Prime bank notes are financial fiction," said Marc Beauchamp, NASAA's executive director.

But, he adds, "Prime bank scams appeal to those who think the rich really are different — that they know some super-secret and sure-fire way to make tons of money." He said such scams bilked investors out of an estimated $1.5 billion last year.

Taggart said his agency helped shut down such a scam by Castle Rock/IFR Trust. It took in $110 million by promising investors sky-high returns on prime bank notes. He found such notes never existed, and money received was spent on personal ranches, cars and unrelated businesses. Eight people were convicted of fraud.

Taggart and others said similar scams are now epidemic — but many people don't believe warnings, choosing to believe promoters (who profess to be good Christians) about government conspiracy.

"I have had individuals call me and tell me they were told the government would deny the existence of these programs and just wanted to hear it from me. I would then tell them, 'No, they don't exist.' And they'd say, 'Great. I'm going to invest. You just confirmed what the promoter said,' " a frustrated Taggart said.

He noted that Castle Rock promised to turn a $5,000 initial investment into $2 million in 55 months with absolutely no risk.

Regulators from throughout North America warned such investments do not exist — and high rates of return are offered only in highly risky investments.

Vaughn Nelson of Farmington lost $56,000 to Castle Rock. He told the press conference he was duped — despite his experience of managing several companies — because of his trust in a friend who also worked as a mortgage broker.

He said he had known that man "10 years. We had gone to social events together as families. We went golfing. We went to lunch often. I knew him. I trusted him." The man claimed to have invested $110,000 of his own in Castle Rock but actually invested nothing.

Nelson said the man started talking about incredible returns from Castle Rock. That convinced Nelson to invest a minimum amount, and he initially received large returns, too — which he reinvested in the company.

Because of Nelson's excitement, another friend invested along with his son and some of their business partners. "Two were presidents of companies. Two were controllers of these companies," he said. "All of these investments were done due to a high level of confidence of friends."

About that time, Nelson's daughter (a single mother) was diagnosed with multiple sclerosis — and he knew he would need more money to help support her. "I mentioned that to my investment friend. He said, 'Wow, Castle Rock is an answer to prayers.' " Nelson then invested more heavily, and lost it all.

"If I had any advice at all, it would be that if you come across an investment that is too good to be true, it's probably just that," Nelson said. "I wouldn't advise you to walk away. I'd say run away. There's too many people who have paid the price."

"Investors have a better chance of running into Elvis in the checkout line at the supermarket than finding a legitimate investment with the words 'prime bank' anywhere in the promotional materials," said Joseph Borg, president of NASAA.

They urge investors to check with state regulators about questionable investments. They warn that many promoters use jargon that sounds sophisticated but makes no sense, and many investors do not question it because they don't want to appear stupid.

E-mail: lee@desnews.com