Investors warned of `secret' con game

Seeking high returns, many sign in to a $1.5 billion swindle

January 17, 2002|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

State regulators are warning consumers of fast-growing "prime bank" investment schemes that promise risk-free high returns, but in reality are estimated to have bilked U.S. investors out of more than $1.5 billion last year alone.

The North American Securities Administrators Association is holding a news conference today in Washington to alert investors who may fall for the ruse in an attempt to boost their returns in today's low interest rate environment.

They are called "prime bank" schemes because con artists promise to give small investors access to high-yielding investments traded among the world's top banks. Investors are often told that these "secret" investments are guaranteed or insured, and something that banks reserve for rich clients.

Investors are told they can earn 30 percent to 200 percent a year in interest, said Tony Taggart, director of the Utah Securities Division.

In reality, banks are not involved, and the con artists either keep the money, or use some money from new investors to pay off older investors in a Ponzi-type scheme, regulators said.

Con artists often make their pitch using lots of financial jargon that small investors are too embarrassed to admit that they don't understand, Taggart said. "It's a lot of gobbledygook. It's OK if they don't understand, it's not supposed to make sense," he said.

Prime bank fraud has grown in the past four or five years, said Taggart, adding that 20 percent of the cases handled by his office involve these confidence games.

Among those expected to attend today's news conference is Jo Stanfill, 66, of Severna Park, who lost money in such a prime bank investment.

Stanfill said yesterday that she and her husband turned to Howard County adviser Michael P. Keating in 1994 because they were looking for a place to safely invest their money that would provide a higher return than a checking account.

In 1997, the couple bought through Keating what they were told was a "World Bank" certificate of deposit that promised to pay 12 percent, she said. "We received interest payments as scheduled quarterly. By the time it was for the last interest payment and principal to be returned ... we found out there was no such bank," she said.

The couple also invested $25,000 with Keating in another investment the same year. So far, the Stanfills have recovered about $2,600 from both investments. "We relied too much on what he said without checking it out," she said.

The Maryland securities division reached an agreement with Keating in 1999 that he compensate investors and stop doing business in the state. However, he continued to sell securities for a time after the agreement, authorities said. Keating could not be reached for comment.

Attorney General J. Joseph Curran Jr. said Keating's investors, who were mostly Marylanders, lost nearly $8 million through prime bank and other unsound investments.

About 5 percent of the cases handled by the Maryland securities division involve prime bank schemes. The good news, Curran said, is that more Marylanders are calling before investing to find out if the investments are legitimate.

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