Investment and Banking Scams

There are many variations of investment and banking scams that fraudsters may concoct to trick investors and lawyers. 

One good example is the so-called “prime bank scheme.” Characteristically, the fraudster tells a potential investor that he or she is being invited into the world of “big money” through a tremendous investment opportunity that will generate incredible returns. The opportunity often involves the financing of large, sometimes foreign, and usually credible “prime” financial institutions such as major national banks, the World Bank, or the International Monetary Fund. The institutions may be prime, but the promoters are not.

Another example of an investment scam is the Ponzi or pyramid scheme, where investors are tricked into placing their money into a project that in essence robs Peter to pay Paul. Again, large returns are promised, and an investor puts money into a scheme that sounds good but is not specific. Terms used include “global currency arbitrage,” “hedge futures trading,” “high yield investment properties,” and “exceptional mortgage opportunities.” For a time, investors do receive returns, but not because the scheme has access to any exceptional investments. Rather, it’s because the first wave of investors is paid out using the money of the second wave of investors, and so on. Eventually the scheme gets top heavy and collapses, the fraudsters disappear, and the lawyers and investors are left to cope on their own.

The lawyer is key to the legitimacy of these types of schemes. The investor, once hooked, must be convinced to turn over their money. The solution is to find a lawyer who has a trust account and is impressed with confidentiality and solicitor-client privilege obligations. The mere presence of a lawyer on the landscape will make many investors believe the scheme is legitimate and their money protected. Some lawyers are even duped into giving so-called independent legal advice or signing officer certifications.

Once the money is in the lawyer’s trust account, it can be moved around without attracting much attention because a lawyer’s trust cheque is by its nature respected and relatively anonymous. In reality, once the money is in the lawyer’s trust account, they are most often directed to place it off-shore into an account that is untraceable, and the money is never seen again.


Common Characteristics of Investment Scams

These are common characteristics of investment scams:

  • There is little in writing.
  • The scheme is clothed in confidentiality. Paradoxically, the exception to the “little in writing” rule is that there is often a confidentiality agreement that investors, and sometimes lawyers, are asked to sign.
  • The investment is baffling but uses credible investment terms and concepts that people (including lawyers) think they should understand.
  • Very little concrete detail is provided.
  • Most of the income seems to be generated from the number of people recruited into the scheme and not from the product or investment opportunity itself.
  • The profits offered are extremely high, usually too good to be true.
  • The typical investor is unsophisticated.


Possible Features of the Relationship with the Lawyer

Here are some examples of the fraudster’s relationship with you:

  • You are promised big money.
  • Any money that is actually paid is often for some small, sometimes unconnected, legal service such as the incorporation of a company.
  • Very little of what you are being asked to do amounts to the practice of law. Often the only real service requested is access to your trust account.
  • You may be offered a percentage of every dollar that passes through your trust account, or a finder’s fee for each new investor that you bring through the door or that you “sign up” (e.g., to whom you give independent legal advice or certify).
  • You may be induced to release money, often in breach of trust conditions that investors have placed on it, with assurances that the investment is about to pay-off and you are the only one holding things up.
  • Except for the money brought in by the individual investors, you do not know the real source of other funds used in the project.
  • No financial institution that you have ever heard of is involved. If you have heard of the institution, you are not given information on how to initiate contact with anyone in a position of authority, and others control all contacts.
  • You don’t really understand how the investment works.