Millions are being lost in ‘prime bank’ scams

Associated Press and herald staff

WASHINGTON — Scams promising huge returns on investments with little risk through "prime bank" arrangements are costing people hundreds of millions of dollars, in some cases wiping out retirement savings, state officials said Thursday.

One investor, Vaughn Nelson of Farmington, Utah, said he lost $56,000 after a close friend told him he could make 25 percent a month on his investments.

"No one’s immune to being preyed upon," he said.

Regulators in 21 states have taken action against these schemes on behalf of more than 41,000 people who invested $470 million over the past three years, much of it lost. Authorities say the growing appeal is partly due to low returns on more traditional investments and the desire among many older people to increase their retirement incomes.

"People want to believe there are secret ways to make fabulous amounts of money," said Deborah Bortner, director of the securities division of the Washington state Department of Financial Institutions. "But there are no shortcuts in investing. Simply put, prime banks don’t exist."

The prime bank scams are so named because the perpetrators often promise investors access to a secret network of high-yield investments through top or "prime" world banks.

"Prime bank promoters promise to open the X-Files of the financial world," said Tony Taggart, director of the Utah Securities Division.

The promise of big payoffs are a key tip-off to the scams. One promoter shut down by Utah and federal authorities, Castlerock Investment Group, lured investors by claiming a $5,000 investment would produce $1 million in just 55 months.

Castlerock actually deposited $110 million of investors’ money in its own overseas bank accounts, using some of the cash to buy luxury cars and make investments in other businesses, Taggart said.

Authorities say people should answer these questions before making an investment: