Avoiding Scams

http://www.sec.gov/divisions/enforce/primebank/howtheywork.shtml

You should be skeptical of investment opportunities you learn about through the Internet. When you see an offering on the Internet – whether it's on a company's website, in an online newsletter, on a message board, or in a chat room you should assume it's a scam until you've done your homework and proven otherwise.

Get the facts before you invest, and only invest money you can afford to lose. You can avoid online investment scams by asking – and getting answers to these three simple questions:

Is the investment registered?

To find out, check the SEC's EDGAR database. Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator. You'll find that number in the government section of your phone book. Or call the North American Securities Administrators Association (NASAA) at (202) 737-0900 or visit NASAA's website.

Many online investment scams involve unregistered securities. But the fact that a company has registered and files reports with the SEC doesn't guarantee that the company will be a good investment. Likewise, the fact that a company hasn't registered and doesn't file reports with us doesn't mean the company is a fraud. You may be asking for serious losses if you invest in a small, thinly traded company that isn't widely known solely on the basis of what you read on a bulletin board posting or saw in an online newsletter. One simple phone call to your state regulator could prevent you from squandering your money on a scam.

Is the person licensed and law-abiding?

Find out if the person or firm selling the investment needs to be licensed. Call your state securities regulator and ask whether the person or firm is licensed to do business in your state and whether they have a record of complaints or fraud. You can also get this information by calling NASD's public disclosure hotline at (800) 289-9999 or visiting their website.

Does the investment sound too good to be true?

If it does, it probably is. High-yield investments tend to involve extremely high risk. Never invest in an opportunity that promises "guaranteed" or "risk-free" returns. Watch out for claims of astronomical yields in a short period of time. Be skeptical of "off-shore" or foreign investments. And beware of exotic or unusual sounding investments, especially those involving so-called "prime bank" securities. To learn more about "prime bank" securities, visit the Division of Enforcement's Prime Bank Fraud Information Center on our website.

Make sure you fully understand the investment before you part with your hard-earned money. Always ask for – and carefully read – the company's prospectus and latest financial statements.

For more tips on avoiding online fraud, read Internet Fraud: How to Avoid Internet Scams. You can get this brochure by calling the SEC's toll-free publications line at (800) SEC-0330 or visiting the "Internet and Online Trading" section of our website.

http://www.sec.gov/investor/online/scams.htm

Warning to All Investors About Bogus “Prime Bank” and Other
Banking-Related Investment Schemes

Lured by the promise of astronomical profits and the chance to be part of an exclusive, international investing program, investors are once again falling prey to bogus "prime bank" scams. These fraudulent schemes involve the purported issuance, trading, or use of so-called "prime" bank, "prime" European bank or "prime" world bank financial instruments, or other "high yield investment programs" ("HYIP"s). The fraud artists who promote these schemes often use the word "prime" – or a synonymous phrase, such as "top fifty world banks" – to cloak their programs with an air of legitimacy. They seek to mislead investors by suggesting that well regarded and financially sound institutions participate in these bogus programs. But prime bank and other related schemes have no connection whatsoever to the world's leading financial institutions or to banks with the word "prime" in their names. The Securities and Exchange Commission and other federal and state agencies are continuing to warn investors about these scams.

How Prime Bank Frauds Work

Prime bank programs often claim investors' funds will be used to purchase and trade "prime bank" financial instruments on clandestine overseas markets in order to generate huge returns in which the investor will share. However, neither these instruments, nor the markets on which they allegedly trade, exist. To give the scheme an air of legitimacy, the promoters distribute documents that appear complex, sophisticated and official. The sellers frequently tell potential investors that they have special access to programs that otherwise would be reserved for top financiers on Wall Street, or in London, Geneva or other world financial centers. Investors are also told that profits of 100% or more are possible with little risk.

Individuals and entities are targeted, including municipalities, charitable associations and other nonprofit organizations. The promoters of these schemes have demonstrated remarkable audacity, advertising in national newspapers, such as USA Today and the Wall Street Journal. Some promoters of these schemes avoid using the term "Prime Bank note," and tell prospective investors that their programs do not involve prime bank instruments in an effort to demonstrate that their programs are not fraudulent. Regardless of the terminology, the basic pitch – that the program involves trading in international financial instruments – remains the same, and investors should continue to be vigilant against such fraud.

Signs of Banking-Related Investment Fraud Below are warning signs of prime bank or other fraudulent bank-related investment schemes.

Excessive Guaranteed Returns

These fraudulent investment pitches typically offer or guarantee spectacular returns of 20 to 200 percent monthly, absolutely risk free. Promises of unrealistic returns at no risk are hallmarks of prime bank fraud.

Fictitious Financial Instrument

Despite having credible-sounding names, the supposed "financial instruments" at the heart of any prime bank scheme simply do not exist. Exercise caution if you've been asked to invest in a debt obligation of the top 100 world banks, Medium Term Bank Notes or Debentures, Standby Letters of Credit, Bank Guarantees, an offshore trading program, a roll program, bank-issued debentures, a high yield investment program, or some variation on these descriptions. Promoters frequently claim that the offered financial instrument is issued, traded, guaranteed, or endorsed by the World Bank, International Monetary Fund (IMF), Federal Reserve, Department of Treasury, International Chamber of Commerce (ICC), or an international central bank.

Extreme Secrecy

Promoters claim that transactions must be kept strictly confidential by all parties, making client references unavailable. They may characterize the transactions as the best-kept secret in the banking industry, and assert that, if asked, bank and regulatory officials would deny knowledge of such instruments. Investors may be asked to sign nondisclosure agreements.

Exclusive Opportunity

Promoters frequently claim that investment opportunities of this type are by invitation only, available to only a handful of special customers, and historically reserved for the wealthy elite.

Claims of Inordinate Complexity

Investment pitches frequently are vague about who is involved in the transaction or where the money is going. Promoters may try to explain away this lack of specificity by stating that the financial instruments are too technical or complex for nonexperts to understand.

You should be especially watchful for prime-bank related schemes promoted over the Internet. Despite numerous SEC actions charging prime bank promoters with multiple violations of the federal securities laws, prime bank offerings continue to proliferate in cyberspace.

If you have any information regarding the offer or sale of "prime bank" or similar financial instruments, or programs employing these instruments, please provide that information to the SEC's Division of Enforcement immediately by using the Enforcement Complaint Center. You also may want to visit other helpful websites to learn more about prime bank-related fraud.

http://www.sec.gov/divisions/enforce/primebank/howtheywork.shtml

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