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PPP (Private Placement Program), piani d’investimento farlocchi

di

Dr. Lucio Sgarabotto

Analista Finanziario indipendente NAFOP

 

 

Da qualche tempo a questa parte ricevo frequentemente richieste di chiarimenti sui Programmi di collocamento privato (Private Placement Program o PPP). Sembra sia diventata una moda. Purtroppo in tempi di crisi queste sono le mode che si diffondono. Infatti, dietro ai PPP spesso si nascondono truffe note come “schema di Ponzi”. Ponzi, vissuto a cavallo tra l’800 e il ‘900, era un immigrato italiano negli Stati Uniti divenuto famoso per una frode che aveva il seguente schema: 1) promessa di rendimenti elevati senza rischi in poco tempo; 2) ottenimento effettivo di tali risultati nei tempi previsti; 3) incremento delle somme investite da parte del cliente iniziale e di altri clienti invogliati dal diffondersi delle voci; 4) pagamento dei rendimenti permesso dalle nuove sottoscrizioni; 5) interruzione dello schema quando le richieste di riscatto diventano superiori agli incassi, lasciando gli ultimi clienti con le tasche vuote.

I PPP che garantiscono rendimenti elevati senza rischi solitamente funzionano in tal maniera.

A fronte di un deposito, ma anche di beni reali (oro o immobili, per esempio), che fornisce la garanzia il gestore di PPP può operare su varie attività finanziarie. Le più frequentemente usuate sono le MTN (Medium Term Note), strumenti di debito emessi generalmente da banche, sulla cui emissione il PPP incassa una commissione o conosce già un acquirente a cui rivenderli ad un prezzo più elevato di quello d’acquisto. Partecipando con frequenza a queste emissioni e incassando le relative provvigioni ecco generati i profitti elevati. Almeno questa è la spiegazione fornita.

I nomi di questi programmi sono i più svariati e quasi sempre in inglese: “Prime Bank Investment Programs”, “Debenture Programs”, “Guarantees, High Yield Trading Programs”, “Medium Term Note Trading”, “Standby Letter of Credit Trading Programs”, “Roll Programme’s”, ecc.

Per rendere l’operazione attraente i rendimenti promessi sono elevatissimi, naturalmente senza rischio, e, per rinforzare l’idea dell’investimento esclusivo, si sostiene che l’accesso è riservato e che il programma è autorizzato dalla Federal Reserve, o dal Fondo Monetario Internazionale, o dalle Nazioni Unite e così via. Per rendere più credibile l’operazione si asserisce spesso che, data la cospicuità dei guadagni, la stessa Istituzione autorizzatrice impone che una parte dei profitti venga accantonata in un conto speciale per la guerra contro il terrorismo, l’HIV o qualche altra forma di lotta altamente morale. Anche gli importi per entrare nel Programma sono elevati, ma se non si ha l’intera cifra a disposizione è possibile comunque aderire al programma in un pool di investitori i cui fondi saranno impiegati in tutta sicurezza rimanendo nel proprio deposito.

Succede poi si venga informati che il programma è al momento esaurito, ma che, per evitare delusioni e ritardi, si potrebbe permettere al gestore di utilizzare direttamente il deposito, magari tramite delega. Accettata questa condizione il programma può partire. I rendimenti saranno inizialmente elevati e pagati con puntualità e l’investitore inconsciamente diffonderà la truffa parlando in giro degli ottimi risultati ottenuti e coinvolgendo così altre persone.

Ad un certo punto, inaspettatamente, i pagamenti verranno bloccati o subiranno ritardi. Dal gestore verranno accampate le più svariate scuse per giustificare la mancata corresponsione degli interessi: un errore della banca, un codice errato, questo mese gli utili sono stati reinvestiti, il trader si trova in missione all’estero o è stato mandato a far la guerra in Iraq. Questo è l’inizio della fine. O solo la fine.

Fornisco di seguito un elenco di parole o frasi spesso usate in questi raggiri e che dovrebbero allertare:

Humanitarian ProjectsEuropean Banking WeekEuropean Banking YearFacilitatorHigh Yield Investment ProgramCommitment HoldersPrime BanksTop Five, Ten or Twenty World BanksBank Debenture Trading ProgramsSecret Trading ProgramNon-Circumvent AgreementsNon-Disclosure AgreementsGood, Clean, Clear and of Non-Criminal Origin FundsTreasury ApprovedFed ApprovedRoll ProgrammeCompliance OfficerLondon Short FormLondon Short Form Letter of CreditProof of Fund or POFNon-Depletion AccountThe Program Grew out of the Marshall Plan or Bretton Woods Agreement

Sarebbe interessante che chi ha avuto approcci per la sottoscrizione di Private Placement Program riportasse comunicasse sia le modalità di contatto sia le società che li promuovono per verificare se i nominativi coinvolti hanno connessioni con altre truffe o frodi.

Delibera Consob n.17634 relativa ad un programma PPP

 

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"I PPP non esistono, sono solo frodi internazionali: non consiglierei mai a un mio cliente di accedere a queste operazioni prive di senso "

                                                                             Ing. Fabio Sipolino

 

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PLEASE BE ADVISED THAT THIS IS NOT A SOLICITATION. THIS IS FOR INFORMATION PURPOSES ONLY

WE ARE PROVIDING INFORMATION ON AN INVITATION ONLY PROGRAM OFFERED TO OUR QUALIFIED CLIENTS WHO HAVE AN EXISTING ESTABLISHED RELATIONSHIP WITH FINANCIAL POLIS

THE INFOMATION HEREIN PRESENTAED  BY FINANCIAL POLIS IS NOT IN ANY WAY TO BE CONSIDERED OR INTENTEDED TO BE A SOLICITATION OF FUNDS OR TO SELL ANY TYPE OF SECURITY OR INVESTMEN,  THE INFORMATION HEREIN IS INTENDED FOR GENERAL KNOWLEDE AND EDUCATIONAL PURPOSES  ONLY .

ANY AND ALL TRANSACTION WITH ESTABLISHED CLIENTS ARE PRIVATE INVESTMENTS AND IN NO WAY FALL UNDER UNITED STATES SECURITIES ACT OF 1993 AND FINANCIAL POLIS IS NOT INVOLVED IN THE SALE OR REGISTRATION OF SECURITIES

FINANCIAL POLIS MAKES AVAILBLE TO THEIR HIGH NET WORTH CLIENTS PARTICIPATION IN  BUY SELL TRADING PROGRAMS OF DEBT INSTRUMENTS SUCH AS BANK GUARANTEE, MEDIUM TERM NOTES, CDO ETC.

THESE PROGRAMS ARE CONDUCTED BY AND ESTABLISHED BY TIER ONE TRADERS AND PLATFORM MANAGER.

THESE PROGRAMS USEUALY RUN 40 WEEKS AND MOST REQUIRE PART OF THE FUNDS TO BE USED FOR A  HUMANITARIAN PROJECT AT TIMES THERE ARE SHORTER TERMS ARE AVAILABLE.

RETURNS ON THESE INVESTMENTS CAN BE VERY HIGH AND IN MOST CASES THE  INITIAL PRINCIPAL INVESTMENT NEVER LEAVES THE INVESTORS ACCOUNT.

The Mechanics Of A MTN Private Trading Program

Considering that top major banks issue Medium Term Notes (known as MTNs and Mid-Term Notes) to raise funds in both U.S. and Euro dollars, we can better understand that they are for the purpose of generating Operating Loans and issuing Letters of Credit to businesses which wish to buy material and products from other business organizations in other countries. To further expand on this in laymen terms, this therefore results in an International Treaty whereby the U.S. Dollar (or the Euro) becomes the common Medium of Exchange for International Trading.

 

 

 

By Federal Law, a European bank is not allowed to sell such Medium Term Notes directly to the Public. They must be issued and sold through a Federal Reserve Licensed Trader; just as in the same context a Corporation or a Municipality must sell Bonds through a Dealer or Underwriter.

The Trader, aiding in the distribution sales of newly issued MTNs from the major sized Bank will have a $50B (Billion) contract (or of equivalent amounts) with the Issuing Bank to purchase MTNs for immediate resale. This Trader would instigate the following:

A Non-Revocable Contract (see further explanation in Paragraph A) with an Exit Buyer, such as a Pension Fund, to buy those MTNs from them immediately, and with a contract with a Participating Investor, acting as the Trader's associate to furnish the Proof Of Funds (POF) required, simply as a formality, to start and continue the Purchase and Resale series of Transactions.

The Trader also makes contractual arrangements with their own bank, through their bank's 'Back Room' Trading Department, to act for them during the Transactions of $100M (Million) or greater. This $100M amount is the minimum set by the U. S. Federal Reserve for this type of Bank issued MTN Distribution.

The associate ' thereby arranges for their own bank to issue to themselves a POF using $100M in Cash Funds, which are wholly owned by them, in their account at their own bank. This enacts the ability to obtain cash credit of $100M for the POF. This POF is then sent to the Trader in accordance with the contract between Trader and their associate.

It is important to note that although Medium Term Note Trading is a very specific process, there are several factors that can easily cause delays, decreased daily trading (or tranching) and considerable frustration among inexperienced Associate who expect perfection and timely communications from the Trading side. Several factors influence the timing of entering a trade such as; the current availability of paper or MTNs which can easily be in short supply due to an overwhelming consumption by high level financiers, the simple timing of the trade submission or the program cancels without notice can also make a sophisticated Trading Platform appear to be chaotic and in disarray.

Below is a typical scenario of a Private Mid-Term Buy/Sell Program:

a. The Trader's Bank communicates with the Issuing Bank as well as with the Exit Buyer's Bank, obtaining a detailed agreement with the Issuing Bank Officer and with the Exit Buyer's Bank that they are both prepared to commence the contracted series of Transactions. The Exit Buyer's Bank forwards a POF to the Trader's Bank for the amount of the first purchase of $100M (Note - When a POF has been issued for the Exit Buyer and forwarded to the Trader's Bank, there is a legal Funding Commitment to complete that Transaction, which may NOT be revoked while the transaction is taking place).

b. The Trader's Bank forwards to the Issuing Bank a POF in the name of the Trader and requests that a MTN be issued in the name of the Trader, along with an Invoice at a discounted price, say for example only $97M, payable in 8 Hours.

c. A copy of the Note and an invoice at $97M, is forwarded to the Trader's Bank, which authenticates signatures and MTN terms to verify compliance with the Purchase Contract.

d. The Trader's Bank then forwards the copy of the MTN, along with a Conditional Assignment of the MTN, to the Exit Buyer's Bank, along with an Invoice at the Exit Buyer's Purchase Contract Price, $100M for example purposes, payable in 4 hours.

e. The Exit Buyer's Bank authenticates signatures, verifies compliance with the Purchase Contract, and pays the $100M Invoice price to the Trader's Bank for credit to Trader's account, within the 4 hour limit.

 

f.The Trader's Bank pays Issuing Bank's Invoice for $97M within the 8 hour limit, along with instructions for the Original MTN to be sent to the Exit buyer's Bank by courier.

g. The Trader's Bank debits the Trader a Bank Fee (1/4, to the Trader, who pays the Trader's '"Associates" for their Service Rendered.

h. The Procedure used for this example, typically takes place 4 times each day of a 4 business day week, and repeats until the Trader's Purchase Contract is completed. Using this formula, the weekly payments to the "Associate", would be equal to 22 per transaction x 4 per day x 4 days per week = 48 as Bank Fee = 44 = $22M per week)

Note: The Operation described above is a very conservative one. There are other MTN Trade Operations, of the same MTN basis but involving a resale of the MTNs by the 'Exit Buyer', which have a higher Rate of Return to the Trader involved, and therefore an even higher payment to the "Associate" involved.

An experienced Associate can safely state that with the listed procedure and controls for the Transactions, the only reason for a Transaction failing, once commenced, would be for the Exit Buyer's Bank to default on completing a contracted purchase of a Note, which would result in a jeopardy to their Bank Charter.

Should any default take place, it would be quite simple for the Trader to make the required Payment, using their own Funds, to complete their purchase of the Instrument, and to immediately sell it to a different contracted Exit Buyer. This action by the Trader eliminates any risk of loss by the Buyers and Exit Buyers and "Associates".

NOTE: With minor variances in the connection of an Investor's Funds to a Trader's $100M Operating Fund, an Investor may enter into an Operation with $10M, or more, with similar percentage payments to them for services rendered. By the same token, an Investor may enter into a trading operation with as much over $100M as they have available.

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Combating Prime Bank and High-Yield Investment Fraud

21 March 2002

"Combating Prime Bank and High-Yield Investment Fraud"

Speech by Rosalind Wright CB,
Director of the Serious Fraud Office

At Barclays Bank World Head Office Presentation Theatre
54, Lombard Street, London

On 21st March 2002

(Organised by the Institute of International Banking Law & Practice)


1. In the Emperor's New Clothes, the familiar tale by Hans Christian Anderson, the unscrupulous tailor was able to persuade the Emperor to parade naked through the streets by way of a confidence trick familiar to many in this room today: he persuaded him that the invisible suit of clothes could only be seen by the cognoscenti, superior classes of persons, the upper echelons. The emperor was taken in; so were the multitudes who flocked to see the emperor in all his non-existent finery and did not want to expose themselves as discerning members of the glitterati. It took a small, guileless child to see through the deception and blow the gaffe.

2. There are many dupes out there who don't want to admit that they don't understand what they are being sold. That the precious secret being made available to them and them alone, which, up till then, has only been made available to banks to make money between themselves, doesn't have substance in reality; that it is a sham; an invisible suit of clothes.

3. Who wants to admit they are ignorant? When a honey-tongued salesman, or "investment adviser" spins them a line that is fully of impressive financial jargon, preferably peppered with reassuring words such as "prime", "guarantee", "investment program", who has the guts to be like the little boy and say "But the emperor is stark naked!" and reveal to the salesman that he is not one of the cognoscenti?

4. Let me tell you another cautionary tale: A few years ago, a firm called David Coakley Ltd which dealt in over-the-counter futures and options, set up a dealing room in the City of London. They opened their doors to members of the public: anyone who wanted to deal in futures and options, over the counter, could come in and deal. Indeed, for a bit of free advertising, they invited journalists to come in and try their luck , using a hypothetical sum of money, to see how much they could make on this volatile and precarious market. Many journalists made a very large profit, dealing on a pretend basis with the hypothetical money and wrote up their experiences enthusiastically in such sophisticated financial journals as the Daily Mail and the Mirror.

 

5. Punters piled in. They, unfortunately for them, didn't use sham money or pretend transactions: they used their own money and lost it. Not only did they lose it, they were made to pay enormous additional sums by way of margin calls which, in some cases, wiped them out financially.

6. Now a lot of people like a flutter and are quite prepared to lose very large sums on the horses, the dogs, at cards or in the casino. The number of people who, with touching faith that they will be instant millionaires, put the weekly pension or the dole into lottery tickets. But at least they understand how the system works. They part with their money, maybe foolishly, but with their eyes open. Many of the David Coakley investors were in this category; we interviewed them, when we took disciplinary action against David Coakley, which, I am ashamed to say, was a firm fully authorised under the Financial Services Act 1986, by my regulatory authority, the Securities and Futures Authority ("SFA"), to conduct investment business.. One, a farmer, who had lost £70,000 (this is pre-BSE and foot-and-mouth, when farmers had a bob or two) laughed ruefully and said he deserved all he got. But many were not so sanguine. They reckoned they had been very neatly had.

7. What David Coakley did, which is back to the Emperor's New Clothes scenario, was to disapply the protections these investors were entitled to under the SFA rules by designating these people "expert investors". They did that by offering them a short correspondence course in investing in future and options: a very short course, as it turned out, no more than a pamphlet followed by a single multiple choice questionnaire. Once they had sent that back to the firm, they were asked to tick a box on their client questionnaire if they did not want to be designated as expert investors; they were even told that if they didn't tick the box some SFA rules would not apply to them. Nobody whose client questionnaire we saw had ticked the box. When we asked why, invariably they said that they felt "flattered" to be categorised as "experts" in this sophisticated, heady world of finance.

8. One gentleman was over 80; he lived in a nursing home whose fees had been increased and he had feared he would not be able to meet them. His son-in-law, a GP, who had made a small investment in David Coakley and seen a gain on his investment, persuaded his father-in-law to invest all he had in David Coakley's investment program. He lost everything he had and more.

9. SFA finally caught up with David Coakley and threw the firm and all its directors out, as well as ordering them to repay as many investors as we had been able to identify a proportion of their losses.

10. You are all very familiar with the phrase "if a thing looks too good to be true, it usually is"; let me give you another one: "If you don't understand what someone is trying to induce you to invest money in, don't invest a penny in it."

 

11. Another, even more glaring example of this, was another SFA disciplinary case: this time against a major investment house which employed a whizz salesman. This young man (he was in his twenties, with a Ph.D in maths) had devised a very sophisticated variation on a derivative instrument that his firm had been successfully marketing to the fund managers of large corporate clients for some years. The firm's own financial instrument was complex and depended on variations in international currencies; but it was comprehensible, if, in the firm's view, unsuitable for private investors. Our man decided to use his initiative and sell his own product, which he hedged about with some even more abstruse and complex bells and whistles and marketed it to the firm's high-net worth individual clients. He found five such; very rich gents, all residing abroad, with one exception. That exception was a former colleague of his who had left the bank and was working for himself. Maybe our young crook really believed in the success of his own product, because he took his friend into the secret and sold some of it to him. He was the first; indeed the only such investor to complain when he started to lose money, hand over fist, by dint of his investment in this new instrument.

12. None of the others realised they had been duped; when things started to go wrong, our crook falsified their statements of account so they thought they were making money; he then fleeced them for more money. His motive was to increase his commission, for his last year at the firm, before he fled abroad, was over £2 million.

13. When we interviewed his clients, many of whom did not want to talk to us, though they had taken civil proceedings against the firm, it was clear that none of them had understood the first thing about what they had been sold. High net-worth they may have been; curious to find out what they were committing their funds to they weren't. They were mesmerised, as so many are, by the jargon; by the appeals to their sophistication, their knowledge of the financial markets; the implication that "I don't have to explain this to you; you understand it better than I do". They didn't. They didn't ask and they didn't want to expose their seeming ignorance Between them, the five rich gentlemen lost a total of $15 million.

14. Some years ago, I was asked to speak on the topic of prime bank instrument fraud to an audience consisting largely of solicitors, accountants and their wealthier clients. I told them that there was no such thing as a "prime bank guarantee" and that if anyone tried to induce them to invest in one, he was a con-man. Afterwards, several members of the audience approached me and asked me if I was sure I was correct. They had themselves invested in prime bank guarantees, sold to them by people they implicitly trusted. They were even now waiting for large returns on their money. I wondered whether they had asked questions; what research they had conducted themselves into these novel instruments; where they had heard of them first? They were all sure these instrument had been around for a long time; they had read about them in the financial pages of the better papers; they were, after all, guaranteed by "prime banks" weren't they? It is always sad to have to shatter people's dreams; especially when they have put money up. But life's a bitch like that, isn't it?

15. If they read about them in the financial pages, I suggested, surely it was in connection with a warning "not to invest in them"? Perhaps we should all put out clearer warnings: like "Don't put your money in anything other than a large sock under your mattress". But nobody would take any notice even if the letters were in 72 pt and in red ink.

16. Another cautionary tale: even longer ago than my time at the SFA, I worked for the DPP, where we investigated boiler-room frauds (not quite as popular now as they used to be). One such, run by a Canadian fraudster was stopped in mid-flow by the Metropolitan Police (pause for applause) and the Evening Standard published a front-page photograph of the Canadian gentleman being led away by officers of the law. The half-page photograph was wittily captioned: "Mr 50%", that being the rate of interest this fraudster was allegedly offering would-be punters.

17. That evening, the Met Police received several calls from the public asking where the company was based in order that they could send money in for him to invest; one or two cheques, made payable to the Canadian's company, were received at Richbell Place (then the HQ of the Met Police Fraud Squad) asking the officers there kindly to forward their money to Mr 50%.

18. Well; what is our current experience of this type of fraud? Prime bank instrument fraud is a comparatively new kid on the block but continues to flourish. High-yield investment fraud is a growth industry, possibilities for expansion in this area made all the more exciting by the availability of the internet.

 

19. We currently have under investigation a number of major prime bank instrument frauds. Some are at the sensitive stage of investigation which means that it would not be politic for me to go into any detail about them. Those which have gone through the trial process, however, can be mentioned and illustrate the modus operandi very graphically.

20. We have had recently had cases involving both the use of "prime bank guarantees" and the involvement of professional people to help relieve the victims of their cash. In one, a solicitor was one of the principals involved; in the other, a licensed conveyancer was the prime mover. This may be coincidence, but is a worrying trend, indicating that Law Society warnings are being ignored by exactly those to whom they are principally addressed. (When the new money laundering reporting and record-keeping provisions bite on solicitors very soon, I hope we don't see a similar pattern). In some cases, we see the use of professional client accounts or "blocked" funds. Typically, a solicitor or accountant undertakes to "verify documentation" and will only release funds when "genuine" Prime Bank Guarantees or other evidence deposited, making the investment "risk free". Professionals are recruited or embroiled in this sort of fraud in order to give it an aura of respectability and safety. If you ever do see a Prime bank instrument, Prime Bank Guarantees or standby letters of credit - it is claimed these 'instruments' or 'notes' represent inter-bank debt and are traded on a secret market only available to bankers - watch out.

21. High-yield investment frauds are as old as Croesus, who, fortunately for him, didn't have to resort to such devices to make himself a gilt-edged proposition.

22. We have numerous examples of high-yield investment schemes on our books: many have international connections and several originate overseas. The US experience of trading program frauds is now mirrored over here; the novelty factor has not yet worn off in the UK and the danger signals which are now more likely to alert sophisticated US investors do not ring alarm bells loudly enough to deter victims over here.

23. There is a widespread incidence of this type of fraud. The SFO and a number of police forces in the United Kingdom are investigating cases in which "high yield programmes," "enhancement programmes," placement programmes" or "roll programmes" have been marketed by professional confidence tricksters. I am also aware that there is a significant incidence of this type of fraud in the USA. The Serious Fraud Office has worked in conjunction with the Federal Bureau of Investigation and the US Department of Justice in dealing with a number of such cases. During the course of the last ten years my department has brought a number of cases involving this type of allegation to court. The cases are difficult to investigate and prosecute because the perpetrators are aware that their schemes are likely to fall under our scrutiny and they plan accordingly.

24. Typically, in such a case, the investor is told that very substantial profits are available to individuals and companies involved in trading in bank funds and bank instruments. The investor is told that the sums involved in the business are very substantial but that trading is not open to ordinary members of the public, access being restricted to a small number of highly skilled traders to whom privileged access may be obtained. He is told that secrecy is vital and it is often a term of the written investment agreement that the investor should not disclose to any person their involvement in the investment programme or the existence of it.

25. Victims are rarely told of the precise destination of the funds. Those who introduce victims to a scheme do so in return for a commission (deducted in fact from the principal investment). The intermediary passes the bulk of the funds to a third party who again, typically, will pass them on to another in return for a further commission. None of the money is ever invested in what could be recognised as a legitimate investment capable of generating a profit. Some victims may be treated as "loss leaders" in order to encourage others to invest and some are often paid small amounts of money to allay their growing fears about the safety of their investment. These sums are met either from the principal or from funds provided by new investors. For the investor, trouble begins when the trickster's cash runs short. He is then held at bay with stories about trouble in the banking system, intervention by the IRS or the Federal Reserve. More recently, by tales of how the programs have were disrupted by the tragic events on 11th September 2001. It takes the investor a long time to realise that he has been the subject of a fraud by which time the money has been spent and the con man has moved on to other victims in a new scheme.

 

26. Those engaged in this business exchange detailed correspondence about the course of investments and the inevitable delays in the payment of instalments and the repayment of capital. In this way the perpetrators attempt to create an opaque screen of apparently legitimate activity as a protection against interference by regulatory authorities and those engaged in criminal investigations. This type of fraud is always conducted across national boundaries and from the point of view of those charged with the investigation of these offences it is often very difficult to establish the guilt of intermediaries who present themselves as innocent dupes.

27. High yield investment fraud is particularly prevalent at the moment probably because of the low rates of interest payable to investors by financial institutions. We will probably see further reductions in the future. When the Bank Rate is as low as it presently is and falling a quarter or a half percent every three months or so, there is every incentive for people who would otherwise be extremely conservative in their investment strategies to seek opportunities for their money to earn just a few percentage points more; and the words "guaranteed return", and "impressive track record" do look very tempting. Some of the less scrupulous people whose activities have been the subject of SFO investigations, batten on to this temptation and offer seemingly irresistible propositions: invest in ostriches - bonded alcohol - kruggerrands (that was some time ago, but I am a very old prosecutor) and the sky is the limit. Indeed; fresh air is all some investors saw for the money they had put in.

28. All have one thing in common. They are designed to separate the fool from his money. The profit accrues to professional and often organised criminals who commit their offences across national boundaries.

29. I have been Director of the SFO now for almost exactly five years. In that time I have seen a variety of cases referred to the SFO for us to consider taking on. Among those have been a large number of advance fee or high-yield type investment frauds. Some we have accepted for investigation; some are currently being investigated; some are in the trial process and others have simply been turned away because of the impracticability of investigation and prosecution. Apart from the apparent gullibility of the losers I have always been struck by the involvement time after time of the same people. I have also been struck by what appears to have been the phenomenon of con-men defrauding other con-men. Perhaps most of all I have been struck by the reluctance of some victims to accept that they have been duped - even to the point of complaining when the authorities intervene to rescue and repatriate their investment.

30. What are the characteristics of these transactions that might lead you to think that there is a fraud? Some of them - by no means all - are:

(a) Bank or other financial institution in some way provides funds or trading

(b) Very large amounts of money are involved in the funding/trading sometimes billions of pounds or dollars

(c) Confidentiality and secrecy - perhaps slightly illegitimate involving high Government officials or banking officials

(d) Usually risk free - guarantees by solicitor's client account, escrow accounts and Solicitors' Indemnity Fund bandied about

(e) Use of jargon

(f) Complicated paperwork - often impressively produced on computer

(g) Use of faxes - easy to forge

(h) Transaction takes place in several jurisdictions

(i) Use of offshore bank accounts

(j) Use of intermediaries or brokers

(k) Rates of return unobtainable commercially without risk

(l) Rates of interest on loans unobtainable commercially

(m) Failure to complete the deal

(n) Perhaps I should have also said a complete disregard of the truth.

(o) Secrecy and exclusivity are vital. The victim believes he has been selected because he is a very special person (he is!).

31. One or two colourful cases we have had include:

32. Burton and Andre

 

33. This was ruthless confidence trick where a bogus investment expert and her associate put up a front of wealth and success to dupe private clients and creditors out of around £3 million. They adopted a scheme they picked up in the USA; a scheme that would appear attractive, if suitably packaged, to people of some wealth. They set out to dazzle but the façade hid an empty operation built on greed and self indulgence.

34. The Hertfordshire Police received complaints from anxious creditors about two women who not paying their accounts. It seemed that the two Australian women, Evelyn Burton and Lyla André, were walking out of expensive hotels after running up considerable bills. At face value, such misdeeds would not attract the attention of my Office, but as so often happens in criminal investigations, one thing leads to another. Inquiries by the Police led them to uncover incriminating documents left by the two women in a hotel room in St. Albans. The discovery prompted the Police to refer the matter to the SFO, though the Police continued to be involved in the investigation.

35. Burton and André were long-time business associates in a Melbourne brothel. They arrived in the UK in September 1996 from the USA where they had spent some time after leaving Australia to evade the interest of the authorities for suspected crimes committed there. In the USA they met an American attorney called Daniel Wright. He introduced them a scheme known as a high yield investment programme. This was a way of attracting funds from individuals attracted to select opportunities to achieve higher returns than, say normally available on the stock market. The three of them set up a US registered company called Westgate Development Corporation. The company however was simply a vehicle for channelling money through a bank account in Maryland, USA.

36. Burton, supported by André, started in the high-living mode as soon as they arrived in the UK. Collected by chauffeur-driven limousine from the airport they proceeded to run up a substantial bill at the Berkeley Hotel in London, much of which remains unrecovered. Whilst there, they made the acquaintance of the owner of an employment agency. They were, they said, looking for staff for a country home they were planning to buy. Through this route they were introduced to what the Press have called the "horsey set". They soon set about net-working among the affluent sector of society that attends equestrian events such as the Windsor Horse Show.

37. Burton would give the impression that she was an experienced and successful bond trader and could offer interested investors very attractive returns through her finance business in the States. All this was done in an environment of champagne receptions, arriving at events in expensive cars and having servants in tow and generally demonstrating extravagance. Whatever they did and wherever they went, it was all done with impressive aplomb. The façade clearly won over many people as clients. Examples of victims include two Swedish businessmen who trusted them with over £186,000, business partners from Belfast who invested around £100,000 and an East Anglian land-owner who bought into the programme for over £90,000. There were many more. Burton was long on promises but short on delivery. As part of her way of getting into the right circles she commissioned expensive bronze horse head busts for The Arab Horse Society (but failed to pay them) and her promises to sponsor winning prize money for horse owners were not honoured.

38. But the scheme began to unravel. Disgruntled creditors and investors were asking questions. Sensing that it would be wise to disappear, Burton and André left the UK, turning up in New Zealand in January the following year, after a short stay in the Netherlands. Warrants for their arrest were issued and an extradition order issued. They contested the extradition order but at the same time became embroiled in criminal proceedings in New Zealand for a fraud committed there. They were arrested by the New Zealand Police in February 1999 and held in custody. Burton was tried at Auckland Circuit Court ten months later and received a six-month prison sentence but released on the basis of time already spent in custody awaiting trial. Charges against André were dropped. They both then agreed to return to the UK under Police escort to face the SFO proceedings.

39. On 24 January 2000, the defendants were charged at St. Albans Magistrate Court and the case later transferred to Wood Green Crown Court. The trial opened a year later. Burton pleaded guilty to one count of conspiring with others to defraud investors. André admitted she had dishonestly retained a wrongful credit and had evades a liability by deception. They were sentenced on 9 February 2001 to prison terms of 5 years for Burton and 3 years 8 months for André.

 

40. Peter Maude

41. In a second case, a bogus scheme was promoted to investors at conferences on luxurious Caribbean cruise ships and in expensive hotels in Mexico. The conferences were organised by a Dutch businessman Rudolph Linschoten who used the name 'Professor Van Lyn'. Investors paid to attend the week-long conferences. They attended lectures on the stock market, banking and offshore investment trusts but the culmination of the trip was a two hour lecture on high yield investment programmes. The programmes were described as being part of a secret investment world in which fabulous fortunes were being made by a few brilliant traders, such as Peter Maude.

42. The investors were persuaded that they could benefit from Maude's skill by pooling their money in a company called Sabre Asset Management Limited. The company was called "Sabre" because of Maude's penchant for big game hunting (another company was named "Jaguar Asset Management Limited" and Maude's house, 'Cornercroft', in Wilmslow was bought in the name of "Leopard Asset Management Limited").

43. Some 195 victims each sent a minimum investment of US $25,000 to an Isle of Man account, operated by Sabre, believing that the funds would be used to buy bank instruments which would then be "traded" with very profitable results. In fact almost as soon as it arrived in the account the money was used to pay for Maude's house in Wilmslow and shooting equipment, including expensive shotguns by Purdey and Holland and Holland and hand made rifles by T & T Proctor. Maude also purchased a Range Rover for himself and cars for his wife and for his children.

44. Sabre was controlled by a UK solicitor, Marshall Ronald, from his home in Altrincham, Greater Manchester. Ronald was also prosecuted but acquitted by a jury on 23 March 2001. He explained in a 7 week trial that he had been deceived by Maude whose lies he had believed.

45. The second offence involved a conspiracy with a man from New York, Henry Geier. Maude and Geier persuaded a Singapore businessman to invest US $1.2m in Maude's investment programmes. The two conspirators then divided the money between them. Maude spent his part of the proceeds on high living and luxuries including an MG sports car for his girlfriend, a 26 year old Danish dancer.

46. Assets to the value of £3 million have been seized in the USA and the UK, amongst them the house bought by Maude, his guns, shooting trophies and a number of cars including a Morgan and the MG. The SFO intends to apply for a confiscation order.

47. (In February 2000 the SFO discovered that Maude was still committing offences on bail and applied for his bail to be revoked, he has been in prison since then.

48. Rudolph Linschoten was prosecuted in Orange County, Los Angeles and was sentenced to 5 years imprisonment for his part in the fraud. His girlfriend, Freda Freitas, who had also been involved in the fraud, received a suspended sentence. Geier was prosecuted in the USA and is facing a prison sentence.)

49. So these are the frauds we are dealing with. What can we do about them?

 

50. Disruption

51. Most of you here today are law enforcement officers and disruption of fraudulent schemes is your stock in trade. The best method of disruption is to tell the victim not to part with his money but in such circumstances what can one do?

  • Firstly, I think there needs to be a concerted programme of education advising people not to invest in these schemes. People need to be made aware of the dishonest nature of these transactions and that their money is at risk if they do.
  • Secondly, inform banks of suspicious transactions.
  • Thirdly, professionals involved - often solicitors and accountants - can be warned that they are participating in schemes that are unlawful. The Law Society has sent formal warninbgs to all solicitors and evidence can be given to that effect. The Met are developing a pro forma which the person is asked to sign as evidence of having received it which if nothing else puts them on notice that what they are doing is, or what they are involved in, is likely to be dishonest.
  • Inform the Law Society.
  • Inform the regulators, FSA etc.
  • Inform overseas regulators and investigation agencies.
  • What about publicity in the press? Pretty difficult to do until there is a conviction but some papers and some journalists are prepared to run with these stories.

52. Investigation

53. At a time when police resources are fully stretched. At a time when the demands on you are increasing all the time. At a time when detective resources are in great demand (though sometimes I fear not highly valued); where examination of the unused material may tie up resources for months on end it is, perhaps not unsurprising, that senior officers query the need to investigate an offender living and working in their area but where all the victims are outside the United Kingdom let alone outside the County. Those of you from overseas jurisdictions will have similar experiences I am sure. However, a failure to investigate such crime will in the long run encourage not only fraudsters but the other crime which is often interrelated with it to base it in the UK. It is unacceptable that professional criminals should be able to steal and enjoy the proceeds of their crimes at the expense of others.

54. How do we at the SFO investigate these complicated matters? Easier said than done. Let me give you a few pointers - as we say over here, probably teaching my grandmother to suck eggs.

55. Firstly, you are unlikely to successfully investigate in any reasonable timescale unless adequate resources can be made available. Those do not have to be police officers - or even the SFO. What is required, right at the start, is an exercise to scope what the investigation is likely to require and then a decision made on the resources that are to be made available and, I hope, kept available. A plan carefully thought through, altered as circumstances change will help keep the focus on what you are doing and why you are trying to do it. Almost always you will need to involve the prosecutor at an early stage. If you have any hope of getting the case home you will need to ensure that what you do obtain can be and will be going to be used in Court. Wherever possible try not to execute warrants, hoover up vast quantities of material which you spend the next nine months pouring over. The mechanics of your document control systems need to be fully understood by all involved.

56. What evidence will you need?

57. All cases depend on their own particular circumstances but I would suggest:

58. Identify the victims.

59. Try and obtain their stories - you may have to go abroad to do so.

60. Follow the money - almost certainly you will have to go abroad to do so using Letters of Request. To do that you will need to involve the CPS/SFO. In some cases where there are multiple victims, witnesses, money trails you may have to arrange to issue large numbers of Letters.

61. One of the most difficult things to overcome in these types of cases is proving that the intermediary was complicit and had knowledge of the fraud. There is great scope for each to blame the other.

62. Another difficulty is in obtaining negative evidence to show that the commercial transaction underlying the fraud is a sham. Though, as I have said, prime bank instruments do not exist; they have no meaning as far as I am aware in banking law or banking practice and are used as a moveable feast - it is difficult finding witnesses who are prepared to say so. I know of no simple way of disproving a particular class of transaction. Each must be examined and it may be possible to obtain expert evidence that this transaction is commercially unviable.

63. Prosecution

64. As long as we do not have a substantive offence of "fraud" the available charges have to be picked from the wide selection of statutory theft and deception offences still in force; they may or may not fit the facts of the case -

  • Conspiracy to defraud
  • Fraudulent trading
  • Section 47 Financial Services Act 1986 (fraudulently inducing an investment)
  • Illegal deposit taking under the Banking Act
  • Money laundering under the Criminal Justice Act
  • Theft
  • Obtaining by deception

 

65. Common methodology in high yield investment frauds

66. Points or pyramid selling methods are often employed, with hierarchical layers of introducers or sales managers who recruit others and retain their commissions, fees or expenses from funds collected. The involvement of so many in the passing on of promises, progress reports and inducements to invest makes prosecutions difficult - lower level introducers are often reckless rather than deliberately dishonest and many invest and lose their own savings or recruit family, church or mosque members. Some disappear, often to jurisdictions from where they can't be extradited, enabling others to blame them at trial.

67. Funds are removed from the client accounts or so called 'blocked' accounts into a sophisticated web of offshore companies and accounts in FATF non compliant jurisdictions. Funds are also dissipated in commissions and intermediaries fees including legal and accountancy fees. Effective restraint and confiscation in these circumstances is impossible.

68. Enormous sums can be generated in a short time by an efficient pyramid organisation. US$ 10-50m schemes are not uncommon and victim lists (when found) can contain thousands of names from all over the world. English law no longer allows specimen charges to be brought and proving the true scale of these frauds before the court can be a nightmare.

69. Equally enormous, and patently unrealistic rates of interest or 'trading profits' are promised to victims, usually 'tax free'. Victims who invest cash are often unwilling to testify to their losses for tax reasons or are embarrassed by their own greed.

70. Schemes and programmes are often promoted for short periods (1-3 months) at very high rates of return (10-30% per month not uncommon), but invariably most victims are persuaded when the term is up to re-invest or 'roll over' their capital and profits in another scheme.

71. Short term schemes are used to promote urgency and excitement and give victims minimal time to think carefully. Dire penalties are threatened for breach of confidentiality and sham legal undertakings are used to dissuade complaints.

72. Investors who demand repayment or interest are of course paid, at least in the early stages of a scheme's life. Incoming funds are usually sufficient and satisfied investors are encourage to recruit others.

73. Great play is made of the low risk or risk free nature of the Investment or trading. Law Society, ICAEW or AA professional insurance is claimed for funds deposited in client accounts. We have encountered commercial insurance policies too. Such policies are usually avoided when the fraud is discovered.

74. It is often extremely difficult to identify the organisers of these schemes. Brass plate companies directed, by tax haven lawyers are favoured; but investment patterns can be deliberately circular to confuse the identities of promoters, introducers and victims.

75. Finally, and perhaps inevitably, the multi-national nature of these schemes (aided by internet promotion from sites in obscure jurisdictions, frequently changed to other locations and ISPs) creates obvious prosecution difficulties. Until would be investors (and their bankers and professional advisers) learn to be more sceptical; law enforcement agencies will continues to be overwhelmed. This is a battle that can only be won by victims themselves. It may be predominantly a scourge of a modern, leisured and moneyed society but sadly the poorer countries are not immune.

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Il Sistema Financial Polis, di cui Ing. Fabio Sipolino è l'unico Fondatore, è basato sulla rivoluzionaria filosofia WIKI. Qualunque informazione riportata che non fosse in regola con la NORMATIVA VIGENTE sarà rimossa o riformulata.

Qualunque PROSUMER che notasse un' anomalia in contraddizione con la NORMATIVA VIGENTE dovrà doverosamente avvertire l' unico Fondatore e Detentore del Marchio Financial Polis:  Ing. Fabio Sipolino

 

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Il Sistema Financial Polis, di cui Ing. Fabio Sipolino è l'unico Fondatore, è basato sulla rivoluzionaria filosofia WIKI. Qualunque informazione riportata che non fosse in regola con la NORMATIVA VIGENTE sarà rimossa o riformulata.

Qualunque PROSUMER che notasse un' anomalia in contraddizione con la NORMATIVA VIGENTE dovrà doverosamente avvertire l' unico Fondatore e Detentore del Marchio Financial Polis:  Ing. Fabio Sipolino

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