SPRINGFIELD –– Secretary of State Jesse White warned Tuesday that losses from "prime bank" scams are rising dramatically. Last year, one source reported losses at more than $1.5 billion.
Low interest rates and volatile equity markets have caused many Americans to rethink their investment strategies, often turning to investments with the promise of high yield returns. Promoters of these prime bank-trading programs tell investors that they can yield huge returns with no risk. In reality, neither prime banks nor the instruments they claim to trade exist.
"People want to believe there are secret ways to make fabulous amounts of money," said White. "But there are no shortcuts in investing. Simply put, prime banks don't exist."
In Illinois, Omega Trust and Trading Ltd. promised 50 to 1 returns on investments in "prime bank notes." Secretary of State Securities Department investigators assisted in uncovering a scam that had resulted in more than $18 million defrauded from investors worldwide. Nineteen people were indicted and all defendants either pled guilty or were found guilty after trial.
In another case of investment fraud, Lynda Frykholm of Rockford was sentenced to 12 years in prison after she was found guilty of defrauding 220 investors from all over the U.S.
Prime bank scam artists come from all backgrounds and use their ill-gotten gains to maintain lavish lifestyles. In the Omega case, the company's founder, Clyde Hood was a 66-year-old electrician in Mattoon. Money from investors was used to pay for dozens of classic automobiles. Frykholm used swindled money to purchase two vacation homes in Lake Geneva, Wis., four cars, a speedboat and several trips to Switzerland.
Before making any investment, Secretary White urges investors to ask the following questions:
Has the seller given you written information that fully explains the investment? Make sure you get proper written information, such as a prospectus or offering circular. The documentation should contain enough clear and accurate information to allow you or your financial adviser to evaluate and verify the particulars of the investment.
Are claims made for the investment realistic? Some things really are too good to be true. Use common sense and get a professional, third party opinion when presented with investment opportunities that seem to offer unusually high returns. Pie-in-the-sky promises often signal investment fraud.
Does the investment meet your personal investment goals? Whether you are investing for long-term growth, investment income or other reasons, an investment should match your own investment goals.
Are the seller and investment licensed and registered? Call the Illinois Securities Department to find out. If they aren't registered, they may be operating illegally. Contact the Department toll free at (800) 628-7937 or at the Secretary of State web site under Illinois Securities Department.
