FINANCIAL INSTRUMENTS—“Prime Bank”; Investment Scheme Advisory

On October 21, 1993, the Federal Reserve Board and other federal banking agencies issued an interagency advisory concerning “prime bank” financial instruments. The 1993 advisory warned that there were illegal schemes claiming to involve financial instruments issued by a “prime bank” and claiming unrealistic rates of return or other benefits. Since the issuance of the advisory, law enforcement and regulatory authorities in the United States and abroad have prosecuted numerous individuals for their participation in “prime bank” scams, and millions of dollars in illegal proceeds have been seized.

In one federal case involving a program that supposedly invested in “prime bank” financial instruments, a U.S. Court of Appeals stated unequivocally that “Prime Bank Instruments do not exist” (Securities and Exchange Commission v. John D. Lauer, 52 F.3d 667, 669 (7th Cir. 1995)).

Despite the notoriety given to illegal “prime bank” scams and the efforts of law enforcement authorities over the past several years, fraudulent investment schemes supposedly involving “prime bank” financial instruments and other investment opportunities involving extremely unusual rates of return, which are sometimes referred to as “roll programs,” are still proliferating. Unlike the schemes the Federal Reserve encountered in 1993, many of the recent frauds state that the Federal Reserve sanctions the investment program, oversees trading in secret “prime bank” markets, licenses or registers traders of “prime bank” financial instruments, has agents in offices around the world to handle investments and redemptions of “prime bank” instruments, or is in some other manner involved with an investment opportunity.

The advisory reiterates that the Federal Reserve is not aware of any legitimate use of any type of “prime bank” financial instrument. Also, the Federal Reserve does not participate in any manner in any “prime bank” -related investment program. The Federal Reserve does not license or register traders, does not have agents who process or oversee investments, and does not sanction, authorize, license, or otherwise administer any type of investment program or plan for the public in the United States or abroad.