SEC Warns Investors Not to Fall for “Prime Bank” Scams

Securities fraud frequently involves misleading potential investors by using complicated-sounding language. After all, the more complex the investment sounds, the more likely it is to earn enormous profits, right? At least that is what the perpetrators of the fraud want you to believe.

The U.S. Securities and Exchange Commission has identified a number of schemes that operate along these lines. They are known as “prime bank” scams. Not every such scheme actually uses the description “prime bank.” But they all fall within certain parameters.

A prime bank scheme involves the sale of a non-existent product. The scheme operator purports to offer investors a chance to join a secretive, “invitation-only” program. Typically the operator claims the investment is backed by a well-known international financial institution, such as the World Bank, the Federal Reserve or the International Monetary Fund. More to the point, the scheme operator promises the investor unusually high returns in a short period of time. And, of course, the investor is told there is essentially no risk attached to their investment.

As the SEC explained in a recent Investor Alert, all prime bank programs—otherwise known as “standby letters of credit,” “private funding projects,” “high-yield trading programs,” among other things—are fraudulent. There is simply no such thing as a prime bank investment. They are not backed by any legitimate financial institution or offered by any reputable licensed securities broker. They should be avoided at all costs.

SEC v. Spectrum Concepts, LLC

Sadly, not everyone does. The SEC recently announced administrative charges against three men accused of running a prime bank scheme out of Florida. The SEC alleges Spectrum, a Florida limited liability company owned and operated by Donald Worswick, ran a prime bank scheme for several months in 2012. The SEC says Worswick and two co-conspirators sold $465,000 in non-existent investments to “at least five elderly investors.”

The SEC said Worswick was attempting to raise money for his concert promotion business. Worswick’s alleged co-conspirators, Michael Grosso and Michael Brown, helped him draft documents to help sell fictitious investments. They essentially created a facade without any actual mechanism to invest client funds.

Investors were given these false documents, which led them to believe they could earn astronomical returns within a few weeks. For example, one investor was told that he would receive $100,000 per week in profits for an entire year—a return of more than 4,600%. Other investors were told they would receive returns within a month.

But in reality, according to the SEC, Worswick and his partners simply pocketed their clients’ money for their own use. The SEC said Spectrum and Worswick received about $245,000 through their prime bank scheme. Only $45,000 was returned to investors. The remaining $200,000 went to pay off Worswick’s collaborators, as well his own personal expenses.

The SEC has charged all three men with violating federal securities laws. They have been ordered to appear before an SEC administrative law judge within 60 days to admit or contest the charges. If they choose to contest, the judge will hold a hearing and issue an initial decision, which is ultimately subject to review by the Commission itself.

If you have been the victim of a prime bank program or similar type of scheme, it’s important you understand your legal rights. Contact Florida securities fraud attorney Gregory Tendrich, P.A., if you need to speak with someone right away.