Investment and Banking Scams

There are many variations of investment and banking scams that fraudsters may concoct to trick naive investors and lawyers. 3 One good example is the so-called "prime bank scheme." Characteristically, the fraudster tells a potential investor that he or she is being invited into the world of "big money" through a tremendous investment opportunity that will generate incredible returns. The opportunity often involves the financing of large, sometimes foreign, and usually credible "prime" financial institutions such as the national banks, the World Bank or the International Monetary Fund. The institutions may be prime, but the promoters are not.

Another example of an investment scam is the Ponzi or pyramid scheme, where investors are tricked into placing their money into a project that in essence robs Peter to pay Paul. Again, large returns are promised, and an investor puts money into a scheme that sounds good but is not specific—terms used include "global currency arbitrage," "hedge futures trading," "high yield investment properties," and "exceptional mortgage opportunities." For a time, investors do receive returns, but not because the scheme has access to any exceptional investments. Rather, it's because the first wave of investors is paid out using the money of the second wave of investors, and so on. Eventually the scheme gets top heavy and collapses, the fraudsters disappear and the lawyers and investors are left to cope on their own.

The lawyer is of key importance to the legitimacy of these types of schemes. The investor, once hooked, must be convinced to turn over his or her money. The solution is to find a lawyer who has a trust account, and is impressed with confidentiality and solicitor-client privilege obligations. The mere presence of a lawyer on the landscape will make many investors believe the scheme is legitimate and their money protected. Some lawyers are even hooked into giving so-called independent legal advice or signing officer certifications pursuant to s. 41 to 48 of the Land Title Act.

Once the money is in the lawyer's trust account, it can be moved around without attracting much attention because a lawyer's trust cheque is by its nature respected and relatively anonymous. In reality, once the money is in the lawyer's trust account, he or she is most often directed to place it off-shore into an account that is untraceable, and the money is never seen again.

3 For an expansion on this information, see the article "When Scamsters Target Lawyers" by Todd Follett in the May-June 2003 Benchers' Bulletin. More information is also available in Fraud Alerts.