Greg, a retired policeman, is sitting in his favourite coffee shop thinking about ways to make his retirement more comfortable. He starts to chat with a well-dressed gentleman seated at the next table. As they talk, the man reveals that he was once a bank manager, but quit after he found another way to make money.
He tells Greg about an investment called Prime Bank Instruments and how it works:
Companies lend money to banks all the time for short periods. The banks pay high interest rates on these loans
Most individual investors don’t have enough money to do this on their own. But if they pool their money together − just as people do in a mutual fund − they could get in on the high rates of return.
The investment is risk-free and the money is held in trust in a lawyer's bank account.
Greg is a little suspicious because he has never heard of this type of investment before. He likes the idea of investing with a bank, though. Here’s what he does:
First, he invests $5,000 as a trial. One week later, the gentleman hands him $5,000, plus $2,500 in interest.
Greg decides to invest another $10,000. One month later Greg receives a cheque for $10,000, plus $5,000 in interest.
Then, the "former banker" asks Greg if he would like to make some "big" money. The retired officer takes out a $100,000 mortgage on his paid-off home and hands over the full amount with the expectation of making a double-digit return on his investment.
Now, three months later, he has yet to see a penny of his money back. Greg has become a victim of a Prime Bank Instrument Fraud – a scam that has been around since the 1980s.
Lesson learned: Scam artists know they have to get your trust. They often let you make money first, before they scam you. Remember: If it seems too good to be true, it probably is. It may even be illegal.