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:
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Companies lend money to banks all the time for short periods. The banks pay high interest rates on these loans
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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.
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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:
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First, he invests $5,000 as a trial. One week later, the gentleman hands him $5,000, plus $2,500 in interest.
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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.