Warning About Phony and Bogus High Interest Rates

By | 2015-05-21T04:55:39+00:00 June 4th, 2014|General Business|

By Bill Broich

A recent alert from the Financial industry Regulatory Authority (FINRA) warns of scams related to extremely high interest rates offered on High Yield Certificates of Deposit (CDS).

Here is their link to scams: http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/

Here is another link: http://www.thinkadvisor.com/2014/05/29/finra-warns-on-fake-high-interest-cds?

Consumers need to be on guard when something too good to be true is offered; the simple answer is this “There is no such thing as a free lunch.”

Advice for protection yourself against scams would to be on guard against pitches that sound like this:

  • significantly higher than average interest rates
  • promotions that claim are only available to certain customers.
  • offers from companies you don’t recognize
  • promotional offers from well-known companies with a non .com address for responding
  • offers that set a short time limit for doing business

The alert advises investors who believe they have been a victim of a CD scam to contact their financial institution immediately to report a loss or theft of funds through an electronic funds transfer.

Unfortunately I am all too aware of the danger of bogus offers and scams that take advantage of those who are the weakest.

Here is a true story about a (current) client of mine.  Dave and Doris (not real name) were schoolteachers in Tacoma Washington.  Doris had been ill  and they decided to take an early retirement to enjoy the time they had left.  The problem is they didn’t quite have enough money; they needed it to grow just a little bit more.

A friend of theirs introduced them to a father and son swindler team in Tacoma, named James and Dick Edwards (real).  The scam was simple, high yield “prime” notes offering very high interest rates, Dave and Doris along with 1,300 others bit. They lost a total of $97.3 million.

Dave now describes his life a “torturous”, and he is broke. He and Doris lost a total of $175,000, money needed for retirement, money needed for sustaining life.

We can all argue that greed stepped in and tapped Dave and Doris on the shoulder, after all they made the decision to invest with the swindlers.  But the results in human tragedy overshadow what really happened.  Doris has now passed away and Dave is left with his memories both happy and sad.

The Edwards?  They received 27 years each and are serving their time in San Quinten prison, the irony of all this for me is a little broader.  My daughter lives in San Rafael which is about 3 miles from San Quinten.  When I visit her I can see the prison from the freeway and every time I glance over I think of the swindlers (Edwards) and how sad Dave is now.

Want to know what hooked Dave, Doris and the other 1,300 investors?

The hook was the interest – 4 percent per month – and the bait was a mixture of friendship, religion, fanciful tales of unnamed foreign banks and the kind of whispered secrets that bound investors together into something resembling a private club.

It was a type of Ponzi scheme, a “prime bank note” operation. Certain European banks, so the legend went, share large concessions and profits. Only the big boys play.

But the Edwards’s knew somebody, they said. They had a way inside. They were offering the little guy a chance to eat at the grown-ups’ table. This was real money.

I hope the Edwards apply for parole; I will make sure Dave is there to testify at the hearing.

Here is the link regarding the case, trial and sentencing regarding the Edwards: http://www.fraudlaw.org/Fraud/Fraud%20by%20Type/Ponzi%20and%20Loan%20fraud/RDI/05%2004%2017%20God%20Bless%20RDI.htm
 

About the Author:

Bill Broich
Bill Broich is a well-known annuity expert with over 30 years of experience. He has written hundreds of articles on annuities and other financial topics, and has been a featured commentator on TV, Radio and the Internet. To follow Bill's profile, click here.