Monday, January 28, 2013


In this distressed economy, raising capital is next to impossible for start-ups without collateral. in desperation,  business owners are combing the Internet for funding sources, and often getting burned in the process. Advance fee schemes, which promise to secure funds from some "well-established" source, are proliferating, and often taking the businessman's last bit of capital through fraud.

Regular readers of this column are familiar with the series of articles I have written in recent months, detailing the trials and tribulations of the victims of Atlantic Rim Funding Corp., which promised the sun, moon and stars, and is now defunct, insolvent, and with an unsatisfied multi-million dollar judgment of record against it.

Another one that I had experience investigating recently had no assets nor was it an ongoing, operating financial service business. It was located on the second floor of a family contracting company, and claimed to issue bonds, for millions of dollars, which would them be transferred to another company, which company would sell the (worthless) bonds overseas. If pigs could fly, then the business needing capital would magically become funded through this process. In truth and fact, it has all the bells and whistles of an advance fee scheme, which steals your deposit, and gives you nothing but a recurring nightmare in return.

I found the "venture capital" company was worthless, but such a scheme, if real, raises other, serious issues:

(1) What about the Securities Act of 1933 ? Through what stretch of the imagination are these exempt securities ? Is there an Opinion of Counsel, issued by a reputable national law firm, available to review BEFORE your pay the advance fee ?

(2) How could one perform Enhanced Due Diligence on the investment funds coming from "offshore investors" ? Is this bona fide hedge fund money, or narcotics proceeds ?

(3) Since, in essence, the bonds are not backed by anything, is the borrower now a co-conspirator with the fraudsters, assuming that the money is actually invested ?

Frankly, most of these issues are purely academic, because the funding generally ( 99% of the cases) never arrives, and the contract that the advance fee schemer has with the borrower has language which excuses the return of the "mandatory" deposit put up by the borrower. he is not totally without any capital at all, since he risked what little he had to get the funding, which was never going to happen.

When a bank client comes in, to draw out a large sum, and tells you that he is secured funding from a venture capital source, show him this article.

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