Monday, April 15, 2013


Just when you think you have heard it all, some white-collar criminal comes up with something even more amoral. In this case, a slippery operator who has made his illicit profits exploiting desperate businessmen, through requiring advance payment of "underwriting" fees,  that never result in funding, has taken the advance fee fraud to another level. Allow me to explain:

(1) The fraudster demands, and gets, an advance fee of, say $85,000, from the needy businessman. The victim believes that it is a fee for finding operating capital for his business.

(2)  The fraudster's company then creates and issues bonds, instruments of indebtedness, or other securities (which are worthless, as the company is a shell) which are shipped to another bogus company.

(3)  Note that neither of these two "financial firms" has any sort of broker-dealer, or investment adviser license, nor are the securities registered nor exempt from registration.

(4) Finally, the second firm "places" the bonds or securities overseas, touting them as indebtedness of a reputable company. In truth and in fact, the securities are worthless, as the shell company has neither tangible assets, nor cash flow. When the first company defaults on the payments on the bonds or debts, what happens, and to who ?

(5) The original victim was funded, but wait a minute. is he not a potential co-conspirator in common law or securities fraud, when the overseas investor learns that he has purchased worthless paper. And what additional securities violations have occurred ?

Imagine a businessman receiving funds through such a fraud, using the money to start up his new venture, only to lose it all later in subsequent civil and criminal proceedings. Worse, what if the overseas buyer is a money launderer for a narcotics kingpin, who is later convicted, and the money, which was criminal proceeds, is forfeited to the United States Government ?

Bottom line; whenever a funding source even hints that the proceeds are coming from outside your country, you need to immediately ascertain:

(1) Are there securities issues, and were they resolved to your lawyer's satisfaction ?

(2) Will due diligence be performed on the overseas funding source, and will you have access to those materials ?

(3) Are the bonds/indebtedness/securities legitimate, do they have marketable value, and will this entire venture come back later to haunt you ?

Any permutation or combination of the advance fee scheme is usually deadly; make sure you never involve yourself in one, or you will certainly regret it.

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