Feds Bust Bank Guarantee Scam

July 20, 2011

If I get one more phone call from a client or lawyer seeking my input about an amazing opportunity to invest in bank guarantees, I am literally going to try and reach through the phone and strangle the caller. Of course, in this digital age, I'm not sure how I'm going to accomplish that if the call comes in on my cellphone, but I watched enough cartoons as a kid to know that I can probably extend my arms through the wires of an old-fashioned landline. Note to potential callersDo not call me about bank guarantee scams on my landline.

An Elite Idea

Kadar M. Josey, 36, of Tucker, Georgia, was the secretary and chief financial officer of Elite Resources LLC ("Elite") and the secretary of Elite3 Holding Corp ("Elite3").

Okay, that's as an innocuous start to one of my Street Sweeper columns as I've yet to write. Frankly, Josey's titles look impressive. Wha's even more impressive is Josey's name in the caption of a Securities and Exchange Commission ("SEC") Complaint for Injunctive ReliefSEC v. Elite Resources, LLC, Elite3 Holding Corp., Patricia Diane Gruber, and Kadar M. Josey (10-CV-3522, N.D.GA, October 29, 2011).

Federal Injunctive Action

The SEC's Complaint alleged that from at least April 8, 2010, through at least August 20, 2010, Josey, along with his co-defendant Gruber, and the two cited Elite companies, raised approximately $2.85 million from at least nine investors. In raising these funds, the defendants represented that:

  • investors could draw upon bank issued guarantees worth millions of dollars without having to repay the withdrawn funds (in one case representing a 40,000% return on investment); and
  • that investor funds would be held in escrow until the bank guarantees were issued.

Unfortunately, those representations were false. No such bank guarantees existed. Worse, almost immediately upon receipt of the investors' funds, the defendants misused the investments for undisclosed purposes. When investors demanded performance, the defendants provided them with a fictitious guarantee certificate purportedly issued by Barclays Bank.

On June 23, 2011, a judgment was entered in federal court in Georgia by consent against Josey, permanently enjoining him from future violations of various federal securities laws.

SEC Administrative Proceeding

In anticipation of the institution of public administrative proceedings by the SEC pursuant to Section 15(b) of the Securities Exchange Act of 1934, without admitting or denying the findings, Josey submitted an Offer of Settlement which the SEC accepted. In The Matter Of Kadar M. Josey, Respondent (Order Instituting Administrative Proceedings Pursuant To Section 15(B) Of The Securities Exchange Act Of 1934, Making Findings, And Imposing Remedial Sanctions, Securities Exchange Act Of 1934, Release No. 64912, Administrative Proceeding File No. 3-14469/ July 18, 2011)

Accordingly, Josey was barred from:

  • association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and
  • participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities.

Bill Singer's Comment

As is too often the case with these scams, note the references in this article to

  • millions of dollars fraudulently raised;
  • unbelievable rates of return;
  • secure escrow accounts;
  • false representations;
  • non-existent bank guarantees;
  • misuse of proceeds; and
  • fictitious documentation

So, you might ask, how do you determine whether a deal is real or not?

For starters, always keep in mind that if it sounds too good to be true, then it probably is.  As if that drippy bit of advice hasn't been printed far too many times in this post-Madoff era.  Talk about  useless information. Still, fraudsters count upon the short memory of the investing public.  Frankly, that's a sound bet.

Maintain an ever-cynical attitude about investments and those pushing them. In the case of a purported escrow account, ask to see proof that it exists - read over the Escrow Agreement, call the bank or lawyer where the account is supposedly located and confirm its existence (and make sure that the telephone number you're calling is a real one!). Sadly, even if you do those things, chances are that a crook with an escrow account really doesn't have an escrow account.

Spend a few bucks to do a background check of the principals and their companies.  Look for prior/ongoing criminal histories, lawsuits, bankruptcies, and the like.

Ask for financials and then require that any involved instititions are authorized to confirm the representations - in writing, on letterhead, and in a manner that you could go to the institution and pick up the document.  If you're going to simply have it mailed, faxed, or emailed to you, how the hell will you know who's actually sending it? As far as the letterhead goes, if you have a few seconds, I can probably fake any company's stationery on my computer; give me a scanner and it will be a work of art!

At the end of the day, always keep in mind that con artists get away with their crimes because they rely upon their pigeons not to ask questions.  Why are you interrogating me? Don't you trust me? Listen, I don't have time to answer these questions - if you're not sophisticated enough to know a once-in-a-lifetime investment opportunity then, please, keep your money.

Sadly, I offer a prescription for little more than trusting no one and nothing. Hey, what can I say, it's dangerous out there.