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Release Date: May 20, 2002

For immediate release

The Federal Reserve Board on Monday alerted financial institutions and the public to the continued proliferation of fraudulent schemes involving financial instruments.

In 1993 and again in 1996, the Federal Reserve issued advisories concerning illegal activities claiming to involve a financial instrument issued by a “prime bank.” These questionable transactions promise extremely high rates of return with little or no risk and often insinuate the involvement of a well-known government agency such as the Federal Reserve, the World Bank, or the International Monetary Fund.

The Federal Reserve knows of no legitimate use of “prime bank” financial instruments and does not license anyone to trade any type of financial instruments or to act as the Federal Reserve’s agent to sell or redeem them.

In an advisory letter to supervisory authorities at the twelve regional Federal Reserve Banks and to banking organizations supervised by the Federal Reserve, the Board again stressed the dangers associated with investing or participating in these illicit transactions and listed several hallmarks or “red flags” that have been associated with many fraudulent scams.

The Federal Reserve also noted that, since the issuance of the Board’s 1993 and 1996 alerts concerning “prime bank” financial instruments, many wrongdoers have stopped referring to “prime bank” instruments and begun to use the names of legitimate financial instruments in their scams, such as “medium term notes” (often referred to as “MTNs”).

Federal and state law enforcement agencies, as well as the Securities and Exchange Commission, have investigated and prosecuted numerous individuals associated with “prime bank” or other investment schemes involving financial instruments.

Individuals, banking organizations and other entities that have been invited to participate in transactions with the characteristics described in the new alert are encouraged to contact the local offices of federal law enforcement authorities as well as the SEC.

The Federal Reserve's advisory letter is attached.


2002 Banking and consumer regulatory policy

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Last update: May 20, 2002