WASHINGTON – Jo Ann Stanhill thought of herself as a cautious investor.
So, when a former co-worker told her about his success with an investment advisor, Stanhill, a former bookkeeper, set up a meeting with the advisor.
“He had all the right credentials,” Stanhill said. “He was a certified financial planner. He said he was a CPA. He had a picture of his brother, the priest, on his credenza.”
Stanhill said the man further won her trust by telling her to make out her investment checks to “the institution” rather than to himself.
That institution, Commercial Bank & Trust, was not a bank at all but was an Ohio company that ultimately took $10,000 of Stanhill’s money in what regulators call a “prime bank” scam.
Maryland Attorney General Joseph Curran on Thursday joined the North American Securities Administrators Association to warn of an increase in such scams. According to the association, state regulators — including those in Maryland — have brought actions over the past three years on behalf of 41,000 people who invested at least $470 million in prime bank scams.
“We need to get more information to the public that investments offered as high-return, low-risk, prime bank, off-shore are fraudulent,” said Curran. He urged state residents to call the Maryland Securities Commissioner’s office with questions about an investment or to check out a person promoting them.
According to the securities association, promoters in prime bank scams pitch securities or instruments said to have the backing of world-class, elite banks that do not exist at all.
“It’s the financial equivalent of the tooth fairy,” said Marc Beauchamp, the association’s executive director. “Prime bank notes are financial fiction.”
Curran said the scam offers high rates of return — as high as 12 percent annually — with only low risk. He said the current economy makes the scam all the more appealing, as job cuts and “up and down” security and equities markets drive people to lower-risk investments.
Beauchamp said the current rise in prime bank scams is also partly due to the spread of the Internet, which lets con artists reach a greater audience.
Curran’s office believes at least 170 people, including Stanhill, lost as much as $6.6 million in a prime bank scheme that ended last year when the former stock broker running the scheme was caught violating a court order against selling securities in the state.
Curran said the Howard County man passed off promissory notes from the non-existent Commercial Bank and Trust as certificates of deposit. State regulators also said the tried to trade nonexistent bearer bonds, promising investors 100 percent return within two months, said Maryland Securities Commissioner Melanie Senter Lubin.
“But we still have to let people know that high return and low risk is very suspicious,” Curran said.
Of the estimated $6.6 million lost in the Maryland scam, victims have only recovered about $250,000. Lubin said that money is being held by the courts while officials determine how it should be paid back to the individual victims.
“Our action was really to get him out of the securities business in Maryland,” Lubin said, adding that more money might be freed in the future from Securities and Exhange Commission litigation against Commercial Bank & Trust Holding Corp. in Ohio.
“I’m happy that we in Maryland stopped this guy,” Curran said. “I would that we had stopped him sooner. But at least he’s out of business.”