Swift MT 760 and MT 799, the

Real Story
mt-760-mt-799-real-storyIf you have been in the private placement business for a
while, you probably know that there are plenty of acronyms associated with trade
programs. As someone new to the business, you may hear phrases like: MTN,
BG, SBLC, PPP, DTC, CIS, POF, and say, what the heck are they talking
about? Well, though it is good to know private placement lingo, cool sounding
terms do NOT close deals. If you want to protect yourself and succeed in private
placement, you MUST understand the 2 most important acronyms of all, the MT
760 and MT 799.

Whether you are a client, broker, consultant, or even just a beginner, the MT 760
and MT 799 are two terms that are critical to learn inside and out!. Many times, if
you speak to brokers who claim to have trade programs, you can tell if their
investment is real by asking just one question, Explain the MT 760 and MT 799,
what are the risks and fees? If you get an answer that sounds similar to the
explanation we give below, then you may want to dig a little deeper! If you dont,
recognize that these people are less educated than they claim, and may not be the
best option. First things first, lets explain the definition and application of these
terms in the modern day private placement business.

The MT 799 is a swift message used between banks to communicate in written

form, and is usually referred to as pre-advice. For example, Bank A may send a
MT 799 to Bank B stating: We confirm XXX amount on deposit and are ready to
block this amount via MT 760 in favor of account XXX at your bank. Please
confirm readiness and receipt. Typically, the MT 799 will be needed directly before
the MT 760 is issued, and there may be small fees. Despite what most brokers may
claim, the MT 799 is NOT used as collateral,and can NOT be used to enter a private
placement program. Now that we know about the MT 799, lets take a look at its
cousin, the Swift MT 760.

The MT 760 is a swift message used to block funds in favor of someone other than
the owner, collateralizing the asset via this message, while allowing for loans and
liens against it. For example, most private placements require the investor to send
a MT 760 to the traders account, allowing the trader to use this swift as a collateral
guarantee for their bank. Again, despite what many brokers may claim, this is NOT
everything you need to know about the MT 760. Now that you do know the
definitions and applications, lets cover the key points no one ever brings up about
the MT 760: the FEES, and the RISKS

First and foremost, the fees for blocking a large amount of funds via MT 760 can be
more than you would expect. In most cases, your bank will charge 1-2% of the value
being blocked for this service. For example, on a 100M bank instrument this can be
1-2M that the owner must come out of their pocket with, unless they have a special
relationship with their bank. You may say to yourself, Wow, that is a lot to spend on
fees for something Im not sure will work! Well, even more importantly, lets take a
look at the risks if you did move forward.

If you complete the MT 760 and pay the fees, you should observe everything very
closely from that point on. Once the MT 760 has hit the account of the trader, the
line of credit should become available within 72 hours. At that time, the trader
should be able to make their first bank instrument purchase, and give you a
DEFINITE TIMELINE for your first profit disbursement. You may say, Why do I need
to watch this process so closely? Well, here is the part that most brokers dont tell
their clients

When blocked in someones favor, the MT 760 collateralizes assets in the form of a
swift guarantee, and by doing so, allows the beneficiary to draw credit against it.
This means, if the loan to the trader was defaulted on, the bank would seize the
collateral and you would be out of your money! Though this scenario is possible, I
would consider it rare for two reasons In todays world, no bank will loan Millions
of dollars to someone they havent vetted, no matter what collateral is on hand.
Second, the MT 760 is quite rare, and this usually draws attention to the beneficiary
of the swift.

In summary, the MT 760 can be safe, or it can blow up in your face. As always, the
key is having a real trader and most importantly, getting your payments as
scheduled. If the trader makes a statement about yields and a time line, they must
ALWAYS keep in line with their promises. Over the THOUSANDS of transactions we
have been involved in, the only ones that have closed have been smooth from the
start, with NO hiccups.

Remember, both RISK and FEES are a part of blocking funds via MT 760!!!! In
addition, by understanding the MT 760 and MT 799, you can clear out the TIME
WASTING brokers from your network, and work MORE EFFICIENTLY towards your
goals.

Lets face it, very few people know as much as you do after reading this article. Use
it to your advantage to qualify the private placement investments you come across,

and it will make life a lot easier. Ask yourself, if someone cant explain the MT 760
and MT 799 in thorough detail, do you think they have ever closed a deal? Then ask
yourself, do I want to risk Millions with someone that has NEVER been successful?
Its not hard to see, education is the key!

What is a Stand by Letter of

Credit (SBLC) ?
sblc-stand-by-letter-of-credit-private-placementIn the private placement business,
the bad joke is, there are more acronyms than there are closed deals. Though we
HAVE heard of several success stories, there are far more terms than youd think.
Since understanding this lingo is a key part of conversations in private placement,
we thought wed cover one of the most important terms of all, the SBLC.

Until recent years, very few private placement brokers mentioned SBLCs, or even
knew what they were. This was a time where investors pledged cash or bank
instruments for their private placement investments, not fictional leased assets.
In todays private placement world, SBLCs are all over the scene, popping up like
weeds! Unfortunately, they have become popular in bank instrument leasing
programs, and are now associated with this niche of the industry. For those who
dont know what a SBLC is, lets start at the beginning by defining its meaning
and applications.

By definition, a SBLC (Stand by Letter of Credit) is a document issued by a bank,

guaranteeing payment on behalf of a client. This is used as a payment of last
resort if the client fails to fulfill a contractual commitment with a third party. In all
reality, the SBLC is just a piece of paper with a value backed by the good credit of
the bank, allowing clients use a conditional collateral if needed.

The SBLC (Stand by Letter of Credit) is commonly used when two parties enter into
a contract calling for one party to arrange a L/C in favor of the other. With any
Stand by Letter of Credit, the agreement is the SBLC will NOT be drawn unless the
owner defaults on the contract. If the beneficiary was to monetize the SBLC without
prior agreement, the owner could dispute the contract in court. The truth is, SBLCs
are rare and used MOSTLY in industrial or bulk commodity sales, serving as a
performance bond of sorts.

Despite what private placement brokers may claim, the SBLC is not used for leasing
or investing very often. Just like we explained above, its MOSTLY used in bulk,
wholesale, and logistical markets. If you are an investor, watch out for the infamous
SBLC leasing scam. Dont waste your time leasing an SBLC, or having it fresh
cut from the bank, it will never fund your project or get you into PPP. The fact is,
unless you are using it for credit enhancement or proof of temporary collateral, a
leased SBLC will ALWAYS be useless. In addition, if you are a private placement

broker, ALWAYS BEWARE of investors with SBLCs. This could mean the funds are
leased, fraudulent, or a part of a prior deal gone wrong. All in all, the SBLC is legit,
but brokers have tried to apply it to a process it isnt made for.

In summary, though the SBLC is a credible term, its ONLY important when private
placement investors are in the USA. Since USA banks do NOT offer the MT 760, the
SBLC is the only safe way to assign a trader as temporary beneficiary. Remember,
do yourself a favor and BEWARE of PPP brokers who use the term SBLC. In all
reality, incorrect usage of the term should be considered a HUGE RED FLAG and
nothing less!

If you want to learn how to spot otherwarning signs in PPP, take a minute and
read the article Top 10 Red Flags for Private Placement. It will help you identify
real opportunities, while providing key tips to keep you sharp in this oh so unique
business

What is a Bank Guarantee (BG)?

In the unique world of private placement, there are more fake programs than fish
in the sea. As a beginner in PPP, you may be asking yourself, How can I determine
which of these programs are real and which arent? Well, with proper education
anything is possible. The reality is, if you understand the intricate details of private
placement, you can ALWAYS spot fake programs from a mile away. By building
knowledge, you allow yourself to work more efficiently, qualifying private placement
investments and leads far quicker than ever before. In this article, we will help
develop your understanding even further, providing invaluable insight on the bank
guarantee, and its role in the private placement industry.

With the recent popularity of bank guarantees, you may have met people who are
leasing, trading, or issuing BGs, and asked yourself, What are they talking
about? Well, since this is a critical question to answer, we thought wed uncover
the facts for our readers. By exploring the bank guarantees definition, common
uses, and other related tips, you will have the education you need to apply all of its
benefits. First things first, lets cover the meaning of the term bank guarantee, and
relation to the private placement markets.

By definition, a bank guarantee (BG) is a debt instrument created by banks

which carries a predefined face value, date of maturity, and annual interest rate. For
example, you could have a 1 year note from UBS with a face value of 100M,
collecting a coupon (interest) of 6.0% per year. If the investor was to purchase this
BG from the right seller, they could get the bank instrument at a discount from
face. Depending on the standards and risk tolerance of the investor, they will
usually pay 70-95% of the instruments face value to own the note. Once the
investor officially owns the bank guarantee, they collect the 6% annual interest, and
the full value of the instrument upon maturity.

Even though bank guarantees have similar characteristics to other debt

instruments, they are unique due to their high value, flexibility, resale potential, and
discount. Typically, investors purchase bank guarantees to collect interest, and in
many cases, they use the BG as collateral for loans and other opportunities. The
great thing is, this allows the investor to earn interest with minimal risk, while still
retaining access to liquidity. Though the BG sounds like a good asset to hold, in
most cases, bank guarantees are traded repeatedly until the market value nears
face. Since trading these notes can produce much quicker profits, many have
now jumped on the private placement bandwagon, aiming for the highest yields
possible.

In todays private placement business, bank instruments are typically bought and
sold in the secondary market. If all goes as planned, the PPP trader buys the
discounted instrument from the bank, and then sells it to a predefined exit buyer
at a higher price. Since this process is based upon prior contractual commitments
with the exit buyer, if the PPP trader is real, there is basically no risk involved. To
simplify things, lets give you a quick example. If a PPP trader purchases 5
instruments from the bank per week, making 9 points per trade, they would have
45% in weekly yields. Since the PPP trader has contracts with exit buyers
protecting their purchases, all they need to do is complete the basic formalities and
wait for the money to come on. Sounds great, doesnt it? Well, if you are one of the
lucky few who strike it big, it sure is

The reality of private placement is, most people are unsuccessful despite years of
efforts. If youre smart, you CAN meet plenty of millionaires, but finding a PPP
investor with 100M liquid can be quite a task! Since this is a fact that many brokers
learn early on, unfortunately, common sense can get thrown out the window when
money comes a calling. A perfect example of this can be seen in the niche of bank
instrument leasing programs. The truth is, with investors chomping at the bit for
private placement programs, the idea of bank instrument leasing was created so
brokers could have something to offer smaller clients. Even if the investor didnt
get into a program, since the instrument was already leased, the brokers would earn
huge commissions from the deal! Sounds a little deceptive, right? Well, though bank
instrument leasing can work in RARE situations, it should NEVER be considered safe.
Remember, most private placement brokers are focused on their own personal
interests, not the risks presented to investors.

In summary, the bank guarantee is an important tool to understand, but you MUST
utilize it appropriately. Though it sounds great to pay a small leasing fee for a 100M
BG, its never worth the time or risk, TRUST ME. If you want to use a bank
guarantee in private placement, the truth is, it must be cash backed and 100M+ in
value. In addition to that, the instrument must be lodged in a bank which is willing
to complete an MT 76o. Despite what other private placement brokers may say,
these are the FACTS of bank instruments, and if you try to believe otherwise, well,
good luck!

Remember, the private placement and bank instrument markets do exist, it just
takes education, experience, and intuition to be successful. The most important
point is, NEVER set a time limit on your efforts. If you make the decision to NEVER
give up from the beginning, youll eventually reap the benefits of private placement,
no matter how long it takes

InsideTrade LLC Staff

No leased instruments: Fraud

Exposed!
John Quebedeaux
John QuebedeauxFollowJohn Quebedeaux
Phoenix Global Equity Advisors LLC
No leased instruments:
1. A very rich fellow has $100 million dollars. He wants to create a standby letter of
credit (Standby). He deposits $100 million dollars in the bank that is going to
issue the Standby (Issuing Bank). This fellow requesting the issuance of a standby
is called the Applicant. With this money as collateral the bank will issue the
Standby (NOTE: Bank will not issue standby without collateral from the Applicant.).
The terms of the Standby should allow the beneficiary of the Standby to borrow $80
million using the Standby as a guarantee of repayment to a lender (Lender Bank).
2. A second gentleman (called Lessee) wants to lease the Standby for $3 million
for 365 days and use it as collateral for the $80 million loan. The Lessee pays the
Applicant $3 million. Next the Lessee borrows $80 million from the Lender Bank
using the Standby as collateral. The Lessee defaults on the repayment of that loan.
The Lender Bank calls on the Standby for payment by the Issuing Bank of the
defaulted loan. The Issuing Bank pays the Lender Bank $80 million. The Issuing
Bank wants to be reimbursed for the $80 million it paid the Lender Bank when the
Standby was called for the default of repayment of Lessees loan. The Issuing Bank
now goes to the $100 million deposit made by the Applicant and takes $80 million
from that deposit and reimburses itself for the draw down made on the Standby. The
Applicant has now lost $80 million (plus fees, interest, brokers fees, etc.).
3. So here is the deal: The first gentleman, the Applicant, with the cash backing of
$100 million to issue the Standby risks $80 million in exchange for a payment of $3
million leasing fee (less broker fees). I repeat: The Applicant risks $80 million in
exchange for a payment of $3 million leasing fee.
4. Now, who would make that deal? Would you put up $80 million at risk to make $3
million? Who would risk $80 million for a return of $3 million? Does this meet the
smell test of making business sense? If it doesnt make business sense, then
there is a problem. This should make no business sense to anyone. You can see by
this example that instrument leasing cannot be what it is purported to be.
5. So what is the real reason someone would invest $100 million to buy a standby
letter of credit and allow someone to lease the Standby for 3 million dollars a month
(3%) and borrow $80 million using the Standby as collateral? The answer is: The
standby letter of credit is set up so that there is no possibility that the instrument
will ever be called on; i.e. it is set up so that there is no risk, and that is why the

Applicant puts up his money. Further, if the Standby cannot REALLY be used as
collateral for a loan, no LEGITIMATE lender will make a loan against it; i.e. it cannot
be monetized with a real lender. Cut to the chase: The Lessee has leased a
worthless instrument.
6. This process is also used with other instruments such as certificates of deposit,
bank guarantees, cash deposits, etc. The story is the same, only the instrument is
changed.
You will pay to lease a useless instrument.
Ask yourself this: If I use this "leased bank guarantee" as collateral for a loan, or
even as an enhancement to my overall standing so that I might be more favorably
considered for financing, and I default, what security would it provide?
Answer: NONE! The lender would lose the money the loaned to you, and you would
have tricked them into making you that loan by showing an asset which you never
owned, and against which you never revealed any encumbrance.
You will never receive any money against the leased BG (bank guarantee). The one
charging you the lease fee makes money. You have a useless instrument, or one
with which you could defraud someone. Nothing more
THE BUSINESS LOGIC OF A LEASING TRANSACTION

A fellow has $100 million dollars. He wants to create a standby letter of credit. He
deposits the $100 million dollars in the bank that is going to issue the standby. With
this collateral the bank will issue the standby. The terms of the standby allow
thebeneficiary of the standby to borrow $100 million using the standby as a
guarantee of repayment to the lender. A second gentleman wants to lease the
standby for $3 million for 60 days and use it as collateral for the $100 million loan;
i.e. if the second gentlemen borrows the money using the standby as collateral and
he defaults then the lending bank can draw $100 million on the standby to pay the
defaulted loan. So here is the deal: The fellow with the $100 million risks it all in
exchange for a payment of $3 million. I repeat: The fellow with the $100 million
risks it all in exchange for a payment of $3 million. He puts up $100 million and he
gets back $3 million if the beneficiary defaults on his loan. Now, who would make
that deal? Answer: No one. If it doesnt make business sense, then there is a
problem. You can see by this example that instrument leasing cannot be what it is
purported to be; i.e. free money. So why do otherwise intelligent people not see the
logic of the transaction and as victims lose millions of dollars? And why would
people deposit $100 million dollars to back the issuance of a standby for $100
million and only get paid, for example, 3% a month, for its use as collateral by the
beneficiary? The answer is: They will and they do if the instrument and/or the
transaction is set up so that there is no possibility that the instrument will ever be
called on and the money lost; i.e. there is no risk and that is why he puts up his
money.

IN GENERAL

The leasing of instruments is a worldwide phenomenon that has been ongoing for
over thirty (30) years. Usually, it involves a client leasing a certificate of deposit,
bank guarantee, standby letter of credit, a cash balance in an account or some
other bank or brokerage house issued instrument. In nearly 100% of the cases it
involves a fraud on the client. The client is asked to pay a leasing fee to lease the
instrument or account. An example of a leasing fee may be a monthly payment of
three percent (3%) of the face amount of the instrument, and the term of the lease
is anywhere from one month to a year or more. The leased instruments are usually
in very large denominations; for example, the most common amount is One
Hundred Million dollars ($100,000,000.00), but it can be any amount in dollars or
Euros. Thus, the lease payment for a $100 million instrument may be $3 million for
a month or two use of the instrument (3% for 60 days is very common). For an
expenditure of this amount, one would think that a reasonable businessperson
would obtain counsel for such a transaction, but ordinarily and unfortunately they
do not until after a substantial payment is made.

PURPOSE FOR LEASING

There are several purposes for leasing instruments:

1. Finance Real Property Development. In this scenario, a developer is seeking

financing for the development of a real estate project. The developer is told that if
he leases an instrument, that instrument can be used as collateral for a loan. Of
course, the next step facing the developer is to obtain a loan using the leased
instrument as collateral. (This purpose is discussed more fully below.)

2. Invest in Securities Trading Program. In this situation the investor (client) seeks to
obtain collateral for a loan with the proceeds of the loan being invested in a security
trading program (sometimes called high yield investment programs or more
recently platform trading). Again, once the client has obtained the instrument, he
must find someone to loan against the instrument.

3. Financing Other Purchases. Like the need to finance a real estate development,
sometimes the client wants to finance some other type purchase; e.g. purchase a
corporation, buy a business, etc.

4. Credit Enhancement Purposes. Commonly there is the case where the client
either has no credit or his credit is insufficient to borrow funds to purchase a large
asset (e.g. a $50 million company). Consequently, he wishes to enhance his credit
by leasing an instrument to show on his financial statements for loan purposes. We
should just get rid of this idea right now. Here is the problem, if you list the credit
enhancement amount on your financial statements, and you know it is only leased
by you and that it has to be returned to the Lessor, then you have to list the same
amount as a liability. Consequently, the asset and the liability offset each other, and
there is NO credit enhancement. Your client pays for NOTHING! If the fraudster tries
to advice your client to not tell the lender that the credit enhancement instrument is
leased, then this is bank fraud, and if your client attempts to get a loan on these
financials, just the attempt (without success) is a felonious bank fraud, and your
client and the fraudster will go to prison as co-conspirators for bank fraud.

5. Compensating Balances. A compensating balance is different from a credit

enhancement. In a compensating balance the borrower may deposit or have a third
party deposit with a bank or lender a significant deposit to encourage the bank to
make the borrower a loan. The compensating balance is not collateral, and
theoretically to the uninitiated in banking conduct the bank cannot seek this
balance to collect a defaulted loan (though they often do).

HOW INSTRUMENT LEASING WORKS

1. The Applicant. Instrument leasing programs begin with an investor who has cash
or bank credit. This investor is called the Applicant. (This applicant-investor is not
to be confused with your client-investor) The Applicant applies to a bank for the
issuance of an instrument. For a certificate of deposit, bank guarantee, or standby
letter of credit he has to deposit the face amount of the instrument in the issuing
bank. Usually the issuing bank is paying interest on the amount deposited in
existing accounts, and the bank takes a deposit or savings account of the Applicant
as collateral for issuing the instrument. It is not uncommon for the deposited funds
used as collateral to be off-shore tax evasion funds that the Applicant is seeking to
use in such a scheme (a form of money laundering).

2. Inducement to the Applicant. The Applicant is induced to provide the funding to

back the instruments for two good reasons: profit and security. With regard to
profit, the Applicant is paid a percentage of the leasing fee, which is added to the

interest that he is already receiving on the funds. For instance, by entering such a
transaction he can increase his yield from 3 or 4% annual interest from the bank to
maybe half of 3% per month (calculated at 3% per month less half for broker fees.)
that he receives as leasing fees.

Here is the most important point of this White Paper; to wit: the safety factor for
the Applicant. The Applicant is willing and eager to provide the funding for the
instrument because he knows that the instrument will never be called on (cashed)
for any reason. These instruments are supposed to be used as a guarantee for a
loan; however, the nature of the transaction assures the Applicant that this
guarantee will never be called upon as collateral to pay the loan on its default.

Why will the instrument never be called upon? There are various techniques and at
least one is used in every transaction, and often more than one is used. These
techniques are discussed in the next paragraph.

REASONS THAT THE INSTRUMENT WILL NEVER BE CALLED UPON AT DEFAULT

1. Face of the Instrument. Sometimes the face of the instrument is written to

preclude the Client-Investor from presenting the instrument for payment. For
instance, a standby letter of credit requires the named beneficiary to present the
required performance for payment.

a. Client Not Named as Beneficiary. In this situation, because the Client has little or
no knowledge of bank issued negotiable instruments, he allows someone else to be
named as beneficiary. Thus, in order to collect on default and present the
instrument for payment he must rely on the beneficiary, someone other than
himself. That other beneficiary is in the back pocket of the Applicant and will
never make such a presentment. Further, no bank will lend against the instrument
without the signature of the beneficiary pledging the instrument, and the other
beneficiary will not do so to protect the Applicant.

b. Co-Beneficiary is Named on Instrument. However, either the Client-Investor is not

the named beneficiary or is a co-beneficiary and presentment requires both cobeneficiaries to go to the window for collection, and, of course, the co-beneficiary is
in the back pocket of the Applicant and will never go. Another situation is the

Escrow Scam. This is where the Client-Investor is named as the beneficiary, but
the terms of the transaction require that the instrument be placed in an escrow and
the escrow holder is required to present it on default on behalf of the ClientInvestor. Again, the escrow holder is in the back pocket of the Applicant and will
never follow the Client-Investors instructions to present the instrument for
payment. Also, the issuing bank will not take presentment from the escrow holder,
as the face of the instrument calls for only the beneficiary to do so.

2. Conditions cannot be Met Within Time Period. Once in a while you may find that
an instrument is legitimately issued, but the lease term is, for instance, sixty days.
Now, the purpose of the investor-client in leasing the instrument is to generate cash
to invest in a trading program, called high yield investment programs or trading
platforms. The idea of the investor-client is to lease the instrument, borrow the
money against the instrument, invest in a trading program, and from the profits pay
back the leasing fee that he has obtained from third parties or borrowed from a
bank. Here is the problem: The Lessor of the instrument relies ever successfully on
the fact that 99.5% of these trading programs are bogus and the lessee will never
find a real trading program within the 60 day term. And the Lessor is safe even if
the lessee of his instrument were to find that needle in a haystack called a real
trading program, because there is no way that the lessee can qualify AND invest in
a real private securities trading program within the 60 day term. It is to short of a
term. And to add to the problems facing the lessee, the party providing the trading
program is often also the Lessor of the instrument or his associates, and you know
what they plan to do. And finally on this subject, it is interesting to note that often
the Lessor will give the Lessee free extension, because Lessor is very sure that the
Lessee will never find a legitimate trading program.

3. Requires Third Party Performance. Either the face of the instrument or the terms
of the documents require that a third party perform some condition in order for the
instrument to be usable as collateral. The important point in this situation is that the
third party will never perform that condition. An example of this situation is where a
cash balance is purportedly held in the account of a third party brokerage house or
offshore bank, and it is represented that that cash balance can be used as collateral
for investors loan. The condition that the third party must perform is the release of
that fund as collateral for the loan; i.e. the account is placed in such a form that a
lender will be comfortable that it can collect on the account in the event of default
on the loan. As the third party is in a conspiracy with the promoter, and it will never
place the cash balance account (or instrument) in jeopardy as called for by the
terms of the documentation? So the investor-client pays the fees, and is unable to
fund his deal with the cash balance (or instrument) as collateral. Sometimes the
third party is the holder of the cash balance or sometimes it may be a third party
escrow holder with instructions to act on the cash balance account according to the
terms of the documentation between the promoter and the investor-client, the
terms irrevocably favor the promoter.

4. Third Party as Beneficiary with Assignment. Similar to Paragraph a. above,

sometimes the investor-client is talked into allowing a third party to be the
beneficiary with an assignment of the beneficiary interest to the investor-client.
Here is what the investor-client does not know: The assignment of a negotiable
instrument has to be approved by the issuer, and usually the issuer will not approve
such an action. The investor-client on the default of the loan and the need for
presentment to the issuing bank for collection cannot make the presentment to get
the money, because only the beneficiary on the face of the instrument may do this,
and in this case that beneficiary is in a conspiracy with the Applicant and the
default will not be allowed. Further, if the client-investor take the instrument to a
lender and wants to pledge it as collateral for a loan, the lender will not accept it as
collateral because the borrower is not the beneficiary of the instrument. Another
road block in favor of the Applicant.

5. Fraudulent Escrow. In this situation the fraudster has the investor-client place an
initial fee (e.g. $600,000) into an independent escrow, often using a real escrow
company. However, the terms of the escrow provide that the escrow holder shall
release the funds to the fraudster upon notice from the fraudster that he has
arranged the leased instrument. Note, that the notice of performance comes from
the one who is to perform, and there is no independent verification of performance
by the third party escrow holder. Since there is no way that the investor-client can
use the instrument (as you never can), then the escrow holder gambit has worked
and the fraudster has the initial fee.

6. Instrument is Only Available on Screen. In this fraud the fraudster gets his fee, or
the initial fee, and has the instrument place on, for example, DTC (Depository Trust
Corporation) and can only be seen by DTC members with a certain level of access
(which is almost no victim as they have no idea how to belong to DTC). In this
situation there is always a clause in the agreement that the instrument cannot be
withdrawn or transferred or even attempted to be withdrawn or transferred under
the threat of immediate cancellation, which means that it cannot be used as
collateral. If someone is going to make a loan using the instrument as collateral,
then that lender has to have some control via a transfer (e.g. an assignment) of
some sort to collateralize the loan. So even if you can get a DTC member with a
(certain level of access) to confirm the instrument on the screen, for your initial fee
(e.g. $300,000) all you can do is LOOK AT ITnothing more!

THE INITIAL FEE FRAUD

The Initial Fee Scam. Many times in these leasing of instrument transactions there is
an initial fee that is payable prior to the payment of the leasing fee; for instance, in
order to just get the transaction underway a fee much smaller than the leasing
fee is required. That fee may be anywhere from $10,000 to $100,000 or more.
What is important to note is that the payment of this fee is the sole fee that that the
promoters ever seek to collect; i.e. the whole leasing of instrument scam is set up to
defraud the investor out of this fee. Nothing more. After the payment of this fee
either the promoter starts making excuses as to why the instrument for leasing is
not available thereby delaying the investor-client in moving forward in the
transaction or the investor-client starts asking more questions before putting up the
large leasing fee. In any event, the initial fee is paid and the investor has lost it.
From the promoters viewpoint it is better to collect a lot of initial smaller fees than
wait for the big score with the payment of the larger leasing fee.

THE PROJECT FINANCING SCAM

One of the most common instrument frauds, though it may or may not involve
leasing of instruments, is the case where the fraudster offers project financing in
exchange for the investor-client paying an upfront fee for the instrument that will
fund the project. This instrument is usually a bank guarantee (which are used
outside the U.S.) or standby letters of credit (which are used in the United States
and elsewhere). The institution issues the instrument usually in huge amounts to
fund big development projects; however, the instrument is only viable and useable
provided that the beneficiary delivers either to the issuing bank sufficient cash to
back up the instrument (guarantee that if the instrument is called on there will be
cash to pay the default amount) or deliver into an escrow with the issuing bank
(usually) sufficient funds to build the project (along with a completion bond to
guarantee completion of the project) so that the issuing bank knows that the
instrument will never be called on for a default payment. The practical effect, in
either case, is that the investor-client cannot get a loan against the instrument
unless he independently raises the required balance amount of the project cost
(which is also the face amount of the instrument). So now the investor-client has
paid for a useless instrument and still has to raise the same money he needed at
the beginning to fund his project. This instrument is called by the fraudsters a noncash back instrument, and that says it all.

THE AUTHENTICATION RUSE

Usually the first thing the investor wants to do after seeing a copy of an instrument
is make sure that it is authentic. Here is a list of what may happen:

1. Low Quality Issuing Bank. Almost all the documentation that the promoter and
the investor sign does not require that that instrument being leased be from a
quality bank or institution. There is simply no requirement in most of the
documentation. There may be a requirement of the Top 25 Banks, but who knows
what this means. This important issue is invariable overlooked by the investor, and
consequently in some of these leasing transactions the promoter provides an
instrument that is issued by an offshore bank that has little or no assets behind it.
Thus, the instrument has no value as collateral and no bank or other lender will
provide a loan against it. So when the instrument is authenticated, it is authentic,
but of no value whatsoever for any use other than wallpaper.

2. Parked in a Clearinghouse. In the situations where the instrument is issued and

the promoter wants to create a greater aura of authenticity, he will park it in a
clearing house such as Depository Trust Corporation (DTC) or Euroclear where it can
be confirmed on a screen. I say park because there is a clear distinction between
parking an instrument and placing it for clearing. These house clear securities; i.e.
they complete the trades between buyers and a sellers only of securities. However,
a bank guarantee, standby letter of credit or a certificate of deposit are not
securities and are not subject to clearing at these houses. But a member of the
clearing house group can place a non-security like a bank guarantee, standby letter
of credit, or certificate of deposit on the screen so that it can be observed by other
members. Here is the important point: placing these instruments on the screen with
one of these clearing houses or similar institution (i.e. parking) does NOT
authenticate them as being validly issued. So do not let your client be taken in by
the relationship of the instrument to a clearing house; it is nonsense. Using the
vernacular of another saying, you can park a ham sandwich on a clearing house, but
you cant sell it.

3. Escrow by Law Firm. The fact that a law firm is holding the instrument in escrow is
sometimes used to create an aura of legitimacy and enhance the appearance of
authenticity of the instrument. Let me tell you from my experience, some of the
most prestigious New York law firms have held fraudulent instruments, and usually
did not know the instruments were invalid. Most lawyers have no idea how to
authenticate an instrument, and that possibility is substantially enhanced when the
lawyer is a one a one man office in a one horse town in Mississippi or similar
abode. Further to my observations over the last 30 years, relying on lawyers is the
largest cause of clients losing money to these fraud schemes than any other cause.
So, lawyers be careful and give competent advice. And what else you should know
is that these losses to fraudsters are usually considered business transactions and
not covered by malpractice insurance (but I try and go after the insurance anyway).
So if you are going after a lawyer, you have to go after him and his firmnot his
insurance carrier.

4. Bait and Switch of Instrument. I have seen the situation where a sample of the
instrument initially shown is from a major bank (e.g. Citibank). But the documents
signed by the parties do not define what bank has to be used as issuer of the
instrument to be leased, though using the sample infers that the issuer will be a
major bank (Citibank in this example). Without a clear definition of the issuing bank,
the promoter substitutes in a bait and switch maneuver a lower classified or
worthless bank or other institution (e.g. brokerage house). Usually on review of the
documents, the fraudster is found to be correct. It is not covered.

5. Misleading Instruments. In example #4 above where Citibank is purported to be

used, the promoter changes the spelling of the bank to Citybank and this is
usually not picked up by the investor. This was done on one of my cases and the
lawyer involved was disbarred and served time and his client is still in prison (Let
me say, it was very hard work getting him there.). Another thing they will do is to
use the name of a major bank (e.g. Bank of America), but add to it a branch that
does not exist; for example, the name of the issuing bank may be Bank of America
of North Island). Authenticating this is usually done very easily by a Google
search for such a bank, but unfortunately, most investors never check. Their greed
along with blind trust and awful judgment just sees Bank of America. The
fraudsters will use familiar names such as Chase Manhatten even though these
names have disappeared into a quagmire of mergers. For instance, you may see
Chase Manhatten BWI on a Certificate of Deposit that appears to be coming from
Chase Manhatten in Grand Cayman. But the name in Grand Cayman is not Chase
Manhatten BWI; it is Chase Manhattan Trust Ltd. P.O. Box 190.George Town, Grand
Cayman, BWI and Chase Manhattan Trust does not have a SWIFT address AND as a
trust does not issue CD;s..

6. The Translucent Cash Balance Account. In this situation the investor-client pays
for the leased use of a cash balance in an account either in a bank or brokerage
firm. Usually the bank or brokerage firm is offshore. The promoters pay a bank or
brokerage house to represent that they have a large cash balance account that
the investor-client can lease for use as collateral for a loan. Now sometimes the
money is actually in the account or sometimes it is not. It makes no difference,
because the same account is simultaneously used over and over again for a
multitude of investor who lease the same funds for collateral purposes while the
Lessor knows that the structure is such that none of these investor will ever be able
to have a lender verify the existence of funds that can be used as collateral and
consequently no lender will ever loan against the account. The reasons that the
funds cannot be verified for collateral purposes are set out under the section on
REASONS THAT THE INSTRUMENT WILL NEVER BE CALLED UPON DEFAULT.

7. The SWIFT Transfer Transaction. Sometimes the instruments are purported to be

transferred by SWIFT message code transmission. This gambit is used to create an
aura of authenticity. The main thing to understand that any form of a guarantee
transmitted by SWIFT message can be such as to make it impossible to call on that
guarantee; thus the SWIFT transmitted guarantee is useless when this is done. First,
it is important to note that often these SWIFT message codes do not operate as
represented by the fraudsters. For instance, the representation that the instrument
will be transmitted to the beneficiary by SWIFT code MT799 is a red flag. Swift code
MT799 is not a binding transfer; i.e. it is tantamount to a non-binding letter either
advising that the sending bank may do something or requesting the receiving bank
to do something. Neither bank has to do it under MT799. The MT 799 is a swift
message used between banks to communicate in electronic written form which is
usually referred to as a pre-advice. For example, Red Bank may send a MT799
message to Blue Bank stating that, We confirm $1 million on deposit and are
prepared to block this amount via MT760 in favor of account 0001 at your bank.
Please confirm readiness and receipt. Often the MT799 will be sent prior to the
MT760 being issued. [Typically the MT 760 is issued and the investor-client pays the
initial fee or sometimes the leasing fee; he thinks that the MT799 is binding and can
operate as collateral. Remember that it is nothing more than a nice letter sent
electronically.] However the fraudsters will misrepresent that the MT799 is a
collateral instrument. Also, it cannot be used in a platform trading transaction.

The MT760 message can operate as a guarantee. If an MT760 is actually sent, it is

subject to all the reasons that the guarantee cannot be called up as stated above. I
say if it is actually sent, because after collecting the funds via a MT799 transaction
there often is no intent to send a MT760. No matter how nice this appears, the
terms of the guarantee can be such as to guarantee nothing because this MT760
guarantee is susceptible to the same non-performance reasons of other transactions
described above. I have spent many an hour with the wire departments of major
banks trying to get the language of a SWIFT message correct. Sometimes getting
the right wording is not easy, but you can eventually get the wording down to
create a real guarantee for lawful purposes or a fraudulent instrument for no good.

AUTHENTICATING AN INSTRUMENT

Sometimes the fraudsters will give the investor-client a copy of the instrument that
they will be leasing. The initial inclination, of course, is to authenticate it.
Authentication issues to check:

a. The quality and existence of the issuing institution. You want to determine the
financial strength of the issuing bank. In this process you must also check to see if
the bank really exists as a bank (or brokerage house), and believe it or not you have
to see if the bank is really located where it is represented to be situated. One time a
client of mine had an instrument from Bank One of Columbus Ohio. It had a street
address, and as standard procedure I hired a private investigator to drive by the
address and see if there was a bank there. There was not. It was a vacant lot. I was
negotiating a bank guarantee with a bank in Beirut for an Egyptian development
project. On the last day of negotiations when the instrument was to be issued, I got
up that morning and walked from the Phoenicia Hotel down to the bank, and
overnight some terrorist had blown up the bank. The bank was gone. There was no
fraud involved, but the story illustrates that a bank can be here today and gone
tomorrow. (I had to fly that morning back to Cairo and tell the Egyptians the bad
news, The bank was blown up and I have to start over with their office in Zurich
Never had to say anything like before or since.)

b. Confirm that the signatures on the document represent people who work at the
bank. Usually the instrument is signed by two purported bank officers. Check to see
if these people actually work for the bank and ask them if they sign these types of
documents. One time I had a meeting at Barclays Bank in London, and my client
and I were to meet the officers of the bank in the banks lobby. We arrived and were
met by two fellows who each appeared to be dressed like a banker. We were invited
to follow them to an empty desk on the lobby floor where we sat down and signed
some documents transferring a large fee to them for services. Right after I reviewed
the documents and my client signed them, a young man from the bank walked up
to all four of us and asked, May I be of assistance? I slowly took the signed
documents off the desk and put them in my brief case, and asked the young man if
he knows my two bankers. He said, I do not, but Barclays is a big bank. At that
point the two bankers ran out the front door.

c. Check Telephone Number. If the documents state a phone number (e.g. on

letterhead accompanying the instrument), check and see if it is a cell number. Or if
there is no telephone number visible on a document, ask the promoters for a
telephone number for the bank. Banks do not use cell numbers.

d. Do not take an instrument to issuing bank for authentication or borrowing.

Sometimes either you or your client decides to take the instrument to the issuing
bank (or a branch) to see if the people who work there can authenticate the
instrument. DONT DO IT! Whomever you talk to, unless you know them VERY well
as an existing customer, will not know the answer, and security will eventually be
called. The chances are almost 100% that one of these people will call security, and
when security comes they arrest you. Security calls the cops and you are put in jail,
often with a high bail. I had a client who called me from the San Francisco jail after

spending nine months there. Previously to her incarceration, she had come to my
office and showed me a bill of exchange for a large multi-million dollar amount
issued by a Turkish bank. I confirmed that it was authentic. Unknown to me she took
it to Bank of America in the financial district of San Francisco intending to borrow
against it. It was referred to security; the security officers never heard of a bill of
exchange and called the police. Nine months passed before a friend of hers got her
bailed out. The way to do this is for the attorney to CALL the bank and tell them that
you think that one of their instruments is circulating and that it is fraudulent. Tell
them that you hope that they can confirm this and get it out of circulation before it
can harm a victim or the reputation of the bank. Then fax a copy over to them.

HYIP AND LEASING INSTRUMENTS

One of the primary purposes for an investor to lease an instrument is to raise funds
to invest in a high yield investment program (HYIP) or a trading program. Here is
what happens where this is the purpose:

a. You Cannot Use Leased Instrument to Invest in HYIP. The investor-client tells the
fraudster Lessor of the instrument that he wants to lease the instrument in order to
raise capital by borrowing against the instrument for investment purposes in a high
yield investment program. The fraudster knows that one cannot get a loan against
the instrument and consequently with no loan, there can be no investment in a
HYIP, because when you buy and sell securities you have to pay for them in cash
before you can sell them for a profit. No cash, no HYIP! The fraudster does not tell
the investor-client that leasing will not work with a HYIP program investment. In
fact, he will often say he knows of such a program in which the victim can invest the
funds generated by the leasing of his instrument. Sometimes the investor-client has
been lead to believe that the instrument itself can be used as the investment in a
HYIP, but, again, you cannot buy and sell securities without paying cash, and you
cannot get cash from a fraudulently leased instrument. NOTE: Forget about socalled blocked funds transactionsall frauds.

b. More on HYIPs. If you want to know more about high yield investment programs,
then see my book, Lawyers Guide: Advising Clients on High Yield Investment
Programs. It is 120 pages of truth about such programs, including how to tell the
real from the fraudalmost 99% fraud.

THE SCAVENGERS OF LEASING DEALS

The scavengers (or worms) of these leasing deals are the people who represent that
they can fund the leased instruments; i.e. they can find someone to lend against the
unlendable instrument. They are also known as brokers. They will always charge
an upfront fee (Sometimes a million dollars) for their services, because they have
to get their money upfront as they wont get paid on the completion of promised
performance, as they KNOW that they will never be able to fund the leased
instruments. They know that funding is not possible, or should know, as they are
knowledgeable in how the leased transaction scam works (i.e. or doesnt work for
the investor-client). Sometimes, the scavenger is in a conspiracy with the promoter
of the lease transaction, as the promoter is the one who refers the investor-client to
the scavenger. And for this referral, the promoter shares the front-end fee paid by
the investor-client. Also, the broker who introduces the promoter to the investorclient will often introduce the scavenger as well.

A REAL LEASING DEAL

I have been involved in transactions where leased instruments have been used for
project funding. Go back to the idea that the applicant who deposits the cash to
back a bank guarantee or standby letter of credit (or other collateral instrument) is
not going to risk that deposit in return for a payment of one tenth of said amount.
For example, if the applicant deposits $100 million in an account to back a $100
million standby letter of credit, the applicant is not going to risk the default on any
loan secured by that standby letter of credit in exchange for a lease fee payment of
$3 million. Only a lunatic would do such a thing. Therefore in order to actually use
the instrument as true collateral to fund a loan that can be spent on a project you
have to have the approval of the applicant for such use and exposure. The applicant
has to decide to risk the call on his money in the event of default on a loan
collateralized by his standby backed by his money. So you have to present the
project to the applicant (e.g. real estate development) and get his approval to use
his cash backed standby as collateral for a loan to develop the project. The
applicant, at this point, becomes an investor in the project and he will want some
controls on the expenditure of the money as well as an equity position in the
project. This is very complex legal work, and if you are representing the applicant
you have to protect him from all possible risks other than the risk he signs up for.
For example, if the beneficiary has a tax problem and owes the IRS back tax
payments, they may collect the tax liability from these funds to the detriment of the
applicant. Consequently, you may have to set up a new special purpose corporation
(SPC) that is free of any liens or claims to handle the transaction and avoid these
extraneous risks. It isnt easy, and when I have done them it has taken a lot of legal
works, including extensive negotiations with the various counsels involved.

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