Banks fall victim to con men

Desperate for money, troubled banks are turning to unconventional sources to gain capital – and getting bilked in the process.

By , Guest blogger

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    A money changer shows some one-hundred U.S. dollar bills at an exchange booth in this November 2010 file photo. Desperate for money, many troubled banks are falling victim to common financial scams.
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The irony here is so delicious it just has to be fattening...

From Problem Bank List:

The reason banks are viewed as a prime victim to defraud is because, quite simply, many banks are desperate for money.  It’s no secret that 772 banks or almost 11% of all FDIC insured institutions are on the FDIC Problem Bank List.  Since investors are in no mood to put money into banks considering their poor profits and earnings outlook, banks must search out unconventional sources of capital.

Trying to take advantage of banks’ desperate need for capital, con men are approaching banks using the classic scheme of offering to obtain funds for an upfront fee.  In many cases, the desperate borrower makes the payment and the happy con man heads on out to relax in the Caribbean.  The FDIC Special Alert explains how the fraud works:

"The FDIC has become aware of multiple instances in which individuals or purported investment advisors have approached financially weak institutions in apparent attempts to defraud the institutions by claiming to have access to funds for recapitalization. These parties also may claim that the investors, or individuals associated with the investors, include prominent public figures and that the investors have been approved by one or more of the federal banking agencies to invest substantial capital in the targeted institutions. Ultimately, these parties have required the targeted institutions to pay, in advance, retention and due diligence fees, as well as other costs. Once paid, the parties have failed to conduct substantive due diligence or to actively pursue the proposed investment."

Everyone on earth knows the money-up-front thing is the oldest scam in the books.  Except the dying and desperate banker, I guess.

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