This post should trigger a snicker from many consumers who feel that they are victims of the banking industry. In a new twist, banks themselves are now at the top of the list for many con men
One would think that with the increased regulatory scrutiny of the banking industry, banks would be last on a con man’s list of victims. Apparently criminals, just like many banks, have no boundaries in their pursuit of profits (see Non Stop Banking Scandals Are Dangerously Eroding Public Trust In The Financial System).
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.
The FDIC goes on to offer the sage advice that banks should be “extremely cautious” if offered money for upfront fees and that the credibility of the solicitation should be scrutinized. In addition, regulatory approval may be required prior to the payment of upfront fees by a critically undercapitalized bank. Banks that are suspicious of any too good to be true offers of cash for upfront fees are urged to file a Suspicious Activity Report with the FDIC.
You would think that bankers would know better.