U.S. securities regulators warn that losses from so called “prime bank” scams are rose dramatically last year. One estimate pegged the losses at well over US$1.5 billion.

State securities regulators said that the recession and volatile stock markets are making investing through the supposedly secretive portfolios of “prime banks” seem more appealing to investors.

At a press conference at the National Press Club, regulators showed videotape of promoters claiming that prime bank trading programs can yield huge returns with no risk. In reality, securities regulators said, neither prime banks nor the instruments they claim to trade exist.

In a typical pitch, increasingly made over the Internet, investors are promised access to secret, high-yield investments made through trades among the world’s top or “prime” banks. Prime bank promoters falsely claim their investments are guaranteed or secured by some sort of collateral or insurance. So many prime bank scams succeed that the Commercial Crime Bureau of the International Chamber of Commerce calls them the “fraud of the century.”

State securities regulators say that many victims of prime bank scams fail to report their losses because they don’t want to appear foolish. Others simply can’t believe close friends, trusted business associates, or people they met at church ripped them off. Over the past three years, state regulators have brought actions on behalf of more than 41,000 people nationwide who invested at least US$470 million in prime bank scams.

“People want to believe there are secret ways to make fabulous amounts of money,” said Joseph Borg, president of the North American Securities Administrators Association and director of the Alabama Securities Commission. “But investors have a better chance of running into Elvis in the checkout line at the supermarket than finding a legitimate investment with the words ‘prime bank’ anywhere in the promotional materials.”

Besides promising high returns with no risk, some prime bank scams appeal to conspiracy buffs and those who distrust government or want to avoid paying taxes through offshore accounts.

Promoters often used investor funds to lead lavish lifestyles, it says, noting that in one scam, which also operated in Canada, promoters for Tri-West Investment Club used investor funds to buy expensive homes, a helicopter, a yacht and luxury automobiles, including 10 antique cars. The US$50 million prime bank scam was shut down jointly by West Virginia and U.S. federal regulators.