The Securities Commission is becoming increasingly concerned at the number of lawyers whose trust accounts and other facilities are used to promote schemes promising improbably high returns with no risk. The involvement of lawyers is such that they risk becoming promoters of the scheme under the Securities Act 1978 and consequently incur personal liability to disadvantaged investors.

Some of the schemes bear all the hallmarks of advance fee frauds known as "prime bank instrument frauds". These scams take different forms.

Typically the scheme promoter solicits funds which will allow the "investor" to participate in trading in variously described prime bank instruments. Returns of anywhere between 48% per annum to 180% per annum are promised. The scheme is said to have absolutely no risk and that investors' money is guaranteed at all times. This market is usually said to be secret and that not even commercial bankers would know about it. Subscribers may join by invitation only. Secrecy agreements, often called "confidentiality and non-circumventation agreements", are sometimes required to be signed.

Some of these schemes describe the prime bank instruments as being "leased" to the overseas facilitator who can then "leverage" the amount of the instrument and produce unbelievably high returns to the investors.

The fraudsters try to lend legitimacy to the process by involving lawyers. The scheme is claimed to be safe because investors' funds are held in lawyers' trust accounts and released only on production of proof of a bank or other authority holding the prime bank instrument. The lawyers themselves may be unaware of the fraud and may be merely naive and gullible.

Some of the fraudulent material is available on the Internet. Also available on the Internet are warnings from securities commissions, the International Chamber of Commerce and other organisations cautioning against such schemes. Any lawyer contemplating involvement in a high return-no risk investment which exhibits any or all of the signs of a fraud should think very carefully.

Characteristics of these fraudulent transactions are that they claim to be:

• highly profitable;
• totally risk free; and to provide readily available funding for projects. Often they claim:
• no up front fees are required;
• no repayment is needed on loans raised through these schemes;
• returns are generated by bank to bank transactions;
• to have the authority of the International Chamber of Commerce, the International Monetary Fund, United Nations, Federal Reserve or other like organisations; and
• to require extreme secrecy, with non-disclosure to any parties.

The schemes seek two types of victims. The first are investors wishing to become involved in "get rich quick" schemes. The second type of victim are those requiring finance for projects who can use a small loan raised from a local bank to invest in such a way that it not only repays itself at the end of a trading period but leaves a return in the hands of the participant.

The Securities Commission has not investigated any of the schemes being offered in New Zealand, but some advertisements for these schemes have been prohibited on the grounds that offers have been made to the public without a prospectus, an investment statement or other compliance with the Securities Act 1978.

However, these schemes have remarkably similar characteristics to those already identified overseas as fraudulent.