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It was a story fit for Hollywood: In June, Italian authorities found $134 billion worth of U.S. government bonds found in the false bottom of a suitcase carried by two Japanese travellers crossing into Switzerland.
Immediately, there were wild theories about the origin and purpose of the bonds (shown here). The Japanese? The Italian mob? The U.S. government? We even went on Fox News’ Glen Beck to talk about it. But the U.S. Bureau of the Public Debt soon declared them fake.
But that wasn’t the last of U.S. bond frauds. A source from a Federal regulator tips us that there’s been “a significant uptick in bearer bond fraud.”
Between a new wave of government bond issues, investors pouring money into them, and the temptation of high returns in tough economic times have created an ideal scenario for the fake promissory notes.
Here’s what our source tells us:
The recent Italian case is the largest by far, but we’ve seen this type of fraud showing up in other places on a smaller scale. While fraudulent securities certificates have been around for some time, bearer bonds seem to have caught the imagination of the fraudsters at the moment. Legitimate bearer bonds do exist, but they are very rare creatures, and almost never see the outside of safety deposit boxes, for obvious reasons. But enough people have heard of them (I blame “Panic Room” for that!) that the fraudsters are able to implement them in their schemes.
So how does it work?
The most common scenario is that the fraudster will try to sell a fraudulent bearer bond to the victim for a fraction of its cover price; the victim may buy the bond, suspecting that something might be amiss, but is willing to take a chance that such a huge sum may be for real. Another variation is a flavour of the “Nigerian prince” scheme; the fraudster will ask for the victim’s help in depositing a recently obtained “fortune” in bonds, promising the victim a cut in return.
Either way, when the victims attempt to deposit or redeem the bonds, they discover that they’re fraudulent, much to their embarrassment (and from what I see it is usually the victims, not the fraudsters, who attempt to deposit them; fraudsters prefer to have other people do the high-risk work for them.)
So, how to tell it’s a scam?
One key facet–as with many other frauds–is that fraudster will drop broad hints about the entire thing being shady, which both helps to explain why it’s such an impossibly good deal (the fraudster is letting the bonds go at a steep discount because they’re “stolen”–when in reality they’re just fake), and helps keep the victims away from the authorities, as the victims fear they’ll be charged with being accomplices to a crime. Very cynical and very clever, but often effective.
Folks, consider yourself warned.
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