Certificates of Deposit or Bond Scams

While elder fraud, breach of fiduciary duty and other types of financial abuse can take on many forms, there are a number of investments which increasingly have been used in illegitimate schemes to defraud older investors. Elder or retired investors should exercise appropriate scrutiny before investing in these types of products.

Investors searching for relatively low-risk investments that can easily be converted into cash often turn to certificates of deposit (CDs). A CD is a special type of deposit account with a bank or thrift institution that typically offers a higher rate of interest than a regular savings account. Unlike other investments, CDs feature federal deposit insurance up to $250,000. Investors, however, should be wary promises of above-market returns (this being the primary “red” flag) and careful to confirm the legitimacy of the CD with the purported issuing bank or thrift institution. For example, the SEC found fraudsters that raised more than $3.9 million from at least 50 investors in several states by claiming to sell CDs that did not exist. The fraudsters lured investors, many of whom were elderly, with promises of above market rates on FDIC insured CDs purportedly issued by an entity called the “Liberty Certificate of Deposit Trust Fund.” The fraudsters also distributed fictitious investment documents and account statements to attract investors and to ensure they continued to invest in the scheme. Further, rather than purchase CDs, the fraudsters used all of the proceeds from new investors to make payments to earlier investors, and to pay their own personal expenses. [See SEC v. Reinhard et al., Civil Action No. 06-997-CMR (E.D. Pa.)]

Legitimate certificates of deposit are covered by the Federal Deposit Insurance Corporation (FDIC) which is an independent agency of the United States government that protects the funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC was established in 1933, no depositor has ever lost a single penny of FDIC-insured funds.

FDIC insurance covers all deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit. FDIC insurance does not cover other financial products and services that banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or securities.

The current standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for more coverage if they have funds in different ownership categories and all FDIC requirements are met. (For details on the requirements, go to Understanding Deposit Insurance)

It you or a family member have allegedly invested in a phony CD, it is imperative that you seek immediate assistance in attempting to recover your investment losses. Call for your initial free consultation.