The Bank Guarantee Scam Has Been Run For Decades
According to a DOJ Press Release (March 18, 2024), a formerly-common type of investment scam known as the bank guarantee scam has resurfaced. Fortunately, those involved with the scheme were indicted, arrested, and have been given some long prison sentences. The scam was operated as something known as The Brittingham Group. The ringleader, John C. Nock of Fayetteville, Arkansas, got 20 years and 10 months; Brian Brittsan of Boise, Idaho, got exactly a decade, Kevin Griffith of Orem, Utah, was awarded with 12 years and six months, and Alexander Ituma, of Lehi, Utah, won the shortest sentence of 8 years and four months. The DOJ claimed that the Brittingham Group scam bilked investors over $18 million during its eight year run from 2013 to 2012.
What exactly is a bank guarantee scam?
The bank guarantee scam is a subset of the so-called High-Yield Interest Program (HYIP) scam, which is itself just a subset of a Ponzi scheme. The HYIP scam works by the fraud artist telling investors that they have access to certain odd bank instruments, usually from foreign banks, which pay a very high rate of interest, like 50% per week or something truly absurd. The fraud artist will spin a tall tale of how these investments are extremely secret, regularly used by the super-rich, and the fraud artist has somehow been able to make connections with the bankers who can provide these instruments. Investors give money to the scam artist, who then sends them official-looking statements showing how wonderful their investments are doing, all the while using some of the new investors' money to placate older investors while the scheme ramps up. Then, when the fraud artist thinks their ill-gotten fortune is enough, it is time to just disappear and leave victims wondering where their money and the fraud artist went.
The variation of the bank guarantee scam is that the fraud artist tells investors that not only will extremely high returns be made, but also that the investment is fully secured by one or more major banks. To achieve this, the fraud artist will forge a letter or something similar from the bank to the investor which assures the investor that they have no chance of losing their money. Later, when the investor seeks payment from the bank after the fraud artist has skedaddled, the bank will tell the investor that the letter or whatever is a forgery and that they have been fleeced.
The Indictment in the case of U.S. v. John Nock, et al., W.D.Ark. Case No. 22-CR-50012 (March 2, 2022), and a civil Complaint in the case of Northwind Financial Corp. v. The Brittingham Group, LLC, W.D.Mich. Case No. 16-CV-100 (Jan. 29, 2016), illustrates how the bank guarantee scam played out in real life.
Northwind and Bankers Capital were two legitimate companies located in Grand Rapids, Michigan, which assisted their clients with arranging project financing. Three of these clients included Terre Verde Escape LLC (TVE) in Florida, TOW Development LLC in Grand Rapids, and AMI Investment Holdings in Payson, Arizona.
In June of 2015, the aforementioned and now convicted fraud artists John Nock and Brian Brittsan got in touch with Northwind and Bankers Capital and told them that the Brittingham Group would be a source for project financing. More specifically, Nock and Brittsan represented that they had contacts within worldwide giant HSBC Bank which could provide something called "credit enhancement processes". This entailed companies needing financing to basically pad their balance sheets by purchasing certain bank instruments from HSBC, which would also yield profits to the needy companies.
As part of their sales pitch, Nock and Brittsan represented that they had oodles of experience with these types of credit enhancement processes. The two also said that they had worked for Sam Walton of Walmart fame to do this, and they had helped a company called Rich Step Group Holdings Ltd. with similar deals. Further, the Brittingham Group was located at 14 Wall Street in New York City. Nock and Brittsan also said that they had established credit line facilities through HSBC Bank, Smart Jobs Ltd., Gold Express Holdings, Ltd., and Rich Step Group Holdings, Ltd., the last three companies all being located in Hong Kong. None of this was true; it was all a lie.
Continuing on, Nock and Brittsan also stated that they had access to an HSBC Bank program whereby, on their behalf, HSBC Bank would issue a bank instrument to these companies needing financing. The Brittingham Group would then use this bank instrument on its trading program to generate profits around 100% per week of whatever principal amount was invested, and these profits were to be paid weekly, albeit there would be a 20-day delay to allow for moneys to move around. All of this was a total utter lie as well.
As incredible as all this may sound to the casual reader, based on these representations one of these needy companies, TVE, wired $50,000 to Brittingham Group on June 15, 2015. In response, Brittsan sent a letter confirming that HSBC had opened a depository account at HSBC Bank in the name of Gold Express, and that the account signatory was the aforementioned convicted fraudster Kevin Griffith. A month later, on July 16, 2015, TVE set Gold Express an additional $500,000. Nock and Brittsan then sent e-mails and had telephone conversations quite falsely describing to the victims how these transactions had gone down. In fact, all these moneys were apparently sitting in an account at Bank of America to the extent these scammers had not already tapped them.
The next sucker was TOW. Nock and Brittsan went through the same song and dance, including the representation that TOW would make insane returns of 100% per week. This time, Nock and Brittsan sent TOW a Memorandum of Understanding on August 27, 2015, which memorialized their gross misrepresentations. Based on all this, on August 28, 2015, TOW sent its $50,000 to the Brittingham Group's account at Bank of America, followed by another $500,000 sent to Smart Jobs the same day.
This same charade played out for AMI which sent $50,000 to the Brittingham Group on September 9, 2015, and $500,000 to Smart Jobs that same day. So, to recap, within three months the Brittingham folks had scammed a total of $1.65 million out of its three victims.
Getting the money was one thing, keeping the victims from figuring out that they had been scammed was another. To this end, Nock through a variety of communications told the victims that these special bank instruments had been issued by HSBC Bank and Barclays Bank, those instruments were being used in the Brittingham Group's trading program for the benefit of victims, and the enormous profits would be sent to the victims any day now. As part of this fraud, Nock further told the victims that they would soon get the wire transfer receipts showing all the transfers, that he (Nock) and Griffith were physically in London and Singapore working with all these involved companies to make sure everything would go smoothly.
Except that it didn't. There were delays, not of the scammers' fault of course. With the victims desperate for their huge profits to finance their projects, Nock told them that the Brittingham Group would use its own credit lines to fund the victims' projects and that they would return the victims' funds to them within a few days, plus 10% interest. Finally, on January 29, 2016, all of Northwind, Bankers Capital, TVE, TOW, and AMI filed a Complaint in the U.S. District Court for the Western District of Michigan against the Brittingham Group and the individual scammers for Civil RICO, conversion, fraud, breach of fiduciary duty, conspiracy, and for the imposition of a constructive trust.
The Indictment issued on March 2, 2022, elaborates on how this scam operated. Nock and Brittsan ran the Brittingham Group. Griffith ran Gold Express and another company called Wealth Mark International Investment Limited. A fourth now convicted scammer, Alexander Ituma, ran the several companies collectively known as Smart Jobs. There were also two unindicted co-conspirators: Individual 1 was an Australian who ran foreign companies that shuffled money around, while Individual 2 held himself out as the underwriter of the Brittingham Group's transactions.
Nock and Brittsan would tell their victims that they need up-front money to pay their fees and certain start-up costs so that they could monetize the investments. These investments were bank guarantees, standby letters of credit (SBLC or SLOC), and similar instruments which are common in finance, but not as investments. Then, Nock and Brittsan would induce their victims to enter into "Strategic Agreements" which promised the 100% week or so returns, without any risk. The scammers then sent letters and other documents back and forth to each other to create the appearance that there was trading going on and returns being generated, but of course these documents were completely bogus.
No victim of this scheme received their promised returns, but instead Nock and Brittsan generated a long stream of excuses for the delays in payment, including that high-level government officials were involved in trying to free up the money. To this end, Nock and Brittsan forged letters from these officials which they provided to their victims. Eventually, Individual 2 pretended to be Brittingham Group's underwriter who would also tell victims that their investments were safe and their money was on its way. Of course, the scammers had simply embezzled the money.
So how does one avoid this scam?
The first step is to simply use common sense, meaning that "if it is too good to be true, it probably is." There is no such thing as a 100% per week no-risk guaranteed investment. Think about it: If somebody could come up with such a thing, then why wouldn't they just make a fortune themselves? Anybody with even minimal financial sense knows that there is a risk/reward continuum in finance where low risk means low returns and high returns means high risk. Very simply, as returns go up, risk goes up with it in lockstep. Thus, an investment which offers returns of 100% per week means that the risk is high that the entire investment soon be lost soon, and maybe even before the week is out.
There is a history of HYIP scams, which is that these scams arose during the days of Michael Milken. Whatever else Milken did nor did not do, Milken legitimately revolutionized the bond market by pointing out that if an investor bought high-yield bonds (known as junk bonds), there was a good chance that the investor would get its money back and much more before the companies issuing the bonds ultimately failed, if ever. By avoiding investments into singular bond issuers, and instead investing in large pools of these bonds, the investor could further lower their overall risk of loss. Scam artists would later use this concept as the "kernel of truth" that they wove into their stories of how they could offer astronomic returns for little risk, and thus the High-Yield Investment Program scam was born. These scams have utterly nothing to do with legitimate HYIP programs, however, and are instead simply Ponzi schemes.
The second step to avoid being scammed is to conduct some basic due diligence on proposed investments, and not simply take somebody's word for it. If the victims here would have contacted HSBC bank to verify that it was involved in these transactions, they would have discovered this scam before any moneys were transferred. Yet, they simply took the scammers' word for what was happening.
Another very basic due diligence strategy is to confirm that both the investments and those pitching the investment are registered with either the Securities & Exchange Commission, or local state securities regulators. In the investment world, "if it ain't registered, it ain't real." Scam artists will spin all sorts of stories about why they and their investment instruments are not registered, but that is all just one big lie. Real investments also come with elaborate prospectuses; scam investments usually (but not always) do not. The investment instruments alleged to exist by Nock and Brittsan were not registered, and in fact never even existed, and a check of that would have revealed this scam.
Asking for audited financial statements for the issuer of financial instruments is another very basic due diligence technique. Real investments will have audited financial statements from large and reputable accounting firms. Scam investments, by contrast, will either not have audited financial statements or the auditor will be —as with Bernie Madoff — some guy working in a nearby closet. Scam artists may make all sorts of excuses the absence of audited financials, such that these are super-secret transactions known by only a few people in the world, but these are just lies. Instead, trust the truism, "if it ain't audited, it ain't real." It doesn't appear that the victims here bothered to ask for audited financials, but simply took Nock's and Brittsan's word for everything.
A third step to avoid being scammed is to ask somebody independent for a second opinion about the transaction. If the victims here had asked their own accountants or lawyers about this deal, they very likely would be told that it was all a load of bull. Even if the victims here were unwilling or incapable of doing even the most nominal due diligence, it is likely that their accountants and lawyers would have checked out the Brittingham Group and revealed the scam before dollar one was wired.
There are other ways to conduct due diligence about investments, including hiring a private investigator or simply doing some basic internet searches (there are plenty of warning about this scam), but you get the point. Scammers only succeed in defrauding people because their victims didn't perform any due diligence. Many of these scams involve project financing because the victims are desperate for money and are willing to take a crazy gamble out of pure blind hope.
That does not, however, excuse being willfully stupid about financial transactions.
