January 29, 1999

Massive banking/insurance fraud exposed

Domiciles affected include Grenada, Nevis, Bermuda, Nauru, St. Vincent…

Offshore Alert can today expose a massive fraud involving at least three banks, an insurance company and a stock exchange into which investors are believed to have invested tens of millions of dollars.

Participants in the scam are the World Investors Stock Exchange in Grenada, the International Deposit Insurance Corporation in Nevis, the First International Bank of Grenada, the International Exchange Bank, which is registered in either Nauru or Grenada but operated out of Bermuda and Texas; and Fidelity International Bank, which is registered in Nauru but operated from St. Vincent.

The main part of the fraud involves International Exchange Bank, First International Bank of Grenada and Fidelity International Bank attracting deposits by offering high rates of return and telling investors their funds are fully insured by the International Deposit Insurance Corporation, which is being passed off to the public as one of the world's biggest insurance companies.

Investors are also being asked to sign over all of their assets to the banks for little or no down-payment but with the promise of payment over three years and are invited to invest in shares listed on the World Investors Stock Exchange, with both schemes promoted on the grounds that all investments are ultimately insured by IDIC.

What investors are not told, however, is that IDIC, which was formed in 1996, has never been licensed as an insurer in Nevis, which does not even licence offshore insurers; has no assets to speak of and appears to be run by the same people running the banks.

Within days of us providing proof to the Nevis regulators that IDIC was a fraud, they closed down the company, sending a message that the island will not tolerate crooks.

"Please be advised that International Depositors' Reinsurance Corporation, operating as International Deposit Insurance Corporation (IDIC) was served today, 27^th January, 1999, by the Ministry of Finance, that all operations and business in Nevis must cease with immediate effect," stated a release issued to us by Agatha Jeffers-Gooden, Director, Nevis Financial Services Department.

"This action was taken after a thorough review by the Ministry of Finance and the fact that International Depositors' Reinsurance corporation is not licensed by the Nevis Island Administration to conduct business of any form in or from Nevis."

Ridiculous though the scam may appear to the more sensible investors, it has nevertheless attracted funds believed to be in the tens of millions of dollars.

Most of the investors who have been duped into these schemes are believed to live in Canada, the United States and Germany, while the perpetrators mostly come from North America, particularly Canada, but operate in the islands.

Many investors are still being paid interest on their capital, indicating that it is a Ponzi scheme - in which old investors are paid out of new funds coming in - that is still being continued in the hope of attracting more money.

One of the most shocking aspects of the fraud is that International Exchange Bank, which is registered in Nauru or Grenada, is actually being partly operated from Bermuda, which is perhaps the best-regulated offshore jurisdiction and one which has historically escaped the types of investment scandals that continually plague its Caribbean rivals.

News that a massive banking fraud is being committed on its own doorstep will come as a major shock to regulators on the island, where there are only three licensed banks, all locally-owned. We have passed on details about the fraud to the Bermuda police and the Bermuda Monetary Authority, who are investigating.

Clients of International Exchange Bank can open up accounts, request information about existing accounts, speak with the Managing Director and perform other banking tasks by calling 441-292-4884 or faxing 441-292-6587 - numbers that are advertised on its web-site at http://www.etucorp.com.

Investors using these numbers can also purchase one-year Certificates of Deposit for $100,000 each that pay eight per cent interest, according to promotional literature.

The telephone number is registered to and answered by Lewis M. Talbert, while the fax number belongs to Mailboxes Unlimited, at 48 Par-la-Ville Road, Hamilton.

During a telephone conversation in which this journalist posed as a potential investor, Talbert appeared to be surprised, not to mention excited, that someone had called the number and he promised to fax details about IEB's products and services, although he never did.

IEB's web-site is registered to 'ETU Corp', of 8911 Capital of Texas Highway, Austin, Texas and its telephone number of 512-338-060 goes back to 3410 Far West Boulevard, Suite 230, Austin, Texas. A person from this latter address who answers e-mails sent to IEB is R. V. Lopez, who described himself as a Senior Advisor to ETU Corp, which our research showed is not registered as a corporation in Texas.

IEB is the same bank that offshore financial services salesman Scott Oliver claimed to be on the board of advisors of until we questioned him about it three months ago, after which he performed a U-turn and promptly declared that he no longer had anything to do with it, even though he is still listed as a Director on its web-site (see separate story in this edition).

Also listed as a Director is John E. Greaves, former CEO of Antigua-registered American International Bank (now in receivership), and current CEO of Overseas Development Bank & Trust, which is registered in Dominica but operated from Antigua.

International Exchange Bank, which was founded by Bermuda-based Lewis M. Talbert, is an obvious fraud. The company claims on its web-site that all deposits are insured by IDIC which it states is "a major international insurer with over US$60 billion in assets under management as certified by Coopers & Lybrand".

However, not only is IDIC an unlicensed insurer (now closed down) but there is no representative of Coopers & Lybrand - or PricewaterhouseCoopers as it is now known - based in St. Kitts and Nevis.

Another lie is IEB's claim on its web-site that it is "a subsidiary of Northstar Funds, a publicly-traded company on the Cayman Stock Exchange".

CSX CEO Ann Nealon confirmed that there was no company called Northstar Funds listed on the Cayman Islands Stock Exchange and said she would ask IEB to withdraw this claim.

By coincidence, there is a group of mutual funds registered in Cayman known as the North Star Group of Companies, which is in the process of applying for a listing on the CSX. But this group is reputable and is in no way linked with IEB.

"North Star Fund Managers (Cayman) Limited is not connected in any way with the abovementioned so-called bank or any other entity mentioned in its literature," said Cayman-based attorney Chris Narborough, of Truman Bodden & Co., who represents the group.

"North Star Fund Managers (Cayman) Limited is a respectable Cayman Islands company and the holder of an unrestricted Licensed Fund Administrator's licence issued by the Cayman Islands government."

It is common for fraudsters to use a name that is similar to a legitimate company in an attempt to lend credibility to their scams and to deliberately create confusion among the public.

Likewise, another participant in the fraud, Fidelity International Bank, is in no way connected with Bermuda-based fund group Fidelity International Limited or Bahamas-based Fidelity Bank & Trust International Limited.

International Exchange Bank states on its web-site that it "works closely with First International Bank of Grenada" and that it "also partners Fidelity International Bank".

These are links it should not be proud to promote. On February 27, 1998, the US Office of the Comptroller of the Currency sent out a warning to the CEOs of all Federal Deposit Insurance Corporation-member banks declaring that Fidelity International Bank was operating "illegally or without authorization" from an address at 520 Madison Avenue, New York.

Four months later, state security regulators in Oregon raided two offices occupied by Fidelity International Bank and a related entity called Private Legacy Trust Company as part of a fraud investigation that involved the alleged selling of unregistered securities and failure to provide investors with proper disclosure information.

Investors were being solicited to pay a non-refundable $150 fee to create an offshore trust which they were told would be used by the bank to purchase certificates of deposits and other investments, according to investigators.

In a separate matter, Fidelity International Bank was recently added as a 'relief defendant' to a lawsuit brought in Texas in September, 1998 by the SEC against Teddy Wayne Solomon and Lisa Stevens individually and doing business as Platinum International and Quantum Group.

Solomon, Stevens and Quantum Group are alleged to have run a Prime Bank scam that defrauded investors of at least $3 million. Fidelity International Bank, Dunamis Enterprises International, Gilbert Ziegler (who is also chairman of First International Bank of Grenada) and Graham Young were added to the lawsuit because they allegedly refused to return $400,000 of illegally obtained funds that Solomon is said to have deposited with them.

As for First International Bank of Grenada, one source told us recently that FIBG had tried to attract a client's money by claiming that IDIC "was one of the world's top 20 insurance companies and that it was rated investment grade by Standard & Poor's", neither of which is true.

FIBG is also part of the fraud being committed through the Grenada-registered World Investors Stock Exchange, which until last month was known as the West Indies Stock Exchange.

From the WISE web-site at http://www.wise-exchange.com, the public is told: "WISE is the world's only stock exchange that provides its investors with a guarantee that protects against loss of their investment.

"All stocks sold on the exchange at WISE carry Stock Value Bank Guarantees. SVBGs guarantee that the investor will, at a minimum, receive back their investment plus a reasonable rate of return, even if the company in which they invested fails.

"These Stock Value Bank Guarantees are issued by First International Bank of Grenada Ltd." It adds that FIBG is "AAA rated by the International Deposit Insurance Corporation", a rating that purports to indicate that the bank has pledged $10 of assets to IDIC for every $1 of deposit as 'security'.

And what are SVBGs? According to WISE's web-site: "A Stock Value Bank Guarantee is the method share issuers and shareholders will use to guarantee the value of shares they wish to sell. A percentage of every share sold on WISE will be set aside, in a deposit-insured bank, to guarantee a return of principal and reasonable earnings.

"The percentage of each share that is set aside is dependent on the term-to-maturity of the SVBG. Three types of SVBG are used: a 3-year, 5-year and 10-year, with 41%, 22% and 5% set aside for the purchase of a SVBG."

On its web-site, WISE claims to be a subsidiary of Nevis-registered Covenant Trust Limited. Our research shows that this company was incorporated in Nevis on July 4, 1996.

When we posed as a potential investor, WISE officer Robert Osborne said: "The founders of the stock exchange were individuals who participated in the Vancouver Stock Exchange and NASDAQ and had lost amounts they thought were unacceptable to them. They wanted to create an exchange where all funds were guaranteed."

An unnamed woman employee with First International Bank of Grenada told us: "IDIC is the equivalent of the FDIC in the US only better because it guarantees 100 per cent of your investment."

So far, the only securities listing on WISE, which is registered in a jurisdiction that has no stock exchange laws, rules or regulations, is $10.5 million of shares in a company called EcoMed International, Inc., which is run by Canadians David Ulis and Mark Trepanier in Washington State, although the firm is incorporated in Grenada.

After downloading EcoMed's prospectus from its web-site at http://www.ecomedinternational.net, we called three Washington State-based professional advisors listed in the document: David Oswald, of Ryan, Swanson and Cleveland, of Seattle (listed as 'Legal Counsel'); Erin Crowley, of Moss-Adams, of Bellingham (listed as 'Accountants'); and Susan Finneran, of The Commerce Bank of Washington, of Seattle (listed as 'Bankers').

All three entities are legitimate professional firms and the officers concerned were astonished to learn that their names were being used in the prospectus, which they did not even know existed.

Erin Crowley, of Moss-Adams, said: "We had one preliminary meeting with them over a year ago but have heard nothing since. We've not been retained by them to the best of my knowledge."

Susan Finneran said the extent of her bank's relationship with EcoMed was that the company maintained "a small, chequeing account", adding that the bank had not given legal advice for a prospectus.

After our tip off, Crowley called us to say: "Thank you very much for informing us of this. I have spoken with the legal advisers and bankers involved and we are writing to the SEC to inform them that none of us are part of the offering."

Parts of the prospectus, which contains no audited financial statements or legal opinion, are indeed accurate. For example, Professor John Hogan, who is Director of Material Science at Beth Israel Deaconess Medical Center, which is part of Harvard University, confirmed that he was a director of EcoMed and that he had assigned to EcoMed the rights to two of his medical patents in return for stock in the company.

David Ulis, a director and CEO of EcoMed, called us after being contacted by a worried Hogan and threatened to sue us and contact the FBI, although he declined to take down the FBI's number in Miami when we offered it to him.

The IDIC scam is a carbon copy of a fraud perpetrated by the European Union Bank of Antigua that collapsed in 1997.

That bank, which was run by Russian criminals led by Alexandre P. Konanykhine, also promised investors their deposits were insured by an insurance company registered in Antigua called International Deposit Insurance Corporation, which subsequently turned out to be run by Konanykhine.

Interestingly, the Nevis IDIC used in the current fraud was set up just five months before the Antiguan-registered IDIC was struck off the Antigua Companies Register.

We incorrectly reported last month that the Nevis IDIC was set up in 1993. It was incorporated on December 18, 1996.

No officers of WISE, the First International Bank of Grenada and the International Exchange Bank returned our messages when we called to confront them about the fraud.

We made several calls to Grenada’s chief regulator, Michael Creft, yesterday but his telephone just rang, with not even an answer machine available.