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New target for 419 fraudsters: Struggling 'weak' banks

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Desperate banks have become the target for so-called 419 advance-fee fraud scams.

Increased regulatory scrutiny in the wake of the credit crunch and subsequent banking failures might be expected to deter banks from entertaining investment or deposit offers that come with up-front fees, payable by the bank, attached. But many banks might be prepared to take the risk because poor profits and earnings outlooks are enough to deter traditional investors, the Problem Bank List blog warns.

An estimated 772 banks - or almost 11 per cent of all Federal Deposit Insurance Corporation (FDIC) insured institutions - are on the FDIC's Problem Bank List. These troubled institutions were targeted by con artists posing as potential investors prompting the United States government deposit insurance agency to put out a special alert last week, warning about the scam.

The FDIC has become aware of multiple instances in which individuals or purported investment advisors have approached financially weak institutions in apparent attempts to defraud the institutions by claiming to have access to funds for recapitalization.

These parties also may claim that the investors, or individuals associated with the investors, include prominent public figures and that the investors have been approved by one or more of the federal banking agencies to invest substantial capital in the targeted institutions.

Ultimately, these parties have required the targeted institutions to pay, in advance, retention and due diligence fees, as well as other costs. Once paid, the parties have failed to conduct substantive due diligence or to actively pursue the proposed investment.

The FDIC goes on to warn banks to be wary of too-good-to-be-true investment offers, urging financial institutions to report suspicious activity.

You'd expect bankers to be wise to this sort of shenanigan, as the Problem Bank List blog notes. ®

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