Most of these schemes are incredibly complex. The investment process is convoluted. It uses obscure and secret finance mechanisms. In the eyes of an unsophisticated investor, all this complexity may make a questionable investment appear worthwhile. The interest is supposedly secured by a letter of credit or bank guarantee.
Victims find out too late that their blocked funds have disappeared.
Regulators fear that this type of program is the latest incarnation of the type of fraudulent investment scheme known as advance fee fraud. Scam artists issue investors bogus banking instruments or documents such as certificates of deposit, letters of credit, notes, debentures, or promissory notes after obtaining a fee from the client. The hapless investor soon finds out that these documents are worthless. In return for these bogus financial instruments you give the scam artists bonafide financial instruments such as bank notes, guarantees, bonds, cash, cashier's checks, money orders, letters of credit, certificates of deposit, gold, silver, fixed income securities, and zero coupon bonds as payment to participate. Clients are often lured into these schemes through ads claiming to rent collateral for the client to use in obtaining other loans.