Dedicated to Deposits: Deals, Data, and Discussion
Featured Savings Rates
Featured Accounts

Deposit Broker's Ponzi Scheme

Saturday, September 18, 2010 - 8:32 PM
According to this MLive.com article, a Michigan deposit broker told his clients that he was going to buy bank CDs, but instead he allegedly used the funds to make payments to other investors in a ponzi scheme. His clients were mostly institutions including a credit union.

This shows the risk of using a small-time deposit broker for buying CDs. According to the FDIC:
If the agent is dishonest and steals the money, your only recourse is against the agent - not the FDIC insurance fund or the bank where the agent said the money was deposited

3
Ken TuminKen Tumin5,468 posts since
Nov 29, 2009
Rep Points: 125,018
1. Sunday, September 19, 2010 - 9:57 AM
Did not realize that a credit union could or would invest in bank CD's. Thought they had a central bank to put their money in. Can't remember the name of the bank but thought the word central is in the name. Wonder how this will affect the solvency of the credit union.

Also concerning the schools and the townships. Cannot understand why they would go thru a broker. These were not large investments and in the example of Comstock township buying 7 CD's was not a hard thing to do and putting 9 months operating capitol with one person is not a sound choice. It is the treasurer's job to make prudent investments with board approval.. This broker was sent money from 7 banks. To take such a big step going from completely FDIC insured CD's to giving that money to a person who would have no bonding or insurance on himself is completely ludicrous. Most likely these investments would have been sold as in investment in brokered CD's that usually pay less interest. Michigan has strict rules for the treasurers and for board approval on what type of investments can be made. These laws were passed after the Orange County and San Diego corruption of a few years ago. Would like to see how the board made this decision for this investment with taxpayers money.
2
Ally6770Ally6770909 posts since
Jan 16, 2010
Rep Points: 2,641
Reply