SELF-LIQUIDATING LOANS & THE FEDERAL RESERVE
I first came across these financial instruments in 1984 and since then have come across them and their purveyors many times.
The first time I can remember as though it was yesterday. It was in an office in Mayfair, not from where Jack Barclays have their Rolls Royce and Bentley show rooms.
The financial intermediary told me there was lots of money ‘swilling around the City’ and there was a shortage of financial propositions, businesses and business plans to take advantage of the money. The money was no problem because there were self-liquidating loans available to fund anything and everything. I thought ‘WOW! I’ve cracked it!’ He continued ‘All we had to do was come up with someone who would place a bond in an escrow account and we could get a loan against the interest. The bond could be $100,000,000 or $500,000,000 and we needed a bank to be in the middle to accept the bond and allow us to complete the transaction.
The magic of this guy was that he had someone lined up who had a bond that $500,000,0000 that we could use and he also had a bank lined up that would allow us to complete the transaction. My appetite was suitably whetted although I have to confess I was getting ‘baffled by science’ by the 3 point over Libor, back-to-back triple AAA rated bond, and other equally seducing lingo. But greed drove me to disregard all things that weren’t making sense to me and I kept me focused on getting the £500,000 I was trying to raise.
I am sure you know what comes next. To activate the whole transaction I had to come up with £50,000 to pay the fees to make the whole thing come together. It was when this word fees came up I started to wobble. However, after some negotiating I eventually got the guy to agree a reduced fee of £25,000 up-front, but before I parted with my money I suddenly came to my senses.
I remembered what Seamus O’Rourke told me. ‘If it’s a good deal today it will still be a good deal tomorrow. Think on it overnight.’ I decided to do just that.
I quickly exited that office on the pretext of getting to my next meeting but not before I had insisted on getting the scheme in writing which he duly handed to me on a plain A4 sheet of badly typed prose:
SELF-LIQUIDATING LOAN SCHEME
Borrow £100,000,000 to £500,000,000 for a period of 20 to 25 years
Buy collateral using some of the money you borrowed. This collateral is in the form of PRIME BANK NOTES, Letters of credit or if you like, Certificates of deposit. This is placed as collateral to the lending bank and will repay the principal of the loan, in full on maturity.
Invest some of the money you borrowed in an income-producing instrument that will pay the interest on your loan each year, in arrears. The income stream from this investment is assigned to the lending bank to pay your interest on the loan.
4. Pay all the brokers fees and commissions and the finder’s fees from the balance of your loan proceeds.
5. YOU GET PAID! You have borrowed the money, paid for the collateral to pay the principal, paid for an income-producing instrument to pay the interest for you and paid all the commissions and fees. The money left is usually £250,000 to £24,000,000. This is called the fall out, WHICH IS YOURS.
It is essential that all of these actions and closings happen simultaneously in an around table meting, which we arrange.
Once I was out of the spell of the intermediary I soon contrived a plan on how to move forward without suffering financial indigestion.
I phoned him up the next day and told him ‘Come up with three names and phone numbers of references of who you have completed self-liquidating loans with, and have got their big fat cheque, and I’ll give you my twenty-five grand up-front to enable you to get on the job.’
All of a sudden I could sense a dramatic change in tonality. I heard a distinct and coughing and spluttering of which I made a mental note. He was lost for words, and the feeble excuses he did make were stuttered and stammered. It transpired he hadn’t actually closed a deal ‘yet’ but he did have three in the pipeline that were just about to close for three very satisfied and happy customers. I took that as a ‘No.’
The follow up and follow through phone calls became less and less frequent and eventually the guy stopped returning my calls. Soon after the phone number was unobtainable. I had had a lucky escape.
Since I nearly got shafted in the Mayfair office on that hot summers day of ’84 I have come across literally hundreds of these scams. Some more sophisticated than others. Some are on A4 sheets, others run 20-30 pages. They are highly prolific on the Internet, the City and anywhere else conmen frequent. They all revolve around substantial up-front fees to activate the deal. In all my experience I have never met an intermediary or principal offering a self-liquidating loan that actually worked where there was a genuine satisfied customer at the receiving end of a big fat cheque. I have, however, met a goodly number of unsuspecting entrepreneurs who parted with the substantial upfront fees and never received anything for their money.
Since 1984 my interest in self-liquidating loans really peaked, I have offered cash reward of £50,000 to anyone who can introduce me to a source of genuine self-liquidating loans. All they have to do is supply the names and addresses of three satisfied customers who have received their loans. Oh, by the way this won’t be easy money to earn. My top-five legal and accountancy advisers will carry out forensic due-diligence before I part with the reward. I am waiting anxiously because I could introduce tens of millions of pounds worth of good qualified business to a genuine source.
To summarize. SELF-LIQUIDATING LOANS ARE A COMPLETE SCAM and to be avoided at all costs, no matter what format they are presented in. Remember where you heard it first.
To further qualify the £50,000 reward. This is for introducing me to a source of self-liquidating loans that are available for entrepreneurs, start-ups, inventors, and unquoted companies in the UK. I am not interested what the likes of Blue Chip companies like ICI, General Motors, or Dow Chemical or even the Mafia get up to either internally or with off-shore banks using their own debentures or convertible bonds. Ron G Holland – TopBizGuru@hotmail.com