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I am being offered the chance to invest in debentures. That ought to be safe, don't you think?

I am told the Trader will borrow against a Safekeeping Receipt. How is that done?

 

Q. I am being offered the chance to invest in debentures. That ought to be safe, don't you think?

A. A DEBENTURE is an unsecured corporate note.

There are those who do invest in debentures; however, it is very risky business. One must have more than a working knowledge of both the corporation issuing the note and the limited market for such notes.

Frequently debentures do not carry interest, the gamble being that the corporation itself will increase in value, increasing the value of the corporation's unsecured note.

An investment in a debenture is quite literally a loan to a company based solely on the lender's experienced judgment of the future value of that company.

It is certainly not an investment that should be left up to someone else, especially if that someone else is not a registered broker whose credentials cannot be very closely scrutinized by independent authority. Debentures are available through any registered brokerage firm, along with the requisite advice pertaining to the risks, advantages, and disadvantages.

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Q. I am told the Trader will borrow against a Safekeeping Receipt. How is that done?

A. Unfortunately, a SAFEKEEPING RECEIPT can be a NEGOTIABLE INSTRUMENT, meaning that it can be endorsed over to another party.  A quick definition for a Safekeeping Receipt is a bank receipt for valuable assets you have entrusted to them, usually to be used as collateral for a line of credit or other loan.

The way it works is that the con artist asks you to provide him with a safekeeping receipt (or whatever the appropriate bank-issued receipt may be called) over which you give him a POWER OF ATTORNEY.

He may then either directly access your assets, or garner a loan against them, supposedly for purposes of investment.  Since you have legally given him power over your assets, the bank or brokerage firm is not at fault and you will have to quickly alert the authorities in order to try to recoup.

Another scheme is to persuade you that money can be made using Safekeeping Receipts and that will be purchased using your money.  In this scenario, the con artist will say that you will receive a copy of the receipt, or he will say that you are to place the receipt itself into safekeeping and get a second safekeeping receipt, or any combination of procedures that will make you feel safe. 

Problem is all a victim ever receives are excuses for things not going the way the scammer said they would.

  

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