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Maryland Securities Division - Investor Education
Invest With Common Sense
The Case of Kestral Trust: Promises of High Return and Low Risk are Untrustworthy
Kestral Trust, Ltd., a Canadian company with a U.S. office in North Carolina, calling itself an "off-shore trust," began soliciting Maryland investors by mail during April 1993. Kestral offered a "savings program" of "international investments" with a high rate of interest in a "tax-free" environment. The savings program purportedly pooled funds of small investors -- each investing as little as $25 monthly -- and promised at least a 5% monthly return on their investment. Kestral also touted a program supposedly utilizing several foreign banks for equity leveraging accounts, with a minimum annual return of 25%. In addition, Kestral claimed an average return of 300-400% for investments trading in international commodities markets. Kestral "guaranteed" the principal and interest up to $100,000 at no cost to investors.
Kestral also offered subscriptions to its investment newsletter for an initial price of $99 (renewable annually for $29). Members could theoretically enlist other subscribers, who would enlist still others, and so on, with members receiving commissions for subscriptions enlisted through the downline subscribers, in pyramid fashion.
Kestral failed to inform investors of the risks of investing in foreign currencies or financial institutions, instead portraying such investments as "guaranteed." Kestral's investment programs were not properly registered in Maryland in accordance with state securities law. Nor were its sales agents registered, as required by law. An investigation undertaken by the Securities Division discovered that Kestral and its agents had fled and left no forwarding address.
The Securities Division issued a Cease and Desist Order against Kestral halting the offer and sale of Kestral's investment programs before any Maryland investors were victimized by Kestral's solicitations. However, the Division warns that there are many unscrupulous solicitors seeking to obtain investors' funds with similar promises. The Division advises investors to investigate thoroughly before investing.
Given the low interest rates of CDs and bank accounts, many small investors are willing to entrust their life's savings or retirement funds in safe-sounding ventures promising fast, high returns. Too often there are no returns, and even the original investment is lost.
It is important to investigate both the person offering an investment opportunity and the venture itself. Before investing, investors should consult an attorney, broker, banker, or financial adviser known to be knowledgeable and reliable. In addition, investors may call the Securities Division (410/576-6360) to learn if the investment and the sales agents are registered in Maryland or if there are any known problems with the contemplated investment.
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Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372