On August 30, 2021, the Securities and Exchange Commission charged Howard S. Kleyman, of St. Paul, Minnesota, for his role in facilitating a fraudulent "prime bank scheme." Kleyman was an attorney licensed to practice law in Minnesota until his recent disbarment by the Minnesota Supreme Court.

The SEC's complaint alleges that Kleyman served as "paymaster" in at least nine transactions in which investors paid over $1.22 million in advanced fees to purchase, lease, and/or monetize purported bank instruments such as standby letters of credit or bank guarantees. As alleged in the SEC's complaint, Kleyman disbursed investor funds, usually within days of receipt, without conducting any inquiry into whether the investors had received their promised instruments or funding. The complaint further alleges that Kleyman had no basis to believe that the purported bank instruments existed, or that they had any value. According to the complaint, Kleyman learned of many red flags suggesting that these transactions were fraudulent, which, in fact, they were. The complaint alleges that Kleyman collected $12,499 in fees from investors for the nine transactions for which he served as escrow agent.

The SEC's complaint, filed in the U.S. District Court for the District of Minnesota, alleges that Kleyman violated the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. Without admitting or denying the SEC's allegations, Kleyman agreed to a judgment that includes a permanent conduct-based injunction prohibiting him from participating in, or acting as a paymaster in connection with, bank guarantees, medium term notes, standby letters of credit, and similar instruments. Pursuant to the judgment Kleyman also agreed to pay disgorgement and interest of $13,749 as well as a civil penalty of $50,000. The Court entered the judgment on October 8, 2021.

In a related action, Kleyman also agreed to the issuance of an administrative order pursuant to Rule 102(e) of the Commission's Rules of Practice prohibiting him from appearing or practicing before the Commission as an attorney.

The investigation of this matter was conducted by Ariella Guardi, Jonathan Epstein, and Scott Hlavacek and was supervised by C.J. Kerstetter of the SEC's Chicago Regional Office.

For more information regarding the dangers of prime bank schemes and tips on how to avoid them, see http://www.investor.gov/investing-basics/avoiding-fraud/types-fraud/prime-bank-investments.