Understanding Private Placement Programs, FAQs
Q: What are Private Placement Programs (PPP) (Trade Programs)
A: The Private Placement Program (PPP) is also known as a High Yield Investment Program (HYIP). These private programs are called private because the public is not invited to participate. PPPs are based on the purchase & sale of bank financial instruments (primarily Medium Term Notes called MTNs. These instruments are bought fresh-cut (newly created by the bank) with a significant discount on their face value.
They are purchased for the specific purpose to be resold at a higher price in what is known as the secondary market. The difference between the sale price and the purchase price is the trader/investors gain.
PPPs are offered to clients with high spending power and can only be executed by Traders who are licensed to carry out such transactions. An important aspect of the PPP is that a substantial part of the returns are to be used for humanitarian causes and to the financing of business projects. As such, institutions usually take precedence in this type of transaction.
As a rule, the minimum amount required to participate in a PPP is USD $100,000,000 for a tier one trade group. (1)
Trade programs also include the use of “credit facilities” such as Bank Guarantees, Stand By Letters of Credit, Letters of Credit, and other instruments that can be monetized. In a trade where a hard asset is used as the basis for a trade, the asset is first monetized. A value is placed on the asset by an approved authority, that value is then discounted by a bank or trade group and the LTV is used to create a line of credit.
That line of credit is not used by the trader in any trade. The credit line is used to increase ability of the trade group to leverage and increase their trade limits. The trade groups are heavily regulated internationally and in the US.
Q: How come so few investors know about these programs? Are they new?
A: PPPs are not publicly known in detail even though a great number of internet users will find reference to them on such websites as Linked In or just from Googling the name. In reality, only a very small group of investors that own funds, hard assets or bank instruments may have access to because they are invited to participate. You have to be invited to participate in a PPP.
PPPs are not new. They began in 1947, 68 years ago, right after WWII as a mechanism to draw capital into the economy for infrastructure projects that the Country was in dire need of after the war.
Q: Are PPPs safe?
A: PPPs do not present a risk for the investor. The purchase/sales of MTNs is “risk-free” by design. The one provision that can produce a risk is
that the investor must insure that the Trader has a guaranteed exit buyer to the instrument that the Trader purchased. If you are dealing with a legitimate Trader, the exit sale will be guaranteed by contract and therefore there would not be any risk for the investor.
For further clarification, before the start of the program, the Trader will “prepare” a program that plans the future purchases and sales of the MTNs and knows beforehand the benefits that each of them will bring. In a second phase of the PPP the program will “run”, which means nothing more than carrying out the transactions (purchases and sales) that were. Previously planned and negotiated with the Fresh-Cut provider houses.
Q: Should I deliver or transfer funds to the Trader?
A: Absolutely not. In any and all cases, the investor’s funds will always remain in the investor’s account. To carry out the program it will only be necessary to lock the funds down in the investor’s account. The investor must choose one of two available locking options. The investor can use a Swift MT-760 or administrative hold on account .
The blocking remains for the length of the trade contract period.
Q: Does the investor run any risk by submitting the required documents and why are these documents important?
A: First and foremost – the investor’s money is not under any risk at any time when in a legitimate PPP.
Investors must present the required documents since it is the only way to check and verify the quality of the client and their assets. In the PPP business the investor always has to take the first step to participate in a PPP. The investor must make the first step by providing the required documentation in order to avoid a charge of “solicitation” against the Trader or Program Manager. Rules against solicitation are rigorous.
The POF (Proof of Funds) is required at the initiation of the PPP participation process. The POF will be issued by the Bank where the investor has the resources deposited. The bank will be required to demonstrate the quality of the assets, the amount and the ownership of those funds. The bank also serves as to block anyone other than the investor owner from moving or disposing any of those funds in the account.
Q: What procedures should the investor follow to deliver the documents?
A: The investor is informed of the documents needed to participate in a PPP. Once all of the required documentation has been submitted, called the SET Compliance Package and Documentation, the Program Manager’s Team will proceed to verify the funds/assets brought forward by the investor. The client will undergo Due Diligence (investigation) to insure the client qualifies as an investor. Once the preliminary investigations are successfully completed, within 48 to 72 hours the Program Manager will contact the client for a formal presentation and also to agree on how to block the funds. Next the investors will receive a pre-contract to be signed and later sent to the Trader’s office.
Subsequently the Trader will contact the investor/client in person.
Q: When does the investor collect their earned interests or profits?
A: Yields on the investor’s investment are collected as described in the contract. The payout period could vary for a contract. The period could be weekly, monthly, or a year. For periodic period payments once they start they will be repeated on a regular interval, e.g., weekly, monthly etc.
Q: Can the investor partially or totally remove the invested amount?
A: No. The investment capital will remain locked for the length of the contract.
Q: What are the required characteristics of my funds?
A: The funds must be: clear, clean, and from a non-criminal origin.
For every asset, the location of the deposited resources should appear clearly stated by the bank in question. If at the time of verification, there is any doubt on the matter, the transaction will be automatically dismissed.
Q: Can the investor ask for references from previous transactions?
A: No. Revealing the name of a client would be violation of the Rules of Confidentiality and of the Non-Disclosure Agreement that are signed between the Program Manager and the Client.
Notes: As with any investment program an investor is advised to seek advice from legal and financial experts before entering into any financial transaction. The client should be fully informed as to the potential for gain or loss as it applies to their personal situation. Depending upon the clients assets, each PPP case will be different and selecting the best program for the client will be key to competing the investment program successfully.
The client should obtain advise at all phases of their investment from the explanation of the opportunity and how the yields are determined to the required banking and corporate documentation that the client is required to provide to the Trader’s Office.
There is the possibility that the client will be required to meet face to face with the Program Manager and/or Trader at a negotiated location.
Submission of Documentation
PPP programs are unforgiving when it comes to the completeness of the required documentation and the submission of that documentation when and where it is expected to be provided. If the client deviates from the procedures as directed by the Program Manager or Trader the project will be dismissed immediately. The rules of engagement are dictated by laws governing PPP transactions and by the institutions carrying out the transaction and there is no wiggle room.
SET Compliance: After the initial contact between the client and an intermediary (could be the Program Manager but not necessarily) the client should assess the viability of the investment as it applies to their situation. The investor will be requested to provide the Set of Compliance documents needed by the Program Manager to determine if the proposed PPP would work for the investor. The Program Manager will review and check the documents submitted for completeness and proper signatures.
Passport: A copy of the client’s passport is required. The generally accepted format is DIN-A4 size and it can be in any of the following formats: PDF, JPG, BMP, PNG. In some cases hard copies are accepted.
Proof of Funds (POF): The Proof of Funds and all bank documents must be manually signed by two (2) bank officials currently in charge of the client’s account.
Important: PPP transactions will not accept any kind of procedure that prohibits telephone calls from bank to bank since it is necessary to verify and ensure that they are dealing with a real signer of the account and that the funds and/or assets are not subject to “leasing.”
Joint Venture Agreement: A Joint Venture Agreement is part of the procedure in setting up a PPP. The client must agree to enter into an agreement called the “Commercial Agreement” that is provided by the Transaction Manager or Trader governed by the ICC (International Council Code).
Due Diligence and Asset Verification: Once the transaction/operation is submitted at the Trader’s Office, they will immediately proceed to the verification of the assets and “Due Diligence” of the investor. Both the investor and the assets are scrutinized in detail to determine their acceptability into the program. The investor must not be connected with any illegal or criminal organization or enterprise. Added to that would be any terrorist group affiliation. The asset presented must be good, clean and with a non-criminal origin and MUST be freely available to the investor.