WASHINGTON - The Federal Deposit Insurance Corp. warned banks Thursday to avoid brokered deposit arrangements with a California securities firm that is offering easy profits but may be charging hidden fees.
FDIC officials said that the deposit broker, San Clemente Securities Inc., has sold long-term, discounted certificates of deposit with the promise of high interest rates, but secretly deducted "substantial" fees before investing the proceeds. The agency is concerned because banks that have bought the CDs are counting them as capital when their value is much less than the banks thought.
San Clemente officials did not return calls seeking comment.
The practice was discovered during an exam of a community bank, which lost roughly 50% of its capital in the alleged scam. FDIC officials said San Clemente Securities targeted small banks and individual investors in retirement communities, who are estimated to have lost more than $10 million.
San Clemente has not been formally charged with any wrongdoing, but FDIC officials said they have forwarded the case to the agency's inspector general for criminal investigation.