Our intention is to help Users better understand the meaning and significance of various financial terms, processes and transactions that appear with all-too-frequent regularity on the Forum Board.

Release 46: Understanding Private Placement Programs (Bank Safekeeping Receipts)

Facts:

Investor Group has engaged Mr. Black, a consultant, to place a Bank Safekeeping Receipt for a $150 Million USD Bank Guarantee into a private placement transaction. Mr. Black is concerned whether the transaction is do-able.

Answer:

Mr. Black has good reason to be concerned. The existence of a Safekeeping Receipt can raise important issues the resolution of which may affect the viability of the transaction.

Bank Safekeeping Receipts, it must be acknowledged, come in all shapes and sizes. Whether the transaction is do-able will depend, ultimately, on a careful examination of the language of the Safekeeping Receipt, and on whether the "fundamentals" for entering into a private placement - validation of the ownership, genuineness and provenance of the instrument - can be properly established.

Analysis:

A Bank Safekeeping Receipt is a document issued by the bank which confirms that the bank (referred to as the "safekeeping bank") holds on deposit, certain assets at the request of the depositor. These assets are subject to a commitment by the bank to return the assets to the depositor at some future date, upon the depositor's request.

In truth, however, Safekeeping Receipts can (and do) vary widely in their legal import - depending on the assets under safekeeping and the nature of the safekeeping arrangement established by the bank and depositor. Care must be taken, therefore, to examine the express language of the Safekeeping Receipt thoroughly.

Two things to keep in mind:

1) The Safekeeping Receipt does not prove "ownership" of the assets - i.e., that the depositor is the legal/beneficial ownership of the assets. The Safekeeping Receipt merely confirms that the named depositor has a right to the return of the assets at the end of the specified term, irrespective of whether or not the depositor actually holds legal title.

2) The Safekeeping Receipt does not, alone, without express confirming language, establish the "authenticity" of the assets - i.e., that the assets, themselves, are, in fact, genuine. A Safekeeping Receipt, "without bank responsibility", for example, merely confirms that the depositor has a right to receive back the named assets "as is" - indeed, the assets may be being held outside the banking system in a safety deposit box only, and, as such, are, effectively withhout value until validated through proper banking channels.

In the instant case, care must be taken to establish that Investor Group is the true owner of the Bank Guarantee. If, in fact, title vests with another party, Investor Group may lack standing to participate in a private placement transaction. Furthermore, Mr. Black must ensure that the Bank Guarantee is genuine. Failure to establish the "bone fides" of the instrument can doom the transaction to failure. ____________________

Robert

lawscape@gmail.com

Our "core business" is exclusively in the private placement arena. We sponsor various private placement opportunities for high net-worth "quality" clients, utilizing a wide range of banks, formats and procedures. The private placements are conducted quietly and discreetly - and at a very high level in the business.

We also offer business colleagues and friends a monthly "newsletter" setting out information and updates concerning our private placement opportunities. If you wish to receive our newsletter, just send us your email address and tell us a little about yourself - and we would be happy to add you to our "mailing list".

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