The idea of custody is not new. People put things somewhere to “keep” them all the time. Usually it’s just something they want to keep safe in a place that is considered just that, safe.
However, banks and other institutions are dedicated to keeping some valuables safe. Sometimes this is done as a safe deposit box. Other times, the item may be sent for safekeeping. Often times, the institution issues the owner a document called a custody receipt to make sure they have documentation that their item is there. These are actually monetary instruments that can be traded.
The idea is that ownership of the secure receipt can be transferred from one party to another. Whoever has the receipt has access to the goods. Therefore, it is actually the asset that is transferred. These documents can also be borrowed and leased to generate cash flow. Property is generally transferred by signature and possession. Assets can be anything from other monetary instruments to valuable jewelry. Depending on the intention of the asset owner, it may be more careful to obtain a receipt rather than save a certain item. For example, in the case of jewelry, if the intention is to liquidate it, then it may be easier to obtain a receipt and lease or sell it rather than the jewelry itself. Not only can it be dangerous to wear valuable jewelry, it can also be cumbersome.
There are many scams related to these types of receipts. For example, a scammer posing as a legitimate broker convinces the investor to issue a custodial receipt over which he has power. The scammer then has access to whatever asset the receipt represents. The idea is that you are only signing in for investment purposes and will often encourage the owner to keep the original receipt in a safe place and get a receipt for it. This is designed to make the owner feel more secure, but it doesn’t really have any effect on keeping the scammer off the assets.
These receipts are not a bad investment, whether in lease or sale, but should be approached with caution. Scams involving them abound, and it can be easy to get caught up in some tough situations. Use your good judgment and follow the paper trail to avoid getting into trouble.