SCAM Alert! Bogus Promissory Notes
Posted on September 3, 2012 by bob in Financial
The Commission has investigated and prosecuted a number of cases where con artists steal Alabamians’ money through the offer and sale of bogus promissory notes. These instruments are often sold to purportedly raise capital, to promote growth of an existing company, help finance a new construction project or many other types of investment opportunities. Promissory notes are written promises committing the issuer to pay an investor a specified sum of money, either on-demand or at a fixed or determinable future date, with or without interest. They are often used by legitimate businesses in order to raise capital, but can be highly-speculative and unsuitable for many “main street” investors.
Promissory notes are often promoted as a safe and secure means for investors to earn reasonable returns, whereas stocks require higher risks, and traditional financial instruments like certificates of deposit or money market funds, are presently paying historically low returns. Experienced and rookie investors should be aware that promissory notes carry risk should the issuer not be able to meet their obligations.
Some recent illegal investment schemes involving the illegal offer and sale of promissory notes are:
— A Madison County man was sentenced to 20 years in state prison and ordered to pay more than $512,000 in restitution to several investors, plus an additional $179,000 to another victim after he was found guilty of offering and selling unregistered promissory notes on behalf of his automobile title pawn business. Instead of paying double-digit returns as promised, the man used investors’ money for his personal use and to repay prior investors in a Ponzi-type investment scheme.
–Two California men were sentenced in Montgomery County to a year each in prison and required to pay $20,000 in restitution, plus additional court-imposed fines. The men conspired to offer and sell unregistered promissory notes and investment contracts to an Alabama investor in an attempt to raise capital for a company the men claimed would take used automobile tires in the U.S. and manufacture rubberized railroad ties and other structures to be marketed and sold in China. Neither of the men, their company, nor the promissory notes and investment contracts they offered and sold were registered with the Alabama Securities Commission (ASC). A third co-conspirator who issued a promissory note for $650,000 to another investor has fled to Mexico and is currently a fugitive from justice in the same scheme.
— The offer and sale of illegal and unregistered promissory notes to Alabama investors garnered a Mississippi man a 15-year prison sentence in Baldwin County. The man pled guilty to Conspiracy to Commit Theft by Deception, 1st degree, after an ASC investigation revealed he had offered and sold the notes, valued at more than $2.3 million, to Alabama investors for the proposed site development of a commercial enterprise involving business offices and condominiums. The investigation also revealed that investors’ money was not used as represented, but instead was used for the man’s personal benefit.
Before you invest in any offer to include promissory notes, contact the ASC to verify the proper registration of the product offered and the financial professional making an offer or recommendation for a fee. Report suspected fraud as well as obtain consumer information by calling the ASC’s Education and Public Affairs Division, 334-353-4858, or by visiting the ASC website, www.asc.alabama.gov.
Joseph Borg, Exec. Dir., ASC
Joseph Borg is Director of the Alabama Securities Commission. (This article is provided by a generous grant from the Investor Protection Trust: www.investorprotection.org.)
