Promissory Note Scams

Promissory Note Scams — South Florida Investment Fraud, Misrepresentation and Breach of Fiduciary Duty and Elder Financial Abuse and Exploitation FINRA Arbitration, Litigation and Probate EstateAttorney

While elder fraud, breach of fiduciary duty and other types of financial abuse can take on many forms, there are a number of investments which increasingly have been used in illegitimate schemes to defraud older investors. Elder or retired investors should exercise appropriate scrutiny before investing in these types of products.

Promissory Notes

A promissory note is a form of debt — similar to a loan or an IOU — that a company may issue to raise money. Typically, an investor agrees to loan money to the company for a set period of time. In exchange, the company promises to pay the investor a fixed return on his or her investment, typically principal plus annual interest. While promissory notes can be legitimate investments, those that are marketed broadly to individual investors or offer above average rates of returnoften turn out to be scams. Investors, especiallyelder individuals,should be careful to determine their legitimacy and should seek the advice of an objective third party when in doubt. For example, the SEC found fraudsters that purchased and used mailing lists to target elderly individuals in north and west Texas for investments in so called “guaranteed” and fully-collateralized “promissory notes.” In order to solicit senior citizens, the fraudster disseminated literature designed to alarm the elderly recipients with claims that the Texas probate process was lengthy, complicated and expensive and to suggest that they could provide “estate planning services,” “living trusts” and “revocable trusts” to overcome the identified problem. When the targets of the mailing responded, they were urged by the fraudsters to liquidate legitimate, safe investments, to withdraw IRA monies and to invest in high risk investments in order to achieve a higher rate of return. Investors were told their investment would be used to fund business ventures, including short-term, high-interest notes, bank cards, resort projects and short-term, interim mortgage loans, all of which did not exist. Instead, investor monies were used by the fraudsters to make interest payments to earlier investors (“Ponzi payments”), pay exorbitant sales commissions, purchase several parcels of real estate, acquire and operate a pawn shop, make payments on personal credit cards and to construct a residence and lake home. [See SEC v. Gary Landon Davenport, et al., Case No. 7:99-CV-185-R, USDC, NDTX (Wichita Falls Division)]

Alternatively, some fraudsters target friends, family or the elderly that they meet to solicit their investment in bogus promissory notes in name only companies that have no assets, employees or business prospects. As the percentage of retiredpeople has grown, abuses in the individual offering of bogus promissory notes, has kept pace.

When attempting to recover investment losses arising from promissory notes, bogus or otherwise, time is usually of the essence. If you feel that you or a family member have invested in a promissory note that has not yet defaulted but things just don’t feel right or the note has already defaulted and you are receiving excuses as to why the money that you are owed is not being paid, pleasecontact us for your initial free consultation.