CHICAGO –– Secretary of State Jesse White today joined other
state and federal securities regulators in announcing a major
crackdown on sellers of fraudulent promissory note schemes. The
notes, often sold by insurance agents, are very risky and many
people have been defrauded of their life savings by these scams.
"The promissory notes are attractive to people because they
promise higher rates of return," said White. "But investors must
never forget the first rule of finance -- the higher the reward,
the higher the risk. In today's market there's no such thing as a
‘guaranteed' 10 or 15 percent return. "
Securities regulators in 28 states have taken action against
hundreds of individuals and companies. More than 3,000 investors
lost money in these schemes. The U.S. Securities and Exchange
Commission has filed charges against 38 individuals and 22
entities involved in these fraudulent sales.
State securities regulators, including White's Securities
Department, formed a task force headed by the North American
Securities Administrators Association (NASAA) in May 1999 to
concentrate on the problem.
In many of the promissory note scams, a supposedly "well-
established" company claims it needs capital to expand its
business. Instead of borrowing money from a traditional lender,
it offers investors an opportunity to purchase "promissory notes,"
typically with a maturity of nine months and an annual interest
rate of 12 percent and higher.
In a number of states, investors lost their entire life
savings to promissory note fraud. Illinois has entered
administrative orders against several promissory note promoters;
however, it has not seen the hundreds of cases that states such
as California and Florida have encountered.
"Illinois residents should remain cautious and investigate
before investing," says White. "Many con-artists move from state
to state and they are bound to target Illinois investors."
Here are some tips to protect yourself and your money:
- Before investing in any promissory note, always check with
state securities regulators to confirm that the notes are
properly registered or legally exempt from registration. If you
can't verify that the notes are registered or exempt from
registration -- hold on to your money. Do research to ascertain
the legitimacy of the company whose notes are being offered.
- Agents selling these "notes" usually are required to be
licensed by both the state and the National Association of
Securities Dealers. To find out if the agents are registered or
have a disciplinary history, contact your state securities
regulator or call the NASD Public Disclosure Hotline at 800-289-
9999.
- Be suspicious if the notes have an above-market interest
rate with a maturity of less than a year. With a one-year FDIC-
insured bank certificate of deposit yielding a little more than 6
percent, you should be very skeptical when someone offers you a
nine-month "note" from an obscure firm promising 12 percent.
Additional information can be obtained from NASAA's web site
at www.nasaa.org and by calling Secretary of State Jesse White's
office at (800) 628-7937.
