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June 1, 2000
Promissory Note Scam Alert
The District of Columbia Department of Insurance and Securities Regulation (DISR) has been alerted to the nationwide sale of fraudulent promissory notes.
Authorities in at least 35 states so far have received complaints or taken enforcement actions involving promissory notes. State regulators say that these schemes have spread quickly across the country and have cost consumers at least $300 million. Even if the promissory notes were legitimate, above-board investments, agents should know that they are considered securities that must be registered with the U.S. Securities and Exchange Commission and it is a violation of federal and state laws to sell these types investments without the appropriate securities license.
Insurance agents are targeted to sell these notes because the agents know the financial capacities of their clients and generally have a long term relationship with them based upon trust. The lure for agents to sell these promissory notes is a commission that can be as much as 7% on the first sale, with a new commission earned on each subsequent renewal. The fraudulent companies that issue the notes either abscond with the investors' money when the notes mature or use a classic Ponzi scheme to pay earlier investors with money from newer ones until the scam collapses.
Agents are also advised, before selling any promissory note, to check with the D.C. Department of Insurance and Securities Regulation Fraud Bureau, 202-727-8000 or contact NASAA (http://www.nasaa.org/) - 813-272-2565 to confirm that the note is properly registered or legally exempt from registration. In addition, agents should find out if they must be registered as a securities broker in order to market and sell the product. | 
