Is My Promissory Note a Scam? Red Flags to Look for

If you are holding a promissory note, and if one or more of the red flags listed below apply to you, note: act quickly! You may have valuable legal rights. However, these can have a short shelf-life, so if you recognize one or more of these red flags, call the investor rights experts at ChapmanAlbin. You’ll get answers to your questions today without incurring any charge or obligation.

Scams involving promissory notes are popping up again. This is to be expected in today’s low-interest rate environment; promissory notes usually “guarantee” the investor pretty high fixed rates of return.

Notes appeal to many safety-seeking investors because they sound simple and safe—an attractive alternative to stocks and bonds. “Simple” because a promissory is just an “IOU” where the investor loans money to some enterprise for a fixed period of time, and the borrower promises to pay the investor interest on the amount of the loan until the amount is paid back in full. “Safe” because the investor’s loan is supposedly backed by some valuable security, often real estate. Or, sometimes, the re-payment obligation is said to be insured.

There are legitimate promissory note arrangements, and then there are scams. Here are some “red flags” indicating that you may be involved in a scam:

• Most promissory notes are considered to be securities. You should check to see if the notes are registered with the SEC and with the securities division in your state; if not: red flag!
• Sellers of securities have to be licensed; if the person trying to sell you a promissory note is not licensed (you can check this out at brokercheck.com), red flag!
• If the seller promises you that the promissory note is guaranteed to pay you a high interest rate—higher than prevailing market rates—red flag!
• If the payment obligation on your promissory note is said to be “insured,” take a long look at the insurance company. Do you recognize the name?  Is the insurance company based in the USA, or does it operate out of some place you’ve never heard of?
• Ask the person trying to sell you the promissory note a few common sense questions, like: why is this company paying people like me 8% instead of borrowing the money from a commercial lender? How is this company going to make the money to pay me interest and re-pay 100% of my loan? If you don’t get satisfactory answers to these common-sense questions—red flag!

Over the last 25 years, the attorneys at ChapmanAlbin have helped hundreds of promissory note scam victims recover their losses. Don’t allow yourself to be a victim – call ChapmanAlbin today!