Promissory notes
What is a promissory note scheme?
Companies use legitimate promissory notes to raise money. The market for these notes is almost exclusively corporate and sophisticated investors capable of doing thorough research on the issuer. Bogus promissory notes tend to guarantee above-average, fixed interest rates. They may also guarantee the principal—something legitimate notes do not do, as there is always the risk a company cannot meet its obligations.
How does it work?
Promoters sell these notes as short-term loans that promise high returns for borrowing money from you, usually at no risk. The idea is to attract investors looking for a safe investment that pays a consistent, fixed rate of interest.
The seller may tell you that the notes are ‘risk-free’, ‘insured’, or ‘guaranteed’, which is impossible. Every investment opportunity contains some level of risk. The notes may contain the label 'prime quality' to make it seem like a high-grade investment, when, in fact, the company issuing the note is a start-up or, in some cases, non-existent. The scam artist will try to make the notes sound like they are a no-lose proposition for investors.
Like in other investment schemes, the scam artist may make some initial payments to you to gain your confidence. As time passes, the payments may become erratic or drop-off all together. The scam artist may tell you it’s a temporary issue. More likely, the scam is nearing its conclusion, and you will lose whatever money you have not received yet.
Watch out for one or more of these common characteristics:
- A start-up company with little or no business history offers its ‘high-quality’ notes to retail investors
- The investment promises returns above the market average for a similar type of investment
- The notes are promoted as being a short-term, high-interest investment
- A person who is not registered with a securities regulator is selling or promoting the notes
Research before you invest
Check our Fraud warning signs section to familiarize yourself with the language and techniques found in almost every investment scheme. There are also videos of people who talk about how they had their savings taken by a fraud artist.
Visit our Avoid investment fraud section to learn about techniques and tools you can use to protect yourself against fraudulent investment schemes and their promoters.
Report it and warn others
If you have been approached or know of an investment that fits the description above, contact your provincial securities regulator immediately.
In BC, contact BCSC Inquiries. You can also anonymously report suspicious activity through InvestRight’s Report a scam webpage.
Residents from other Canadian provinces can find contact information for their provincial securities regulator at
www.securities-administrators.ca.
If you know a person who has put money into, or is considering contributing, to an investment like the one described above, give or send them this information, and encourage them to do more research.