Promissory Note Scheme
What is a Promissory Note Scheme?
Many companies use legitimate promissory notes to raise money. Legitimate promissory notes are commonly used by businesses. These transactions usually involve sophisticated investors capable of doing thorough research on the person or business they are investing in.
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 a Promissory Note Scheme Work?
Promoters sell these notes as short-term loans that promise high returns for borrowing money from you, usually at no risk.
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 is non-existent. The scam artist will try to make the notes sound like they are a guaranteed 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. This generally signals that the scam is nearing its conclusion, and you will lose whatever money you have not received yet.
Watch out for these characteristics of promissory note schemes:
- 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.