Promissory notes are a type of debt instrument used for a person or company to borrow money. Promissory notes usually involve investors loaning money in exchange for future interest payments. Although some promissory notes are legitimate, promissory notes are commonly used as a vehicle to defraud investors. Promissory notes are often used as the vehicle to conduct Ponzi schemes – using the funds from new investors to pay the interest and principal back to older investors.
Oftentimes, promissory notes claim to be secured by assets, such as real estate or securities. The promoter of the promissory note will claim that the investment is safe because it is backed by those assets. Keep in mind that in the real world, very safe investments do not pay large returns.
Before investing in promissory notes, always perform a background check on the person and/or entities involved. Check to see if any other investors have sued this person or entity for failure to pay back promissory notes. Before investing in promissory notes, ask yourself, or the promoter of the investment:
- Why does this person/company need to borrow money from me?
- Why can’t this person/company borrow money from a bank?
- If the business claims to be successful, why do they need to borrow money?
- How can the business afford to pay me the interest?
- If the investment is so safe, then why are you offering such a high interest rate?
Also, ask to see financial statements of the company. If the company is already saddled with tons of debt, how will it have the ability to pay the investors back?
We have successfully represented many investors who were victims of promissory note fraud. Please contact us for a free and confidential case evaluation if you believe that you have lost money due to investing in promissory notes.