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Simple English definitions for legal terms

Investor Protection Guide: Promissory Note Scam

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A quick definition of Investor Protection Guide: Promissory Note Scam:

A promissory note scam is when individuals convince others to sell promissory notes by promising them large commissions. The sellers may not know that the information they have been given is false or misleading. The fraudsters use a portion of the money collected from investors to pay the sellers their commissions and then abscond with the rest. Promissory notes are a form of debt where an investor loans money to a company in exchange for the company's promise to pay back the principal plus interest over a specific time period. Fraudulent promissory notes are sometimes issued on behalf of fictitious companies and are often targeted towards elderly investors who believe they are less risky and offer a higher-than-market rate of return. To avoid promissory note scams, investors should investigate the person selling the notes, research the legitimacy and financial health of the company offering the notes, and be skeptical of notes that are supposedly insured or guaranteed or promise to be risk-free, high yield investments.

A more thorough explanation:

A promissory note scam is a type of investment fraud where individuals convince others to sell promissory notes by promising them large commissions. The scammers often stay behind the scenes and use false or misleading information to persuade sellers to offer the notes to investors. The fraudsters use a portion of the money collected from investors to pay the sellers their commissions and abscond with the rest.

A promissory note is a form of debt where an investor loans money to a company in exchange for the company's promise to pay back the principal plus interest over a specific time period. Fraudulent promissory notes are sometimes issued on behalf of fictitious companies, and sellers may tell investors that the notes are guaranteed by insurance companies and offer a high rate of return. However, most of the companies that guarantee the notes are unlicensed, and the notes are not usually sold to the general public.

Fraudsters often target elderly investors who believe the notes won't expose them to the risks of the general securities market. Investors purchase the notes believing they are less risky and offer a higher-than-market rate of return. Sellers may encourage investors to cash-in their life insurance policies and buy promissory notes instead.

To avoid promissory note scams, investors should investigate the person who is selling the promissory notes. Generally, these sales persons must be licensed in their state and with the Financial Industry Regulatory Authority. Investors should also research whether the company offering promissory notes is legitimate and healthy enough to pay its debts. Investors should be skeptical of notes that are supposedly insured or guaranteed or notes that promise to be risk-free, high yield investments.

For example, a scammer may convince a seller to offer promissory notes from a fictitious company that promises a high rate of return and is guaranteed by an insurance company. The seller may not know that the information is false or misleading and may encourage investors to purchase the notes. The scammer uses a portion of the money collected from investors to pay the seller's commission and absconds with the rest.

Another example is when a scammer targets an elderly investor and convinces them to cash-in their life insurance policy and purchase promissory notes instead. The investor believes the notes are less risky and offer a higher-than-market rate of return. However, the notes are fraudulent, and the scammer absconds with the investor's money.

Investor Protection Guide: Prime Bank Schemes | Investor Protection Guide: Pyramid Scheme

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