OT? Don't know.
insure.com
An absolute must read. I was totally unaware of the task force.
Some life agents caught selling bogus promissory notes
By Lisa Karam Middleton
The North American Securities Administrators Association (NASAA)
reports that 35 states have received complaints or brought enforcement
actions against companies or individuals involved in selling promissory notes.
Regulators estimate about 1,000 insurance agents are part of a nationwide scam that involves selling worthless promissory notes and bilking elderly investors out of their retirement savings.
In addition, a 20-state promissory-note task force has formed that will share names and other information on suspected fraudulent activities with the hope of tracking down other unlicensed offerings.
It's a violation of securities code for anyone,including life insurance agents, to sell promissory notes without having a securities license., Promissory notes are securities that must be registered with the U.S. Securities and Exchange Commission.
What sets the misleading sale of promissory notes by life insurance agents apart from other frauds, such as telemarketing scams, is that these agents are taking advantage of the familiarity and trust their clients think they have. Many clients had previously bought life insurance from these agents. But life agents are often unfamiliar with promissory notes and, wooed by a 5 percent to 10 percent sales commission, don't even bother to perform "due diligence" on the authenticity of the notes or the companies offering them. Furthermore,
it's unusual for life agents to even sell promissory notes since sellers must have a securities license. Agents involved in selling these notes are facing censures or fines from their home states' insurance departments.
The setup
Here's how it works. Your life insurance agent calls you with an investment opportunity that promises a nine-month maturity and an annual interest rate of between 12 percent to 18 percent — far higher than an investor would get elsewhere. The investment is in a company that's looking to expand its business, but instead of going to a traditional lender such as a bank, it offers investors an opportunity to buy promissory notes. You might be pressured to cash in your life insurance, and even your retirement accounts, and roll them into these promissory notes.
Suspiciously high yields in such a short amount of time are red flags that these notes are likely to come from bogus companies that either take off with the money or that are part of a "Ponzi" scheme (in which one investor is paid with another investor's money, and so on, until the scheme collapses).
Laura Royal, senior investigator at the Florida Department of Banking and Finance, says that an open investigation into Lifeblood Biomedical
in Orlando has led to what regulators believe is a nationwide Ponzi scheme. Lifeblood is believed to have taken in $9 million from at least 200 investors around the country. Offshore bonding companies supposedly backed the notes in amounts of $25,000 or more. But the bonding companies were a sham, according to state regulators, and won't pay a dime on the notes.
The investigation has turned up a nationwide network of six marketing firms the promissory notes with an assurance that these notes would be paid within nine months. Some of these companies may be legitimate, but "actions continue to be developed and filed," according to Royal. Some of these companies were start-ups that accepted investors' money while knowing they could not repay them. Many companies defaulted, unable to pay back what were often multimillion-dollar loans in such a short amount of time.
A nationwide alert on Lifeblood was sent by Royal to securities regulators through a "securities message board" — a way for regulators to communicate quickly with one another. Regulators began responding with similar scam stories in their own states.
One of the reasons Florida zeroed in on Lifeblood was because it used
almost identical marketing material — and involved some of the same people — as the notes offered by Legend Sports Inc., a company that was caught last year selling phony bonds for an upscale entertainment complex being built in Florida. About 30 life insurance agents were involved in that debacle.
Legend Sports was also not licensed to sell securities in Florida, and the entertainment complex was never completed.
A promissory-scam Mecca.
John Franco, director of the West Central Florida Regional Office of the Department of Banking and Finance, explains why his state is so frequently targeted in financial scams: "Twenty-nine percent of these people [in Florida]are over the age of 65 and have reasonably sized nest eggs, and obviously would like to make more. So they fall for a lot of these scams. We seem to be the promissory-scam Mecca. You could superimpose a bull's-eye target on a map. Invite them to lunch or dinner and you basically have them halfway."
Other states have also taken action on the issue.Indiana regulators last month filed a 78-count criminal action against three people, including one life insurance agent and an investment advisor, accusing them of swindling 19 elderly investors out of $1.4 million by selling them fraudulent promissory notes that were issued by Real Finder Inc. and Great Midwest Technologies Inc., both Indiana companies. The money was actually spent on houses, luxury cars, and vacations. A county prosecutor says the con men went to great lengths to gain investors' trust, often getting down on bended knee to pray with their victims.
In Maine, seven people who sold $8 million in promissory notes to more than 100 investors were sentenced in June. Two of those received stiff jail terms and were ordered to pay restitution. Many of the victims had cashed in their annuities in order to buy the promissory notes. Participants of the task force, known as States Working Intrastate Fraud Together, or SWIFT, are California, New York, Florida, Pennsylvania, Colorado, Georgia, Indiana, Kentucky, Maryland, Mississippi, Nebraska, North Carolina, North Dakota,Ohio, South Carolina, Texas, Utah, Virginia, Washington, and Wisconsin.
Last updated Aug. 4, 1999
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