NEWS RELEASE

Securities Officials Crack Down on Companies
Selling Unregistered Promissory Notes

State Banking Commissioner John P. Burke and the Securities Division staff at the Department of Banking continue to crack down on companies soliciting consumers to purchase unregistered promissory notes that purportedly yield high returns with low risk. During the past month, eight firms who collectively sold more than $1.5 million in promissory notes to 41 Connecticut investors have been ordered to cease and desist from any further local sales of unregistered securities. The invested funds, Burke admits, are likely lost because the companies, due to the very nature of promissory notes, are either out of business or bankrupt. Few, if any, legitimate companies seek to raise capital via promissory notes, and Burke noted that those companies who choose such financing invariably find it extremely difficult to pay investors their promised returns within the specified short timeframes.

According to Burke, promissory notes are considered to be securities under Connecticut law and must be registered with the Securities Division and only sold by registered agents. Last year, Connecticut securities officials joined with regulators in 37 states and the District of Columbia to form a task force that would promote communication and cooperation among state and federal agencies to identify the marketers of promissory notes. The combined effort not only uncovered a number of companies in Connecticut and throughout the United States who were illegally offering these investment products but found that a number of agents involved in the sale of the promissory notes also were not registered to do business in the state.

The companies identified as illegally selling the promissory notes and subsequently named in the orders are:

Earlier this year, the banking department took administrative action against a Connecticut firm and two Florida-based businesses for taking over $2 million from Connecticut residents through the sale of high-interest promissory notes. As a result of the activities associated with those companies, Burke publicly warned consumers against promoters touting "high yield, low risk" investments like promissory notes.

"Although low interest rates are great for the economy, they aren’t very beneficial for people who rely on safe and predictable income from bank accounts, money market funds and dividends," says Burke. "This has provided an opportunity for frauds like we see with promissory notes."

"Investors are attracted to this type of investment because it has an aura of safety with a higher-than-market rate of return", Burke explains. "But, investors must never forget the first rule of finance: The higher the reward, the higher the risk."

Burke is confident that the administrative orders just issued will signal a stern warning to other investment promoters that Connecticut won’t tolerate illegal securities activity or investment abuses that are intended to defraud state investors. He acknowledges that the Securities Division staff is conducting further investigations and that more orders will be forthcoming.

Burke believes it may be time to again warn investors to be cautious before parting with their investment dollars. Before investing in any promissory note, investors are urged to check with the Securities Division to confirm that the note is properly registered for sale in Connecticut.

Consumers can call the Securities Division at 1-800-831-7225 or write to the Department of Banking, 260 Constitution Plaza, Hartford, CT 06103-1800.

Copies of the cease and desist orders issued against the firms noted above can be found on the banking department’s Web site.