From HLN's Money Expert Clark Howard
I have in my hands a dispatch from the Boston Globe and another from the South Florida Business Journal. In the Business Journal, a prominent Miami businessman and his wife have been charged with running a $135 million Ponzi scheme. It’s alleged they lured investors by promising that investments in their business were safe and would provide annual returns of between 9% and 16%.
Now from the Globe, the Securities and Exchange Commission has accused a trio of Bay State residents of defrauding investors out of $3.5 million, guaranteeing interest to investors of 9%-12% per year.
Completely separate Ponzi scheme operations. But in each case, people were sold promissory notes.
Promissory notes have been a problem for as long as I’ve been on the air going back to the 1980’s. Essentially there are no federal guarantees. There’s no FDIC. Somebody says, “Hey give me money and I promise to pay you so much money at a later date.”
Now, these things work in all different ways, shapes, forms and sizes. They don’t generally promise you something outrageous like 25% or anything like that. But with the promissory notes, they say, “We have this wonderful business we’re doing.”
With both of these examples they were promising that they were taking your money and putting it into high-return real estate ventures. And in each case there was some amount of real estate activity going on just to provide cover. Instead, where does all the money actually go in these things? It goes to cars, private jets, who knows what. And when the thing collapses the money usually is nowhere to be found.
I want you to know that there is a legitimate promissory note business. Except now there are companies that can no longer borrow money from financial institutions because they’re not credit worthy anymore, so they’ll go to the public and offer promissory notes. They may be very legitimate businesses. In fact, usually they are. But the chances that you’re going to see all your money back are an iffy thing.
Do you want to get involved with that? All you have to know is that when somebody is offering promissory notes, I can promise you you’re one step away from personal financial disaster.