A promissory note is, as the name implies, a contract whereby the borrower – usually a business- promises to repay the lender at a specific time in the future. Sometimes the contract calls for the payment of periodic interest; oftentimes the interest is paid upon maturity, along with principal.
Promissory notes with maturities longer than nine months are generally considered to be securities, and as a result they must be registered for sale, or exempt from registration. Usually this entails a filing with either the SEC or with a state securities regulator.
In addition strict rules govern who can sell the promissory notes; generally, they can be sold only by employees of the business, and only to people with whom an existing relationship exists. These restrictions are why these types of investments are rarely sold through traditional brokerage firms.
Nevertheless, it is not uncommon for registered representatives to engage in “outside business activities” by promoting promissory note investments to their clients. These “side deals” are rarely approved by the firm, unbeknownst to the investor. As with other illiquid investments that aren’t priced in a public marketplace, promissory note investments entail significant risks.
The Law Office of David Liebrader practices exclusively in the field of investment loss recovery and our securities attorneys have successfully resolved over 1000 investment loss cases over the past 20 years. Recoveries for clients top $40 million. The types of claims we have successfully handled include those involving unsuitable investments (suitability claims), excessive trading or “churning”, misrepresentations and omissions, unauthorized trading, over-concentration of illiquid or overly risky investments, pump and dump scams involving “penny stocks”, direct participation programs (private placements) involving real estate investment trusts (REITS), oil and gas exploration programs, leasing equipment deals and receivable financing, promissory notes whether sold through a broker dealer or as part of the outside business activities of a registered representative, ponzi scheme losses, failure on the part of the broker dealer to perform due diligence, state securities law (blue sky) violations and failure to supervise.
Investment losses can be recovered through a process known as FINRA arbitration. FINRA regulates broker dealers that sell investments, and provides an arbitration forum to resolve investor disputes. Investors can pursue claims against their brokerage firms in the FINRA arbitration forum. Common claims in the forum are those for suitability, breach of fiduciary duty, misrepresentations and omissions, negligence, violation of FINRA rules, state and federal securities laws violations, elder abuse, breach of contract and failure to supervise. On average, the recovery process takes approximately a year, from start to finish.
FINRA’s rules require that all investment recommendations made by licensed financial advisors be suitable in light of a customer’s needs, objectives and risk tolerance. In addition, all registered representatives are required to be properly supervised, with periodic inspections and reviews by qualified supervisors, whose job it is to vigorously investigate suspicions of wrongdoing (red flags).
If you have suffered investment losses please call The Law Office of David Liebrader at (702) 380-3131 for a free, confidential consultation