In realizing the goal of defrauding investors, the fake money
managers and directors of forex HYIP programs utilize many different
financial tools and mediums. While the basic principles of all these
activities are both the same and simple, the details of two separate
scams rarely match each other. In this article, we’ll discuss the forex
promissory note, and its use in combination with an illegal forex pool.
A Promissory Note is a financial contract where the
issuer makes an unconditional commitment to pay the receiver of the
promissory note (the payee) an amount of money at a predetermined date,
or on demand by the payee. The promissory note is used in borrowing and
lending for commercial purposes by individual, corporate and other
institutional entities and it is also a popular form of contract in
cases where the issuer (for example, a mortgage borrower) is unable to
pay a large amount in a single installment.
In essence, a promissory note is an acknowledgement that the issuer
owes an amount of money to the payee. The document details payment
terms, such as the interest rate, maturity terms, and whether the loan
is collateralized or not. Forex scammers make use of this relatively
detailed and confidence-inspiring form of contract by selling it to
investors for a sizable sum of money in return for participation in a
forex pool and the imagined future profits.
What is a forex pool? A forex pool is simply a pool
of funds which is managed by an investment manager in return for a fee.
The manager solicits funds from investors, combines those funds into a
pool and uses the funds in the pool to trade in a market, be it forex,
stocks, or any other one. Beyond the subjects which we discussed in the
articles on HYIPs, and fake money managers, the investor who would like
to participate in these pools must keep a number of important points in
In the US, forex pools are regulated by the SEC if the operations of
the pool spread across state lines. Precisely due to the frequent
occurrence of fraud, these types of investment pools are strictly
regulated at multiple levels, and as such, a legitimate forex pool will
provide a disclosure document with required SEC and State disclaimers.
This document is on average 40 to 200 pages long. An illegal forex pool
will not mention any regulation by any entity and is highly unlikely to
provide any disclaimers.
More importantly, in many states it is illegal to solicit funds form a non-accredited investor to a forex pool, which
means that unless you have a net worth of at least one million dollars
and an income of at least $200,000 in the past year, a forex pool
cannot legally solicit for your participation.
In addition, forex pools are restricted to a maximum aggregated dollar amount by the SEC. A REG D 506
(which is a SEC regulation number) exempt pool may only have a maximum
of 35 non-accredited investors and an unlimited number of accredited
investors. A REG D 504
exempt one may have unlimited non-accredited investors but is
restricted to a maximum investment of all investors in the pool of
$1,000,000. Both REG D 506 and REG D 504 exempt pools are restricted
and regulated by the SEC and the state where the investor resides. But
in many cases, the fake forex pools are not regulated by anybody, and
do not possess any exemption status due to their shadowy nature.
So, when the manager of the forex pool insists to you that his
promissory note is not a security and that his pool is not regulated by
the SEC, do not listen to his songs of deceit: Promissory notes are
securities, and as such, they are regulated by the SEC, by the Division
of Securities where the promissory note was issued, as well as by the
state where the company issuing the note is incorporated. In sum,
unless the promissory note handed over to you is issued by a regulated
entity, it is completely worthless and if you desire to entrust any
funds to the fake forex pool, you’d save yourself from a lot of trouble
by being satisfied with a few words of reassurance by the scammer and
doing away with the note altogether.
TN, SC, NC and CA are the leaders in promissory note fraud, but the
phenomenon is certainly not limited to these states. These and similar
fake investment proposals are in direct violation of the laws of both
the SEC and the state where you reside. Report them to the FBI at 305-944-9101, the Department of Justice at 202-514-2000, the CFTC at 202-418-5000 and the SEC
at 202 551-3500, in addition to the Division of Securities in the state
you reside. You wouldn’t hand your money over to a stranger in return
for a promise of massive and implausible returns; do not give your
savings away to people whose promises are not worth the paper of the
promissory note on which they are printed.