A salesperson is offering promissory notes for a company selling coffee at drive-through kiosks. The notes pay a 13% interest rate and mature within 9 months. The salesperson tells a potential investor that the motes are risk-free and that the kiosks are collateral that secure the note. The salesperson is not registered in the state and notes are not registered in the state.

Legitimate promissory notes are marketed to sophisticated, corporate investors that have the ability to thoroughly research the company issuing the notes and determine whether the issuer will be able to repay principal and interest. There have been many instances of "promissory note fraud" where unlicensed individuals push bogus promissory notes that are sold as investments that offer above-market fixed interest rates and safeguarding of principal - and most of there are frauds. This is a major concern to state regulators.

To offer a promissory note, both the salesperson and the note must be registered in the state. Only promisory notes that have maturities of 9 months or less, that are investment grade, and are sold in minimum increments of $50,000 are exempt from registration.

Finally, the tell-tale sign of fraud are:

Statements that tho notes are "guaranteed" or insured, especially by bogus foreign entities.

Promises of above-market rates fo return

Statements that the notes are "risk"free"

The labeling of a star-up company's notes as prime

Offers of promissory notes from a stanger who does not know the costumer financial situation