Next to stealing a customer’s investments, the next best thing is to sell the customer a promissory note. A promissory note, more commonly known in this context as an IOU, is a promise to pay typically interest and principal by a date certain, subject of course to the creditworthiness of the issuer.
Promissory Notes According to FINRA
According to the Financial Industry Regulator Authority, “problems with promissory notes fall into three main categories: fraud and deception of investors, unregistered securities and unregistered sellers.” Fraudulent promissory note programs are often characterized by deceptive statements such as: 1) investors will receive very high, double digit returns; 2) returns are guaranteed; and 3) the notes are backed by collateral to guarantee them. Often, promissory note schemes target the elderly and their retirement savings.
Be Alert to Red Flags
FINRA cautions investors to “Be alert to red flags that your broker may be operating outside the oversight of the firm. These may include the use of a personal email address instead of one associated with the brokerage firm, statements about your investment that do not bear the firm’s letterhead or appear to originate from a new entity not related to the brokerage firm or printouts that look like they came from a home computer.”
Here, FINRA was monitoring termination notices by a broker-dealer, and noticed that New York Life Securities stockbroker, Derek Chu was terminated or fired by New York Life for engaging in activities that “exceeded the scope of his approved outside business activity.”
FINRA, of course, attempted to investigate these activities, and once again, rather than cooperating with FINRA, and probably being barred for “selling away,” or who knows what else, perhaps even operating a Ponzi scheme, Mr. Chu decided it was best to simply be barred for the failure to cooperate with FINRA.
In this particular case, it appears that on April 10,2015, FINRA requested, pursuant to
FINRA Rule 8210, that Chu provide documents and information no later than April 24,2015. By letter dated April 15, 2015, Chu provided staffw ith a partial response to staff’s April 10?h Rule 8210 letter. On May 4,2015, during a telephone call with Chu, FINRA requested the outstanding items not produced in Chu’s April 15, 2015 response. Pursuant to an email to FINRA on May 4,2015, Chu informed staff that he would not cooperate with FINRA’s investigation. By refusing to produce the documents and information as requested pursuant to FINRA Rule 8210, Chu violated FINRA Rules 8210 and 2010.
Courts and securities arbitration panels, as a general matter, almost routinely find broker-dealers, such as New York Life legally or financially responsible for the approved or unapproved extracurricular, outside business activities of their registered representatives, particularly when it involves their customers.
Guiliano Law Group
Investors suffering losses or damages from such conduct may be able to recover their investment losses. Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
