DBSI - "Sorry Notes"
According to Love Story, "Love means never having to say you're sorry!" The sellers of DBSI "Secured Promissory Notes" many of whom are "financial planners" somehow forgot to convey this important information to their customers who they claim to serve. The Promissory Notes which promised safe double digit annual returns secured by real estate turned out to be another "Grand Illusion."
Reportedly, the Secured Promissory Notes issued by DBSI in 2005, 2006 and 2008 were found by the Examiner appointed by the Bankruptcy Court to be a large Ponzi Scheme.
A Ponzi scheme is nothing more than a fraudulent investment operation where abnormally high returns/profits are paid to investors out of the money paid in by subsequent investors, as opposed to net revenues generated by any real business. It is named after infamous hustler Charles Ponzi. A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going.
The system is doomed to collapse because there are no underlying earnings from the money received by the promoter. However, the scheme is frequently interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.
The SEC on its website has tips to avoid being scammed into a fraudulent promissory note investment. These include:
- Be skeptical if the seller tells you that the promissory note is not a security. The types of promissory notes involved in promissory note scams usually are securities and must be registered with either the SEC or your state securities regulator " or they must meet an exemption.
- Make sure the seller is properly licensed. Insurance agents can't sell securities " including promissory notes " without a securities license.
- Beware of promises of "risk free" returns. These claims are usually the bait con artists use to lure their victims. Always remember that if it sounds too good to be true, it probably is.
- Watch out for promissory notes that are supposedly "insured" or "guaranteed," especially if a foreign insurance company is involved.