Warning to Connecticut Insurance Agents Concerning Promissory Note Investment Fraud

Insurance agents and their clients has been the targets of a financial investment fraud involving the sale of unregistered promissory notes allegedly guaranteed by off shore insurance companies. Agents selling such products have been told that "excess FDIC insurance" supposedly provided financial guaranties for the promissory notes issued by corporations seeking business capital. In reality, the policies did not cover what sales representatives and investors were led to believe they did. The Connecticut Department of Banking has investigated sales involving hundreds of thousands of dollars of such investments sold to Connecticut residents, which are believed to be worthless.

Insurance agents have been targeted to participate in the distribution chain of this fraud because many agents are unsophisticated about securities laws, enjoy a trust factor with their clients and possess knowledge of their clients’ financial position. The objective for the perpetrators of this fraud scheme is to recruit a network of primary marketing agents and local insurance agents to sell a package of "high interest" promissory notes.

They lure insurance agents with high initial commission schedules and offers of a second commission upon the extension of the promissory note’s payment point.

Agents are induced to make material misrepresentations about such investments, including that:

  • the investment is safe, has no risk and that the notes are the same as a bank certificate of deposit,
  • that the insurance company bonding the investment is licensed to do business in their state, and,
  • the security is exempt from regulation under state securities law.

Agents involved in the distribution of fraudulent securities face:

  • enforcement actions from Connecticut securities regulators,
  • the loss of their insurance license,
  • civil law suits from client’s suffering losses, and,
  • possible indictment for securities fraud.

Agents approached to sell promissory notes or other investment type securities to clients are directed to seek the advice of the Connecticut Insurance Department on matters involving insurance companies and products. The Connecticut Department of Banking should be contacted concerning questions regarding securities registration and licensing requirements.

The Connecticut Insurance Department
Insurance Fraud Unit
(860) 297-3933

The Connecticut Department of Banking
Securities and Investments Division
(860) 240-8230