Promissory Note Scams
Promissory notes, promoted as "commercial paper", are often sold by unwitting insurance agents, financial planners and others —lured by high commissions —who may know nothing about the promoters of the investments beyond what they're given in the promoter's materials.
Your agent may say that a "well-established" company is looking to expand its business and needs to raise capital. Instead of borrowing money from a traditional lender, such as a bank, it is offering investors an opportunity to purchase "promissory notes," typically with a maturity of nine months and an annual interest rate between 12% - 18%, far more than you could get elsewhere.
These "notes" arebeing sold by insurance agents who have been encouraged to market them by out-of-state commercial marketing firms who are not properly advising the agents of their legal obligations under the securities laws. If asked by their clients, the agents often claim that the notes are exempt from securities laws, when in fact they are subject to a high degree of securities regulation.
Beyond investing new money, inept agents often recommend that investors can avoid stock market volatility by liquidating or "cashing-in" other financial assets such as stocks, mutual funds, annuities or life insurance policies and "roll" them into these notes. The agent's rationale is that the notes are very secure while offering interest rates that are extremely attractive.
You would be wise to remember that a promissory note is only as good as the promise which backs it. Investors often receive fabricated promissory note certificates complete with fiscal and legal-sounding terminology and gold embossed seals. You may also get stuck with high-risk junk bonds from speculative startup operations which prove to be just as worthless. These investments are often established as window-dressing for a ponzi scheme.
Our Scams Are Guaranteed
10/01 - Hendrik Rienstra, 72, the principal owner of New England International Surety Co. Inc., was among six people arrested in the United States and Belgium after being criminally indicted in Louisiana and Texas.
Proceedings will now take place to extradite him to the United States, where he has been accused of massive securities fraud by state and federal authorities. Others who have been charged include Richard Rienstra, 45, of Belgium; Craig L. Brown, 52, of Minnesota; Jed Karpinski, 40, of Pennsylvania; and Jean Noel Pineau, 46; Cedric Vaumoron, 28; and Joseph J. Aguda, 62, all of Louisiana.
In one indictment, Rienstra was charged with operating a Ponzi scheme in connection with the sale of Omne Taormina SRL promissory notes guaranteed by New England International Surety. It has been alleged that Rienstra obtained $7 million from 145 Texas investors alone and may have issued more than $100 million in worthless guarantees nationwide.
Indicative of his career, New England International Surety Co. Inc. was incorporated in Panama on September 9, 1982 with Hendrik Rienstra listed as the owner of the company.
03/19/03 - United States District Judge Kurt D. Englehardt sentenced New England International Surety, Inc., Omne SRL, and OMNE SRL, Inc., to five (5) years probation and ordered the corporations to pay restitution in the following amounts:
New England International Surety, Inc., $23,405,000;
OMNE SRL $8,772,761; and
OMNE Srl, INC., $14,632,240.
In addition, all three corporations were ordered to forfeit to the United States $23,405,000 for the benefit of the victims of the fraud. Also sentenced was Jed Karpinski, 41, of Lancaster, Pennsylvania, to twelve months and a day imprisonment, for conspiracy to commit mail fraud. Karpinski was also ordered to make restitution to the victims of the fraud. Mr. Karpinski was also ordered to self-surrender on May 5, 2003.
The case stems from a joint federal-state investigation of an elaborate Ponzi scheme involving the sale of $18.8 million dollars in fraudulent promissory notes for the renovation of the Imerpiale Hotel in Taoromina, Sicily and an additional $4.5 million in promissory notes for the financing of an Azerbaijan oilfield clean and recovery business.
The superseding bill of information alleged that the defendants recruited financial advisors and insurance brokers and agents to sell promissory notes in a number of states by representing that repayment was guaranteed by New England International Surety, Inc., and Omne RE S.A., when they knew these companies were insolvent and had previously failed to fulfill guarantees on earlier projects.
A large portion of the money received from the sale of promissory notes for these two projects was either siphoned off by defendants, used to pay sales commissions, or used to pay earlier investors.
In addition, a large portion of the proceeds generated through the sale of these promissory notes was sent out of the United States to foreign accounts in order to place the funds beyond the reach of claimants and policyholders. The defendants also used money raised on these later projects to pay earlier investors in other projects in order to perpetuate and promote the ponzi scheme.
Karpinski was one of the largest dealers in New England-backed promissory notes. By making false representations about these projects and the ability of New England to pay the promissory notes it was guaranteeing, Karpinski sold the notes to a large number of his clients.
On January 18, 2002, Karpinski plead guilty to one count of conspiracy to commit mail fraud, in violation of Title 18, United States Code, Section 371, a felony offense. During the sentencing hearing, it was revealed that Karpinski has already made restitution to victims in the amount of approximately $190,000.
On November 25, 2002, New England International Surety, Inc., Omne SRL, and OMNE SRL, Inc., plead guilty to one count of conspiracy to commit mail fraud, in violation of Title 18, United States Code, Section 371, a felony offense.
James, Hoyer, Newcomer & Smiljanich has received a default judgment in a federal class action lawsuit filed against New England International Surety. The suit alleges the following:
- New England International Surety guaranteed nine month promissory notes of dozens of companies.
- Many of those companies had financial problems and didn't make payments on the notes.
- Despite defaults on the promissory notes issued, New England has failed to honor its obligation under the terms of its guaranty agreements.
The Court has directed The Firm to file a motion for default judgment against New England International Surety.
If you would like more information about the lawsuit, please contact John Yanchunis at 1-800-651-2502.
The following companies issued promissory notes that were guaranteed by New England International Surety:
| Pacific Air Transport, Inc. | |
| Canko Environmental Technologies, Inc. | |
| RMW/Corlogic, Inc. | |
| Caffe Diva Group Ltd. | |
| Technical Support Services, Inc. | |
| Tri- National Development Corp. | |
| South Mountain Resort & Spa, Inc. | |
| Sun Broadcasting Systems, Inc. | |
| Alumalex, Inc./AutoShutter | |
| Sebastian International Enterprises, Inc. d/b/a Real Life 101 | |
| World Vision Entertainment, Inc. | |
| Ameritech Petroleum, Inc. n/k/a Redbank Petroleum | |
| Lomas De La Barra Development, Inc./Uruguay | |
| Apogenics, Inc. | |
| Capitol Communities Corporation | |
| Digizap Technologies, Inc. | |
| Serengeti Diamonds U.S.A., Inc. | |
| Phone Buddies d/b/a Telecoach Network LLC, | |
| OMNE SRL Taormina | |
| OMNE SRL Azerbaijan Oil Fields | |
| And others that have yet to be discovered |
Update for 4/3/03
Richard Rienstra is set to be sentenced 6/18/03 in U.S. District Court,
New Orleans. Cedric Vaumoron and Jean Noel Pineau set to be sentenced
4/23/03.
Update for 1/13/03
Jean Noel Pineau and Cedric Vaumoron pled guilty in U.S. District Court,
New Orleans on 1/13/03 and are awaiting sentencing.
Update for 11/25/02
Richard Rienstra pled guilty in U.S. District Court, New Orleans on 11/25/02.
Update for 6/21/2002
Richard Reinstra has been extradited back to the United States and is
currently out on bond awaiting trial. He is required to wear an ankle
bracelet while on bond.
Update for 5/2/2002
Hendrik Reinstra, his son Richard Reinstra and others were indicted by
a Federal Grand Jury in New Orleans, Lousiana. While out on bond and
awaiting trial, Hendrik Reinstra died in Belgium on April 20th, 2002.
For more information go to www.jameshoyer.com
The case number is 00-8234CIV.
Three men indicted in promissory note investment scam
06/06 - Hawaii - Three men who allegedly bilked more than 25 Hawai'i residents out of $1 million by selling them fraudulent promissory notes have been arrested in Florida and will be extradited to Honolulu to face prosecution, the state attorney general's office said.
Robert Byrch, Richard Morris and Robert Mitchutka were indicted by an O'ahu grand jury May 25 for securities violations and theft.
Each stands accused of selling unregistered securities, selling securities as an unregistered person, engaging in prohibited securities practices, securities fraud and theft in the first degree.
If convicted, the men face up to 20 years in prison for the securities violations and up to 10 years for the thefts.
The 28 Hawai'i residents lost investments of between $10,000 and $100,000 according to the attorney general's office.
"Basically, they never got their money," said Dwight K. Nadamoto, the deputy attorney general prosecuting the case. "It's a lot more common than people like to realize."
Byrch was president of 21st Century Satellite Communications Inc., the Florida company that sold the notes, according to the attorney general's office.
Morris and Mitchutka sold the notes in Hawai'i with the help of a certified public accountant who was indicted on four counts of securities fraud here in 2003.
A promissory note is evidence of indebtedness, meaning investors buy the notes assuming they will get their principal back plus a percentage of interest after the note comes due.
According to the U.S. Securities and Exchange Commission, between 1997 and September 2000, Byrch's company sold promissory notes and purchase-leaseback agreements worth about $23 million to more than 700 investors across the country.
The company claimed to sell the notes to purchase satellite television equipment that the company would use to install, maintain, and service private satellite television systems for exclusive gated communities in northern and central Florida, the SEC said.
The company also claimed the investments were fully secured by the value of the equipment purchased with the investors' money but the investments were not fully secured, the SEC said. The company used $6.1 million of the investor money to pay undisclosed commissions to the sales agents who sold the securities, according to the SEC.
Honolulu Advertiser
