Commerce News Release
News Releases
Home

OHIO SECURITIES REGULATORS CRACK DOWN ON PROMISSORY NOTE FRAUD

Ohio Joins Other States And The SEC In Coordinated Action

COLUMBUS, OHIO. (June 1, 2000) – The Ohio Department of Commerce’s Division of Securities today joined other state and federal securities regulators in announcing a major crackdown on sellers of promissory notes which promise investors high returns and low risk. In fact, the notes are very risky and often fraudulent. Many victims are elderly.

The Ohio Division of Securities announced that it has taken actions against the following 12 individuals and entities since January 1, 2000:

Anthony Thomas Newman -- Mr. Newman was indicted on January 28, 2000, by a Lake County, Ohio grand jury on three counts of selling unregistered securities and on three counts of selling securities without a license. Mr. Newman sold promissory notes to Ohio investors in First Lenders Indemnity Corporation. The trial is scheduled to begin on August 8 in Lake County Court of Common Pleas.

Don F. Merseil -- Mr. Merseil plead to a Bill of Information in Scioto County, Ohio on March 2, 2000 that charged him with six counts of attempting to sell unregistered securities. Mr. Merseil had sold promissory notes to Ohio investors in Tee To Green Golf Parks, Inc. and Ameritech Petroleum. He has not been sentenced yet.

George J. Fiorini II -- On May 24, 2000, the Division issued a Notice of Hearing to Mr. Fiorini of Cincinnati, Ohio alleging that he sold 31 promissory notes to Ohio investors in The IGW Trust for a total of $1,284,000 in violation of the registration and anti-fraud provisions of the Ohio Securities Act.

Stephen Ventre/The Standard Trust -- On May 24, 2000, the Division issued a Notice of Hearing to Mr. Ventre and the Standard Trust of Cincinnati, Ohio alleging that they sold 53 promissory notes to Ohio investors in The Standard Trust for a total of $3,484,000 in violation of the registration provisions of the Ohio Securities Act.

Robert Lee Scott -- On March 28, 2000, the Division issued a cease and desist order to Mr. Scott of Galion, Ohio finding that Mr. Scott sold promissory notes to Ohio investors in Alumalex, Inc., Canko Environmental Technologies, Inc. and Lifeblood Biomedical, Inc. for a total of $292,872 in violation of the registration, licensing and anti-fraud provisions of the Ohio Securities Act.

Bernard J. Vitangeli -- On March 30, 2000, the Division issued a cease and desist order to Mr. Vitangeli of Canton, Ohio finding that Mr. Vitangeli sold promissory notes to Ohio investors in Lifeblood Biomedical, Inc. and Canko Environmental Technologies, Inc. for a total of $75,000 in violation of the registration and licensing provisions of the Ohio Securities Act.

James Chmielowicz -- On April 26, 2000, the Division issued a cease and desist order to Mr. Chmielowicz of Toledo, Ohio finding that he sold a promissory note to an Ohio investor in Lifeblood Biomedical, Inc. for a total of $10,000 in violation of the registration provisions of the Ohio Securities Act. On June 1, 2000, the Division issued a Notice of Hearing to Mr. Chmielowicz alleging that he sold a promissory note to an Ohio investor in World Vision Entertainment, Inc. in violation of the registration and anti-fraud provisions of the Ohio Securities Act.

Lloyd J. Wilson, Jr. -- On May 31, 2000 the Division issued a Notice of Hearing to Mr. Wilson of Modesto, California alleging that Mr. Wilson sold promissory notes to Ohio investors in World Vision Entertainment, Inc. in violation of the registration and anti-fraud provisions of the Ohio Securities Act.

World Vision Entertainment, Inc./A. Michael Jaillett/Jamie Piromalli -- On May 31, 2000, the Division issued a Notice of Hearing to the entity and these individuals located in Altamonte Springs, Florida. The notice alleges that they sold promissory notes in World Vision Entertainment, Inc. to Ohio investors in violation of the registration and anti-fraud provisions of the Ohio Securities Act.

In recent weeks, securities regulators in 28 states have taken scores of actions against hundreds of individuals and entities. These actions involved more than 3,000 investors. The cases, all brought in recent weeks and months, highlight what state regulators say is a serious and growing problem. In addition, the U.S. Securities and Exchange Commission has filed charges in 13 enforcement actions against 38 individuals and 22 entities involved in the fraudulent sale of promissory notes. In all, the defendants named in these actions are alleged to have fraudulently obtained hundreds of millions of dollars from investors.

"Low interest rates are great for the economy but hard on people – such as senior citizens -- who rely on safe and predictable income from bank accounts, money market funds and dividends. This has provided an opportunity for frauds like we see with promissory notes," says Thomas E. Geyer, Commission of the Ohio Division of Securities.

Responding to complaints about promissory notes, securities regulators in 37 states and the District of Columbia formed a task force in May 1999. The task force, coordinated by the North American Securities Administrators Association (NASAA), an association of state securities regulators, promotes communication and cooperation among state and federal agencies to combat this nationwide problem.

Commissioner Geyer warns: "Investors are attracted to this type of investment because it has an aura of safety with a higher-than-market rate of return. Investors must never forget the first rule of finance: The higher the reward, the higher the risk. In today’s market there’s no such thing as a ‘guaranteed’ 10% or 15% return." Last year, NASAA included promissory notes on its list of "Top Ten Investment Scams." Some promissory note "programs" are nothing more than "Ponzi schemes" in which money from new investors is used to pay off earlier investors.

The Division noted that promissory notes may be sold by independent life insurance agents – lured by high commissions – who may know nothing about the promoters of the investments beyond what they’re told. The agents may not realize that they must be licensed as securities brokers with state securities regulators to sell securities. Some notes are issued on behalf of companies that don’t even exist. Investors often get official-looking promissory note certificates complete with legal-sounding language and gold embossed seals. Many of these notes were purportedly bonded or guaranteed by non-licensed insurance companies located offshore.

"These promissory note frauds have cost investors tens of millions of dollars," says Indiana Securities Commissioner and president of NASAA Brad Skolnik. For example, in South Carolina a retired couple in their 80’s lost a total of $500,000 by investing in promissory notes of three companies (Lifeblood Biomedical, World Vision Entertainment and Sun Broadcasting), all of which subsequently defaulted on declared bankruptcy. These three companies alone issued about $50 million in promissory notes. In North Carolina, an 82-year-old widow lost $100,000 in savings in another promissory note case. "You hear the same stories over and over from investors who have lost their life savings," said Brad Skolnik.

Commenting on the joint regulatory effort, Skolnik, said, "By working together, the states and the SEC can leverage their resources, bring more actions to halt these sales and shine an even brighter spotlight on a serious problem."

Here are some tips to protect yourself and your money:

• Before investing in any promissory note, investors should always check with the Ohio Division of Securities at 1-800-788-1194 or www.securities.state.oh.us to confirm that the notes are properly registered or legally exempt from registration. Investors can also obtain this information through the Exemption, Registration, Notice Interactive Electronic ("ERNIE") Database located at the Division’s web site. If you can’t verify that the notes are registered or except from registration, hold onto your money. Do research to ascertain the legitimacy of the company whose notes are being offered.
• Agents selling these "notes" are usually required to be licensed by both the state and the National Association of Securities Dealers. To find out if the agents are registered or have a disciplinary history, contact the Ohio Division of Securities at 1-800-788-1194, or call the NASD Public Disclosure Hotline at 1-800-289-9999.
• Be suspicious if the notes have an above-market interest rate with a maturity of less than a year. With a one-year FDIC-insured bank certificate of deposit yielding a little over 6%, you should be very skeptical when someone offers you a "note" yielding a higher return.

Additional information can be obtained from NASAA’s web site at www.nasaa.org and from the Ohio Division of Securities at www.securities.state.oh.us.

###

The Division of Securities promotes an honest and fair securities market where individuals and businesses can raise capital and investors can expect a fair return on their investment. Other Commerce divisions enforce regulations regarding industrial compliance, financial institutions, real estate, liquor, auctioneers, and unclaimed funds, among others. The department's Internet address is www.com.state.oh.us

 

[Commerce Home Page] [Commerce News Releases]
[State of Ohio Front Page]

Send mail to webadmin@com.state.oh.us with questions or comments about this web site.
Information believed accurate but not guaranteed.  The State of Ohio disclaims liability for any errors or omissions.