Secretary Cox: 72-Count Criminal Indictment Filed Against
South Georgians in $150 Million Promissory Note Scheme

    ATLANTA … Secretary of State Cathy Cox today, as part of a national crackdown on sellers of fraudulent promissory notes, announced the indictments of 10 people accused of bilking $150 million from investors in 9 states, including Georgia.

    The 72-count federal indictment charges Virgil Womack, former president and CEO of GFI Financial Inc., and nine others with multiple counts of money laundering   and conspiracy to commit mail and wire fraud through the sale of fraudulent promissory notes. The criminal indictments follow a 1997 Secretary of State civil action taken against GFI, a Tifton-based financial services company, prompted by complaints from Georgians who invested their life savings with the company. As a result of the Secretary of State’s successful effort to appoint a receiver for GFI’s assets, nearly 80 percent of the lost funds were recovered for the Georgia investors.

    After leaving Georgia, Virgil Womack was arrested in South Carolina in December1999 for operating a similar promissory note operation in that state. At the time of his arrest Womack allegedly had 29 bank accounts and earned $1 million a day through promissory scams. He is currently being held on a $15 million bond in South Carolina.  

    “I am proud of the role our investigators played in preventing these financial predators from consuming the life savings of even more Georgians,” said Secretary Cox. “Consumers must never forget the first rule of investing: If it sounds too good to be true, it usually is. There’s no such thing as a “risk free” investment,” she added.

    Georgia’s promissory note enforcement actions also include a civil order against an Albany-based insurance company, Southeastern Integrity, who together with its officers agreed to a civil settlement of $1.3 million and the appointment of a receiver for their business assets. The Secretary of State alleged the company sold promissory notes to elderly clients, some of whom were 100 years old.  A civil action has also been filed in Macon against Prosper Trust, Layson & Gamble Financial Inc., and their principals relating to the sale of nearly $4 million in promissory notes.

    Nationally, promissory note schemes have bilked Americans of nearly $300 million in the last two years and have emerged as the leading source of securities fraud in the nation. In recent weeks, criminal and civil actions have been taken throughout the country against hundreds of individuals involving more than 4,000 promissory note victims.

    This week’s national enforcement sweep follows months of investigations by a multi-state promissory note task force created in May of 1999 to combat the recent explosion of promissory note scams. The national task force, organized by the North American Securities Administrators Association (NASAA), was formed to identify promissory scams and educate consumers on how to avoid them.

    Promissory notes are often sold by independent life insurance agents and financial planners--lured by high commissions--who may know little about the promoters or the worthless nature of the investments. The agents may not be aware that they must be licensed as securities brokers with state securities regulators to legally sell securities. Some notes are issued on behalf of companies that do not exist. Investors often are presented 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. 

    Secretary Cox said a promissory note scam often works like this: A life insurance agent who sold a consumer an annuity calls with an intriguing investment opportunity. A supposedly "well-established" company is looking to expand its business and needs capital. Instead of borrowing money from a traditional lender, the company offers 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 an investor would normally receive. Agents urge clients to "cash-in" their life insurance policies and "roll" them into these notes. The investors are generally given notes that are purportedly insured through off-shore insurance companies. In most cases, the issuers in fact have no such insurance, nor do they have collateral or other ways to guarantee payment to investors.

    Unlike traditional boiler-room cold callers, who solicit clients by telephone and usually have no prior relationship with the consumer, insurance agents and financial planners know their customers well. Many of the victims are elderly. Besides life insurance agents, out-of-state investment advisers also sell promissory notes; some are promoted over the Internet.

    Following are tips to protect yourself and your money: 

• Before investing in any promissory note, investors should always check with the Secretary of State’s Securities Division at (404) 656-3920 to confirm that the notes are properly registered or legally exempt from registration. If you can’t verify that the notes are registered or exempt 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 or call the Secretary of State’s Securities Division at (404) 656-3920 or call the NASD Public Disclosure Hotline at 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 nine-month "note" from an obscure firm promising 12%.

Press Office ~ 110 State Capitol ~ Atlanta, GA 30334 ~ 404.656.4269 FAX: 404.657.5804