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Investor Protection

Investors Burned on Promissory Notes Sold by a Series 6 Rep

April 28, 2020

by Howard Haykin



In 2017, 8,400 investors (and their brokers or financial advisers) got burned when the Woodbridge Group of Companies, a self-advertised real-estate investment fund, went bankrupt. The $1.2 billion in promissory notes that Woodbridge had issued became largely worthless when it turned out that Woodbridge was a Ponzi scheme. The scheme unraveled when the company ran out of money to pay old investors with funds from new ones.



IN A RECENT FINRA DISCIPLINARY CASE … 18 investors bought $3.3 million of those promissory notes from a broker who worked for Forest Securities, Inc. THESE SALES SHOULD NEVER HAVE HAPPENED.


  • The broker wasn’t qualified to make these sales; he was licensed to solicit only particular categories of securities, including mutual funds and variable annuities.
  • His Series 6 License qualified him to be an “Investment Company and Variable Contracts Products Representative.”
  • The broker was denied permission to sell these securities by his firm, Forest Securities.
  • The broker nevertheless sold these promissory notes away from the firm, by engaging in ‘private securities transactions’.
  • The broker was not capable of independently assessing the creditworthiness of Woodbridge; so he relied on sales pitches from the issuer and hearsay from other brokers.



INVESTOR TAKE-AWAYS.    Investors often swear by their brokers - based on the broker’s personable manner, experience (the broker in this case had 20-years’ experience), good disciplinary record, some good investment recommendations, and a positive reputation of the broker-dealer (e.g., Merrill Lynch or Morgan Stanley). Yet, investors should better understand WHAT THEY'RE BUYING and WHO THEY'RE BUYING FROM.


In this particular disciplinary case, investors might have been better protected had they known the following:


A “Promissory Note” is a financial instrument that contains a written promise by one party (the note’s issuer or maker) to pay another party a stated sum, either on demand or at a specified future date. Promissory notes with durations of more than 9 months are generally categorized as 'securities'.  [For investing guidance, click on ... Promissory Notes: Promises, Problems.]


A Series 6 Licensed Broker - i.e., an “Investment Company and Variable Contracts Products Representative” - is limited in what he or she can recommend. They’re not permitted to sell these securities: stocks, options, corporate or municipal securities, or direct participation programs.
A Series 7 Licensed Broker - i.e., a “General Securities Representative”can buy and sell virtually all securities-related investments – including everything a Series 6 Rep can sell, as well as stocks, stock options and bonds.



[For further details, click on … FINRA Case #2018057522001.]