Every week I get calls from Utah residents who have lost money by investing money with friends, family or neighbors they trusted — but who were not licensed to sell securities.

Many of these people have given someone a short-term, high-interest loan with a promissory note that has not been repaid. Others have invested money with someone who claimed to be achieving spectacular returns from trading in commodities or foreign currencies. Still others have lent money to a new company that has a great idea but needs a short-term loan until it gets financing.

Nearly always there is a guarantee of unusually high returns with no risk, and of course they have never missed a payment. By the time they call me the money is gone, their calls are being ignored and they want legal advice on what to do next.

A quick search usually uncovers bankruptcies or judgments that were not disclosed by the person who took the money. I explain that in many cases the courts will consider people who are obtaining these loans to be issuing securities, which are highly regulated by state and federal authorities. If important information such as bankruptcies, judgments, or financial problems is not disclosed (intentionally or not) to lenders before the money is handed over, the borrower may have committed securities fraud and can be prosecuted. Continue reading →