Relatives in difficult financial position....Lawyer mommas, any recourse?

[mommy111]

My Aunt and Uncle, who were my godparents, have no kids of their own and who I take primary responsibility for, made some questionable financial decisions a short while ago. They basically gave over all their retirement savings in cash to a friend, A, who has a business of his own and who promised to invest their money in his business and to give them a share of the profits. In return, he wrote them a promissary note saying he had taken X00,000 from them, would give them between X and Y amount of profit every month, and that they could get their initial invested money back if they wanted with 6 months' notice.
In the past few months since he's had the money, he gave them nothing in the first two months. Then after repeated phone calls etc, he gave them some profit although less than the minimum 'X' amount that he had promised per month. The second installment was again late and after several phone calls he deposited the minimum amount X. The third installment arrived late but thankfully without phone calls.
Now, I know A has a good business despite the economy. I like to think he is an honest man, although who can tell for sure. But, really, if anything were to happen to Aunt & Uncle's savings, it would be a disaster since they don't really have anyone to fall back on except me and I'm struggling to keep my own boat afloat as a single mom.
If the payment next month is not here on time, I intend to ask him for their money back. In case things don't go well with that, I wanted to ask you mammas here: do I have any recourse? Does his 'promissory note' hold any legal value and will it hold in a court of law. For what its worth, they gave him the money via checks to his business so they have proof (outside of the promissory note) that they did give him money.

[HannaAddict]

The short answer is, they have probably lost whatever they gave this person. This is one of the oldest tricks in the book. While a promissory note can be enforced, the people who take others entire savings with the promise of generous interest payments (or in this case "profits") usually are pretty judgment proof, the money is gone. Probably making similar "payments" to others he's defrauded earlier . . . and so on . . . the ponzi scheme. Or, if he really did use the money in the business, it is tied up or gone and your god parents are unsecured creditors, last in line to collect. It is hard to get money back that you are owed, even with a real investor agreement, a valid promissory note, etc. Sophisticated people are taken in all the time. I would immediately request the funds back, in writing, and tell him you are not waiting six months. I would contact a lawyer in your area and think about calling the police too. Do a court records check on the person (in my city and state I can do it for free online) and see if they are being sued or have judgments or been sued in the past. It doesn't sound good. Sorry. (I'm an attorney, FWIW.)

[mommy111]

Thank you so much for your response. When they told me what they had done, I did think that I had a problem on my hands....
FWIW, I did look up to see if this person has had any lawsuits in the past and he has not, has been in business for 18 years. I will write for the money back, I need as much recovered as possible so that I don't have to pump in money myself for the rest of my life!!

[dcmom2b3]

I'm so sorry this has happened. ITA with HannaAddict's assessment of the situation.

The only thing I would add is that if he's doing this to others, too, your state's attorney general's office (and the SEC, depending on the amount of $$ and # of investors) might be willing to investigate the matter. IME they can bring civil enforcement actions to obtain what might be left of the "invested" funds. But the "can't get blood from a stone" adage still pertains -- if the money's gone, it's gone. :(

[mommy111]

So this is what is incredibly frustrating...the guys owns large stores as well as a house. Can't they go after that, if he eats up the 'investment'? I know this is not a very nice thing to say about my aunt and uncle (who I love very much, btw) but I really do feel like shaking them right now.
I just re-spoke to them this morning. New information, they say that he had said he would start paying after 2-3 months because he needed to invest the $$ in his store and for it to start producing a profit before he gave any out to them. So he's paid up (on the 15th of each month instead of the 1st, but he has paid up per them). Have any of you had experiences where this has turned out OK? Of course, as you can tell from my post, my feeling is the money is sunk, but they say he owns several stores and he and his son work hard at them, and worst case law enforcement could go after the stores.
And Hannaaddict and Mary-Helen, thank you for the advice. If it comes to that, I will get a lawyer to draft a return me the money note and go from there.

[elbenn]

Definitely try to get their money back. Whether or not the guy is honest, since they are unsecured creditors they are not in a good position, and therefore their money is at great risk. Good luck!

[HannaAddict]

I have not seen a scenario like you described turn out okay. I have seen some people get a some money back here and there, but no return of their investment based on the type of casual note and facts you describe. If he is a successful business owner, why isn't he borrowing from a bank or getting real investors who will have an equity stake (ownership) in the business? Rhetorical question, he probably can't get money from regular channels or has tapped them out and is maxed out. If someone has a house, it doesn't really matter. The note doesn't give them any interest in the house, they are behind the bank, HELOC, and any other debts he has and it is very hard to force someone to sell their house, basically impossible for a note like you describe. The note sounds like there was no collateral pledged at all. Same issue with a business, he probably doesn't actually own everything outright and how are they going to force him to give him the money? Government agencies can look into it, he may get in trouble if the note could be classified as a "security" etc. but it isn't like they just say give the money back and it happens. You can try and get a lawyer to get it back, but to litigate is expensive and depending on the amount of money at stake, a lawyer may or may not be interested and will take 40% contingency fee (33% minimum fee) plus costs to recover what they can, unless you can pay by the hour and litigation of financial disputes is expensive.

I would read the note, see what notice provisions are in it (how you contact the other party) and how it says to request the return of the "investment." Follow what the note says and request in writing (your aunt and uncle need to make the request, you can write it for them). See what happens . . . and try and meet with a lawyer in your area. If he really is a legitimate businessman he should try and return these funds, but my guess they have been used up or absorbed to pay prior debts. Good luck, sorry to be a downer.

[mommy111]

Not a downer at all, you are reconfirming what my gut feeling is and you're putting it in a way that will really help in the inevitable conversation that I need to have with my godparents. Sigh. Thank you.