If I loan someone some money for their business, and they say they will double my investment in 4 months, is that legal or illegal under usury laws?

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If I loan someone some money for their business, and they say they will double my investment in 4 months, is that legal or illegal under usury laws?

They also agree to sign a promissory note and secure the investment with assets.

Asked on September 2, 2014 under Business Law, Alabama

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 7 years ago | Contributor

If the "loan" is structured as a loan, with a rate of interest equal to 700% per year (which is the annualized rate of doubling every 4 months), that would be usury. If it's an investment in a business where you are entitled to income or distributions of the business that get you to that return, it's not illegal (but complex to structure properly)--but it's still a scam.

*No one* can promise to double your money in 4 months: Warren Buffet can't, the best hedge-fund managers in the world can't, Google or Facebook cannot . . . . no one. Anyone who promises you that at best has no idea what they are talking about--and more likely is a scam artist. I used to work at the Securities Exchange Commission, going after investent frauds, and please believe me that this is not a credible investment.


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