Naiveté Gave Mr

Naiveté gave Mr. Smooth, owner of Smooth Construction, $40,000 in return for a promissory note that promised to pay interest at the rate of 8% a quarter, with a repayment of principal at the end of two years. The money would be used by Mr. Smooth to rehab a few beach condo units that had been severely hurricane-damaged and that Mr. Smooth had been able to purchase for "pennies on the dollar," or so he said. The first units would be completed within a month, and the rents would be used to make the interest payments. The investment was almost as risk-free as U.S. government bonds, Mr. Smooth claimed. By the end of the second year, Ms. Naiveté had received a lot of fast talk and only one of the promised interest payments. Have there been any violation of securities laws in this instance?

A) No. This was simply a loan transacted between two parties.
B) Yes. Mr. Smooth was required to register the promissory note before he offered it for sale.
C) Yes. Ms. Naiveté has been defrauded by Mr. Smooth.
D) Both B and C are true statements.

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