Federal and state securities regulators said Thursday that they had stepped up their efforts to crack down on the sale of bogus promissory notes after a five-month investigation in 28 states found a boom in such schemes to defraud investors.

The

Securities and Exchange Commission

and state officials said about 3,000 investors -- mainly senior citizens reluctant to test the risky waters of the stock market -- were bilked of around $300 million after investing in fraudulent promissory notes. The notes are essentially IOU's, pledges to pay certain sums of money on specific dates, and usually carry high interest rates.

"During the last two years, we've witnessed an explosion of promissory note schemes," said Brad Skolnik, the president of the

North American Securities Administrators Association

or NASAA, the top securities regulator in Indiana.

The SEC has filed charges within the last five months in 13 cases, involving 38 people and 22 companies. And state regulators are currently involved in 370 actions involving 179 people and 153 companies.

The SEC said the 13 cases being prosecuted involved a range of companies, from a western New York golf course that raised $12 million supposedly to develop practice facilities, but instead went to sales agents and the course's owners to a $114 million ponzi scheme in Illinois. Penalties for promissory note schemes range across states, said Myles Edwards, an NASAA spokesman. Typically, those convicted are simply banned from the securities business. But some states, such as Alabama, have strict criminal statutes on the books for such offenses.

While legitimate companies usually raise funds by tapping the capital markets, selling short-term commercial paper or issuing bonds with the help of an investment bank, some companies sell promissory notes to investors. Such investment vehicles often promise above-market interest rates -- anywhere from 10% to 20% -- and typically mature in nine months. By contrast, the yield on the benchmark 30-year Treasury bond was about 6.2% late Thursday.

"The problem with a promissory note is that in most cases the security itself is not registered with state authorities," Edwards said. "There's no disclosure, no way for the client to assess the information."

The elderly are often victims. While low interest rates are good for the economy -- by spurring home lending and corporate investment, for example -- older citizens receive less return on bank deposits, all the while reluctant to put their savings in stocks.

"In volatile markets, investors often look for safer fixed-rate investments," said Richard H. Walker, the SEC enforcement director, in a statement. "This flow of investor money is not lost on those looking to defraud."

In many cases, securities regulators said, insurance agents offered promissory notes to clients that had already been sold life insurance policies. "Many of the sales agents have relationships with the clients already," Skolnik said. He noted that in one Indiana case, a monk-turned-insurance agent, who was indicted last year, prayed with those he defrauded.

While enforcement actions are proceeding, regulators cautioned that there is little chance investors will be paid back. "The money has probably been spent," Edwards, of the NASAA, said. "You have to remember we are going after people who don't have any assets."