Legal Question in Securities Law in California

What you have described is not, in itself. securities fraud. It is only a breach of contract. A few other things, if present, could possibly turn this into securities fraud. Those could include a business purpose dependent upon the efforts of the borrower (to make the promissory note a security) and a present knowledge at the time of borrowing that timely repayment was unlikely (thus making the borrowing fraudulent). Most likely, however, there is no security and no fraud involved in the loan described.