Understanding Self-Directed IRA Fraud

The North American Securities Administrators Association (NASAA) is warning investors about con artists and self-directed IRAs. NASSA says it is one of the top threats facing investors. Investors should be cautious and knowledgeable about the potential fraudulent schemes involving self-directed IRAs.

A self-directed IRA is a different type of IRA that allows its trustee or custodian to invest in a variety of assets that may include real estate, promissory notes, tax lien certificates and private placement securities . Most regular IRAs allow its trustee or custodian to invest in only approved stocks, bonds, mutual funds and CDs. However, the new found freedom to invest in more investment options with self-directed IRAs can open the door to a greater potential for fraud.

The SEC says these investments are not always bad. However, they may often involve certain risks, such as lack of disclosure and liquidity or fraud. Financial experts suggest investors do their homework with thorough due diligence, research and closely monitor their investments. Sometimes fraud promoters and scammers will encourage investors to relocate assets from a current self-directed or traditional IRA into a phony self-directed IRA, which may be created and owned by the schemer.

Often fraud promoters involved in Ponzi schemes or other misconduct seek out self-directed IRAs since they allow investors to hold unregistered securities. Fraud promoters use this to their advantage and perpetrate fraud on investors.

Since the duties of custodians and trustees of self-directed IRAs may be limited, they may not always evaluate the legitimacy of an investment or its promoter. As a result, the lack of available information for alternative investments in self-directed IRAs may leave them vulnerable to fraud promoters.

Also, the tax-deferred aspects of self-directed IRAs make them attractive to fraudsters, because con artists know some investors will keep their funds in a fraudulent investment longer since investors do not wish to pay a penalty for an early withdrawal.

Investors need to protect themselves by avoiding unsolicited investment offers, double-checking information in their self-directed IRA account statements for accuracy, be leery of a promise of guarantee returns, and take charge of their money by asking questions. Investors can view here for more information about self-directed IRA fraud alerts.

The SEC is always investigating and prosecuting individuals or companies involved in fraudulent investment schemes. Investors should keep abreast of current cases involving self-directed IRA scams and other investment fraud. Below you will find links to recent SEC cases and outcomes.

• SEC v. United American Ventures
• SEC v. Durmaz
• SEC v. Stinson
• State v. Smith (24C02-1102-FB-00044) and State v. Snelling (24C02-1102-FB-00046) (Indiana)

If you feel uneasy about an investment opportunity or have become a victim of a self-directed IRA investment scheme, contact the securities lawyers at Silver Law Group, a national Securities Arbitration & Investment Fraud Law firm. Their lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to security and investment fraud or stockbroker misconduct. The securities lawyers at Silver Law Group work hard to protect your money from the bad guys. Contact us at (800) 975-4345.