Call Now For a Free Consultation:
(614) 532-4576
Nationwide Representation

Exercise Caution When Investing in Self-Directed IRAs

Consult with Our Legal Team
There is never a cost associated with a consultation
Common Questions
For The Advocacy You Deserve Contact Us Today!
We’ll respond and let you know the best way to proceed with your case.

Individual Investors Must Exercise Caution When Investing in Self-Directed IRAs

Over the years, our law firm has seen numerous cases where promoters of fraudulent schemes steer investors to opening self-directed IRAs. Most IRA custodians only allow approved stocks, bonds, mutual funds and CDs. A self-directed IRA custodian allows those types of investments in addition to real estate, notes, private placements, and much more.

Fraudsters often use self-directed IRAs in particular because they permit investors to hold unregistered securities and the custodians or trustees of these accounts likely have not investigated the securities or the background of the promoter.

According to the North American Securities Administrators Association (NASAA):

"While self-directed IRAs can be a safe way to invest retirement funds, investors should be mindful of potential fraudulent schemes when considering a self-directed IRA. Importantly, investors must understand that the custodians and trustees of self-directed IRAs always claim to have limited duties to investors. In fact, the custodians and trustees for these accounts will generally not evaluate the quality or legitimacy of an investment and its promoters."

In a recent prominent case, a company and its partners perpetrated a Ponzi scheme in which at least $20 million was raised from more than 120 inves­tors. In particular, the Ponzi scheme promoters promised safe, guaranteed returns in supposed invest­ments in foreign bonds. They raised money by convinc­ing investors to invest in self-directed IRAs and steered them to custodians who offered the self-directed IRAs. In reality, the bonds were a sham, but the investors were lulled into believing the investments were legitimate in part because of the legitimate looking account statements they received from the IRA custodian.

In many cases, fraud promoters explicitly state that self-directed IRA custodians investigate and validate any investment in a self-directed IRA. In reality, this may not be the case. While laws vary, in some instances self-directed IRA custodians may claim that they are responsible only for holding and administering the assets in a self-directed IRA. Self-directed IRA custodians generally will not claim to have evaluated the quality or legitimacy of any investment in the self-directed IRA or its promoters. Furthermore, most custodial agreements between a self-directed IRA custodian and an investor explicitly state that the self-directed IRA custodian has no responsibility for investment performance. While this language may be overcome in certain circumstances, it can create a barrier for defrauded investors who are trying to recover their losses.

As with every investment, investors who are being steered toward a self-directed IRA should undertake their own evaluation of the merits of a proposal. They should also check with regulators about the background and history of an investment and its promoters before making a decision.

If you have lost money in a fraudulent investment or scheme involving a self-directed IRA or a third-party custodian or trustee, or have information about one of these scams, please contact one of our experienced investment fraud lawyers today.

Atlanta Office

945 East Paces Ferry Road, Suite 2275
Atlanta, GA 30326
Columbus Office

305 W. Nationwide Blvd
Columbus, OH 43215
Meyer Wilson
New Orleans Office

900 Camp Street 
Suite 337
New Orleans, LA 70130
Los Angeles Office

2029 Century Park East,
Suite 400N
Los Angeles, CA 90067
Cleveland Office

4781 Richmond Rd.
Suite 400
Warrensville Heights, OH 44128
Bloomfield Hills Office

41000 Woodward Ave.,
Suite 350
Bloomfield Hills, MI 48304
Quick Links
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. Read More
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Read More
crosschevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram