Beware of Investment Fraud in Your Self-Directed IRA – and Being Defrauded of your Retirement Savings

Ponzi schemes, identity fraud and other related problems can ruin investors

A story broke in early April about two Texas men who targeted elderly retirees in a $2.4 million Ponzi scheme and a related $1.4 million scam involving an oil and gas company they controlled. Unfortunately, it’s the type of fraud that can also happen to owners of self-directed IRAs if they’re not careful.

According to the SEC, the owner of a retirement planning firm cheated at least 30 investors, who were lured to invest their retirement savings into his Texas planning firm; he then used a portion of the funds to support a lavish lifestyle. Ponzi payments kept his scheme afloat after he’d squandered the money; investors believed their promissory notes were legit and they were enticed to increase their investments (in some cases, nearly all of their pensions and savings). The other man joined him in 2015 during the alleged fraud, which ran from 2010 to 2017. The SEC is on the case.

As the director of the SEC’s Fort Worth regional office stated, “Fraudulent conduct targeting the most vulnerable among us is reprehensible. As the US population ages, financial exploitation of seniors is an increasing and serious problem.” In December 2017, another alleged scheme out of Florida bilked investors—many of them seniors—out of $1.2 billion through a group of unregistered funds, the regulator says.

Since individuals who self-direct their retirement plans make all their own investment decisions, and must conduct their own due diligence regarding any investment they include in their plans, these fraudulent schemes (and many others) are a cautionary tale.

Self-directed IRAs and fraudulent investments

We cannot stress enough how important it is for investors to conduct thorough research before making a self-directed (or any) investment. A prior post about the importance of researching your investments is here.

Investors are wise to go with what they already know and understand in terms of any alternative assets (or investment funds for that matter) that they plan to include in a self-directed IRA.

Fraud shows up in many ways, including:

  • Fraudulent emails
  • Ponzi schemes/pyramid schemes
  • Elder abuse (as noted above, robbing seniors of their life savings)
  • Nigerian 419 scams
  • Identity fraud
  • Advanced fee schemes

The SEC cites several red flags about potential fraud: look out for promises of high returns with little or no risk, unlicensed and unregistered sellers and overly consistent returns.