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How To Avoid Fraudulent IRA Investments

…And How Investing $500 Could Possibly Save You From a $50,000 Ponzi Scheme.

What Could Be Worse Than a Prohibited IRA Transaction or Even a Bad Investment? Answer: A Fraudulent IRA Investment

Self directed IRAs by themselves aren’t prohibited or fraudulent, but the assets they may acquire or opens in a new window“The Investment Promoters” might be.

When investing in your self-directed IRA, it’s always important to research the investment and complete YOUR OWN due diligence. If you have questions about a particular investment, then it would be wise to speak with a tax attorney or CPA to get their opinion. If a deal sounds too good to be true, then it probably is.

The State of New Mexico has come out with a great website to give people information about Ponzi schemes and other fraudulent investments. The goal of the website is to inform “you” the investing public about scams and give you helpful information allowing you to make better educated investment decisions. The following is directly from of the website  opens in a new window

Here are a couple of great articles that I recently came across. They all discuss the possibility of fraudulent investments in your self-directed IRA. Always beware of deals that seem too good to be true.

Ways To Avoid Self Directed IRA Investment Fraud

As we have stated numerous times throughout the site, including on our blog that Sunwest Trust does not offer legal or tax advice. We do not offer any due diligence for any investment that a client may wish to purchase through their self directed IRA Account, so it is very important that each client do their own research on any investment opportunity before committing money to a transaction whether it is in a retirement account or not. It’s always highly recommended that you speak with a CPA or an attorney prior to purchasing any investment.

Article by John Wasik – opens in a new windowHow to Avoid Self-Directed IRA Abuses

Case In Point

A client that I recently spoke with told me that he lost $50,000 due to a Ponzi scheme that he had invested in through his self-directed IRA. The client further added that after everything had happened, he spoke with his attorney. The attorney looked over all the paperwork and quickly told the client that if he had asked his legal advice on the investment, the attorney would have told him not to go through with it. The consultation with the attorney would have cost the client $500, which he was not willing to spend at the time. In hindsight, spending $500 to meet with an attorney could have saved the man $50,000 in losses.

It’s always a good idea to do as much research as you can when you are thinking about purchasing an investment through your IRA.  Paying the money up front to a CPA or attorney may seem like a lot at the time, but it’s usually worth paying for their expertise.

Ways to Avoid Fraudsters & Fraudulent IRA Investments:

Here’s a quick video that we made explaining opens in a new windowways to avoid fraudulent investments in your IRA:

“Your broker should be a Certified Financial Planner™ (CFP) professional. You can verify the validity of his registration at opens in a new This site will also share if there have been disciplinary actions against the advisor.”  Jeff Rose, CFP with opens in a new windowFinancial Good Cents and prolific financial web contributor has a very insightful article on those who promote fraudulent schemes and we feel this article truly complements ours.

When considering any investment and you hear the following things said…. Watch Out!

“CUSTODIAN APPROVED INVESTMENT”: Take it from us here at Sunwest Trust. There is NO Such Thing.

“I HAVE INSIDE INFORMATION”: The promoter claims to have inside or non-public information that he’s willing to let you in on, but you need to keep it confidential. Trading on non-public information about a publicly-traded stock is a violation of federal securities law. Even if the info is legitimate, do you want to be party to a crime?

SECRET METHODS, BREAKTHROUGH TECHNOLOGY: He’s trying to get you to act without getting an outside opinion or checking his story with the authorities.

ACT NOW or LOSE OUT: He’s trying to get you to make a snap decision without thinking it through and seeing the holes in his story. If it’s a good investment, it will still be there after you’ve checked the promoter’s credentials and done your own research on the offering.

RISK-FREE or GUARANTEED RETURNS: should also ring alarm bells. There is no “risk-free” investment. Remember the iron law of investing: risk and return are inseparably linked – the higher the return, the more risk you’re taking. Low risk with high returns does not compute.

DON’T TELL ANYONE: If the promoter urges you to keep the investment confidential, even from your family, he’s afraid of what their questions may uncover.

“ABOVE MARKET RETURNS or HIGH YIELD INVESTMENT PROGRAM (HYIP)”: If you are promised higher profits than comparable investments, there’s something you’re not being told about the deal.

There are many red flags to watch out for when completing your due diligence for an investment. The number one red flag, in my opinion, are extremely high returns on your money.  In our current economy, most people would be happy to find an investment that returns the 5-6% on their money.  If the going rates are so low, why would someone be willing to pay you 15%?  Their answer is usually something along the lines of “we are making so much money off of these investments that we want to share it with our investors”.  My question to that is why?  Have you personally ever met these brokers?  Why would they want to do something so nice for someone that they’ve never met?  Believe me, no one ever gives someone 9 or 10 extra percent interest on an investment out of the kindness of their heart.  If it sounds too good to be true, it most likely is.

YOUR PASTOR (or MINISTER, or LOCAL BANKER) HAS ALREADY INVESTED” or “Has a Secret Money Code”: Con artists may try to convince you to invest because others you know and respect are participating. Remember, in a Ponzi scheme earlier investors may appear to make money at first, but it’s only cash flowing through the con from newer victims. Ultimately, everybody loses.

LIMITED to a FEW SELECT INVESTORS: The promoter may be attempting to evade securities regulations by limiting the pool of investors so he is not subject to federal or state disclosure requirements. Or he may be trying to stampede you into making an unwise decision.

Final Judgments on “Agape” Ponzi Scheme

The Securities and Exchange Commission announced that on July 9, 2013, the Honorable Denis R. Hurley of the United States District Court for the Eastern District of New York entered final judgments by consent against defendants Martin C. Hartmann III and Laura Ann Tordy, sales agents for Agape World, Inc. (“Agape”), an offering fraud and Ponzi scheme that raised $415 million from at least 5,000 investors nationwide.

This is just the latest example of a fraudulent investment company here in the United States.  Companies like these seem very legitimate at first glance.  They often use names like “Agape” to instill a sense that they are a wholesome company that may even have religious ties.  These criminals deliberately do these types of things to trick people into investing with them.

Questions You Should Ask Prior To Investing Your IRA Funds

What risks are involved? Don’t be dazzled by the prospect of making big money on your investment. Ask about what can go wrong. What’s the risk you’ll lose some or all your money?

Can I get a detailed explanation of this investment in writing? Don’t rely on verbal promises or vague explanations. Get a clear, detailed description of your investment in writing, and make sure you understand the offering before you invest.

Are you licensed to sell securities in such and such State? Individuals who sell securities or provide investment advice are required to earn a license by passing rigorous examinations before they can offer their services to the public. Those who bypass this requirement often are predators offering bogus investments.

Is this investment offering registered with the SEC or the State Securities Division? The law requires that investments offered to the public in New Mexico must be reviewed by either state or federal regulators.

Additional Resources:

How a New Generation of Con Artists Get Inside Your Wallet

Regulators warn of growth of new investor scams

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.