Beware of Fraudulent Investment Opportunities

Unfortunately, we have recently seen a marked increase in fraudulent investment schemes targeting holders of self-directed retirement accounts.  While we are unsure what has driven this increase, it may be related to several macro-economic factors, including the low yields on CDs and other liquid investments, the poor performance of the stock market in 2011, and the need for many retirees to increase the yield on their retirement assets in order to maintain their anticipated lifestyle.

On December, 14, 2011, the Wall Street Journal (on page C1) discussed this growing problem in an article entitled:  Boomers Wearing Bull’s-Eyes.  In part the article stated:

Exotic unregistered securities such as promissory notes, private placements and investment contracts have emerged as the main vehicles for fraud involving older investors. Of the enforcements in 2010 involving investors age 50 or older, cases involving unregistered securities outnumbered those related to ordinary stocks and bonds by a ratio of five to one, according to the securities administrators’ association. The Securities and Exchange Commission in September warned investors of pervasive fraud in pitches aimed at holders of self-directed IRAs.

Keith Grimes, 56, of Mulberry, FL, was a victim of such fraud.  The facts of his case are a chilling reminder that even informed self-directed investors can be taken in by these siren songs:

Keith Grimes, 56, of Mulberry, Fla., sunk $500,000—”every penny that I made,” he says—into an investment fund marketed to older investors that promised returns of 14% to 24%. Billed as having a manager with a successful track record trading stocks and other investments, it turned out to be a Ponzi scheme, in which money from new investors is used to pay returns to other investors.  “Sometimes we think, ‘Maybe we were just being too greedy,” says Mr. Grimes. “But you try to get the best return you can when you’ve saved through your career to be able to retire.”  After losing almost all of his savings, Mr. Grimes is living in a borrowed mobile home and running an industrial-fiberglass business.

At STC, unlike other self-directed IRA Custodians and Administrators, we review all investment documents from our clients before we disburse their retirement funds.  In our review, we look for red flags such as unreasonably high interest rates that may be promised, the security for the investment, the sufficiency of the investment’s documentation, and the professionalism with which the documentation was prepared.

As an STC client, you can rest assured that we will discuss these warning signals with you before you risk your retirement funds and invest.  Of course, the final decision to make an investment with a self-directed account is always in the hands of our clients, but STC’s experienced staff will help you understand any proposed investment and respond to any questions you have.

© 2016 STC IRA | 223 N Prospect St. Suite 202 | Hagerstown, Maryland 21740 | 1-866-682-3683 | 301-665-2830