A blog in the Wall Street Journal puts some light on the not-so-positive world of IRA custodians who have apparently been looking the other way while scam artists hoover their retirement savings.
The SEC has issued a warning to investors regarding the risk of fraud related to self-directed IRAs, going so far to suggest that if it's necessary to move savings to a specific IRA to invest in a specific offering, it's a red flag and should be avoided entirely.
Lawsuits filed this week in California allege that custodians of self-directed IRAs knew full well that their retirement holdings had been wiped out, but continued to send reports saying everything was fine.
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The suit suggests Entrust Group Inc. and Equity Trust Co. overstated the security and safety of their self-directed IRAs and did not do the proper due dilligence. The suit, which may reach class-action status, seeks more than $5 million.
Churchgoers in the south were allegedly presured to roll over their retirement accounts into IRA accounts, allowing them to increase their focus on the questionable investments.
The issue, as the SEC states, is that investors need to understand that the custodians and trustees of self-directed IRAs may have limited duties to investors.
"The custodians and trustees for these accounts will generally not evaluate the quality or legitimacy of an investment and its promoters," the alert states. "Investments in these kinds of assets may have unique risks athat investors should consier. Those risks can include a lack of disclosure and liquidity – as well as the risk of fraud."
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