SEC Investor Alert regarding self-directed IRAs and the risk of fraud

In September 2011, the Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy released an “Investor Alert” addressing the risk of fraud assocated with self-directed IRAs.  In short, the Investor Alert warns self-directed IRA investors that several characteristics inherit in self-directed IRAs can lead to an increased risk of fraudulent investment schemes.  For example, it is possible for a self-directed IRA to invest into a privately-held business ventures (partnerships, LLCs, etc.) that lack the type of government oversight that is inherent in the public securities market.  While most of my clients choose to invest using self-directed IRAs because they would like more control and oversight over their retirement account investments (e.g. direct real estate investment), the amout of money flowing into these structures is bringing out the scammers.

The SEC recommends the following ways to avoid fraud (I have also added some personal commentary):

(1) Avoid unsolicited investment offers. 

(2) Ask questions. 

(3) Be mindful of “guaranteed” returns.

(4) Ask a professional.

The complete pdf version of the Investor Alert can be found on the SEC’s website at: http://www.sec.gov/investor/alerts/sdira.pdf