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Day: May 1, 2014

IRA Administrator Charged with Misappropriating Assets

The SEC has sued an IRA administrator for misappropriating assets by investing client funds in his friends’ business ventures.  According to the SEC, the defendant touted his IRA platform’s ability to invest in non-traditional assets, consistent with the customer’s self-direction.  Although assets were held at a third-party bank, the defendant co-mingled the assets and performed all sub-accounting.  The SEC alleges that the defendant forged documents and invested assets in businesses run by his friends.  The SEC further asserts that the defendant provided clients with misleading statements which failed to show the investments or their true value.  It appears that the scheme unraveled when a customer wanted to close her IRA and saw investments that she had not authorized.
OUR TAKE: This shows how difficulty of detecting outright fraud.  The only way a client would know that the defendant was lying would be to withdraw money, which was generally unlikely because most IRA assets stay invested for long periods of time.  As President Reagan once said, “Trust but verify.”

http://www.sec.gov/litigation/complaints/2014/comp-pr2014-86.pdf