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Self-Directed IRA Fraud May Be On The Rise In Indiana

Self-Directed IRA Fraud May Be On The Rise In Indiana

Many people saving for retirement have socked their money in IRAs, which are a type of retirement account with tax advantages. However, there is now a new breed of IRA on the block, called the self-directed IRA, and although it is perfectly legal it has been used for fraudulent purposes by schemers and fraudsters recently, across the country, including in the State of Indiana.

Self-directed IRAs are similar, in many ways, to regular IRAs. However, the key difference is that the types of investments you can hold in a self-directed IRA are much broader than in a traditional one. This broad range of investments includes more exotic investments not allowed in the more-vanilla traditional IRAs and Roth IRAs. As we’ve learned from the recent financial meltdown of 2008, just because it’s more exotic doesn’t mean it is any better than more traditional investment opportunities, and unfortunately these investments may also be much riskier.

Along with riskiness these exotic investments also tend to be very difficult to value, and the reporting requirements for these values are not conducive to a lay person understanding the true risks involved. Unlike freely traded stocks, for example, which are easy to value on the open market, the assets contained within self-directed IRAs tend to be more illiquid, and as a result are not easily valued. Therefore, the valuation numbers you see on your statements for self-directed IRAs may not correlate to the actual price you could get on the open market, but instead be the purchase price plus some arbitrarily determined value placed on it by the promoter. This formula is a boon to scammers and schemers who can use the legal self-directed IRA as a cover for their fraudulent activities.

As mentioned, there have been several recent highly publicized cases of self-directed IRA fraud here in the state. As a result we here at Starr Austen & Miller have created a series of articles discussing this investment type to help you understand what they are, and also whether you may be a victim of fraud because of them.

In Part 1, we’ve discussed the issue of “What are self-directed IRAs?”. In addition, we’ve explained some of the main characteristics of these IRAs which make them so useful for criminal and fraudulent individuals to use to try to scam their victims.

In Part 2, we’ve compiled some real life examples of self-directed IRA fraud that have occurred in Indiana, to use as an example of what these scammers are trying to do, and the devastation it has had on the victims.

Finally, in Part 3 we’ve compiled a short checklist of questions to ask yourself to determine if you may be a victim of self-directed IRA fraud.

Because of the high risk of fraud associated with this type of investment we urge all those who have such investments to carefully read the checklist and contact us if you’ve got any concerns or any red flags are raised.