R DOCUMENTS REQUIRED PRIOR TO FUNDING (LLCs and LPs) This packet provides a checklist of the documents required prior to investing in an LLC or LP inside your Self-Directed IRA. Funding will be sent within 3 business days of receipt of ALL required documents. NuView documents to be completed and submitted: Private Placement Purchase Authorization Private Placement Disclaimer and Indemnity Agreement Acknowledgement Letter Signed by the LLC Manager or General Partner Supporting documents to be submitted: All supporting documents must be initialed on every page as read and approved Subscription Agreement – If Applicable (Completed and Signed) OR Operating Agreement or Partnership Agreement including a schedule of members indicating the IRA’s membership Before submitting documents to NuView please ensure: 1. Your Self-Directed IRA with NuView has been established 2. Your IRA has cleared funds available to make the investment 3. All investments have been titled in the name of your IRA: NuView IRA, Inc FBO (Client Name) IRA # 4. All places containing investors address use: 1064 Greenwood Blvd, Suite 312, Lake Mary, FL 32746 *NuView CANNOT close on any investment assigned from or titled in the name of a disqualified party, including yourself. All documents can be sent to NuView: By Mail to: By Fax to: By Email to: NuView IRA 1064 Greenwood Blvd. Ste 312 Lake Mary, FL 32746 321-275-0475 [email protected]Rev. 05/12
Transcript
R DOCUMENTS REQUIRED
PRIOR TO FUNDING (LLCs and LPs)
This packet provides a checklist of the documents required prior to investing in an LLC or LP inside your Self-Directed IRA. Funding will be sent within 3 business days of receipt of ALL required documents.
NuView documents to be completed and submitted: Private Placement Purchase Authorization
Private Placement Disclaimer and Indemnity Agreement
Acknowledgement Letter Signed by the LLC Manager or General Partner
Supporting documents to be submitted: All supporting documents must be initialed on every page as read and approved Subscription Agreement – If Applicable (Completed and Signed)
OR
Operating Agreement or Partnership Agreement including a schedule of
members indicating the IRA’s membership
Before submitting documents to NuView please ensure: 1. Your Self-Directed IRA with NuView has been established 2. Your IRA has cleared funds available to make the investment 3. All investments have been titled in the name of your IRA:
NuView IRA, Inc FBO (Client Name) IRA # 4. All places containing investors address use:
1064 Greenwood Blvd, Suite 312, Lake Mary, FL 32746
*NuView CANNOT close on any investment assigned from or titled in the name of a disqualified party, including yourself. All documents can be sent to NuView: By Mail to: By Fax to: By Email to: NuView IRA 1064 Greenwood Blvd. Ste 312 Lake Mary, FL 32746
1. Who should be listed as the investor/member of the LLC?
NuView IRA, Inc. FBO <client’s name> IRA <acct #>
2. Are there any limitations to the IRA’s ownership percentage?
NuView will administer an IRA investment into an LLC/LP regardless of the ownership percentage. However, if the IRA ownership combined with all disqualified persons ownership is 50% or greater we strongly recommend you seek legal counsel as these types of investments can be quite complex and must adhere to IRS regulations in order to maintain the tax deferred status of the IRA. NuView does not certify whether or not investments meet the IRS requirements.
3. What is the general process for investing into an LLC/LP with my IRA?
a. Submit a Purchase Authorization along with other LLC/LP documents to NuView. Please refer to Documents Required Prior to Funding for complete list of necessary documents.
b. NuView will review the documents to ensure proper vesting for the IRA.
c. NuView will send funds per the instructions on the Purchase Authorization
4. What is the time frame for funding and investment into an LLC/LP?
a. 2 days from receipt of all NuView forms and supporting documents in good order
and approved by client
5. Where should the LLC/LP send dividends or earnings?
a. All checks should be made payable to:
NuView IRA, Inc FBO <client’s name> IRA 1064 Greenwood Blvd, Suite 312 Lake Mary, FL 32746
NuView IRA www.nuviewira.com More Choices. More Control. page 1 of 2
ACCOUNT INFORMATION1Name (Your name as it appears in your plan)
Mr. Ms. Mrs. Dr.
Account Number
INVESTMENT DETAILS2Type of Entity you are investing in:*
LLC LP C-Corp Land Trust Other:
Entity Name
Address City, State, Zip
Phone Unit/Shares/Percentage Price per Unit/Share Total Investment
Entity Manager/Trustee Entity Manager/Trustee Address Same as Entity Phone
*Subchapter S Corporations do not allow IRAs as investors *Investing an IRA in a "pass through" entity may cause Unrelated Business Income Tax. For more information, consult your tax professional or review IRS publication 598.
FUNDING INSTRUCTIONS Please send the funds for purchase via:3 WIRE CHECK TO BE PROVIDED
For WIRE - Please complete the info belowBank Name
Bank Phone ABA Routing Number
Account Holder Name Account Number
For Credit To
For CHECK - Please complete the info belowMake Check Payable To
Mail Check To
Address
City, State, Zip
Send Check via:Regular Mail Overnight Mail ($30)Certified Check ($10 + Overnight Fee)
FEES4
How would you like to pay for your fees? (Fees must be paid before transactions can be processed).Credit Card (complete card info below)Account (account must have sufficient funds for investment and fees)
NuView IRA www.nuviewira.com More Choices. More Control. page 2 of 2
SIGNATURE AND ACKNOWLEDGEMENT5
I confirm that I am directing NuView IRA, Inc., Administrator, to complete this transaction as specified above. I understand that my account is self-directed, and I take complete responsibility for any investment I choose for my account, including the investment specified in this Purchase Authorization. I understand that neither the Administrator nor the Custodian (First Trust Company of Onaga) sells or endorses any investment products, and that they are not affiliated in any way with any investment provider. I understand that the roles of the Administrator and the Custodian are limited, and their responsibilities do not include investment selection for my account. I acknowledge that neither the Administrator nor the Custodian has provided or assumed responsibility for any tax, legal or investment advice with respect to this investment, and I agree that they will not be liable for any loss which results from my decision to purchase the investment. I understand that neither the Administrator nor the Custodian has reviewed or will review the merits, legitimacy, appropriateness or suitability of this investment, and I certify that I have done my own due diligence investigation prior to instructing the Administrator to make this investment for my account. I understand that neither the Administrator nor the Custodian determines whether this investment is acceptable under the Employee Retirement Income Securities Act (ERISA), the Internal Revenue Code (IRC), or any applicable federal, state, or local laws, including securities laws. I understand that it is my responsibility to review any investments to ensure compliance with these requirements.
I understand that in processing this transaction the Administrator and the Custodian are only acting as my agent, and nothing will be construed as conferring fiduciary status on either the Administrator or the Custodian. I agree that the Administrator and the Custodian will not be liable for any investment losses sustained by me or my account as a result of this transaction. I agree to indemnify and hold harmless the Administrator and the Custodian from any and all claims, damages, liability, actions, costs, expenses (including reasonable attorneys' fees) and any loss to my account as a result of any action taken in connection with this investment transaction or resulting from serving as the Administrator or the Custodian for this investment, including, without limitation, claims, damages, liability, actions and losses asserted by me.
I understand that if this Purchase Authorization and any accompanying documentation are not received as required, or, if received, are unclear in the opinion of the Administrator, or if there is insufficient Undirected Cash in my account to fully comply with my instructions to purchase the investment and to pay all fees, the Administrator may not process this transaction until proper documentation and/or clarification is received, and the Administrator will have no liability for loss of income or appreciation.
I understand that my account is subject to the provisions of Internal Revenue Code (IRC) §4975, which defines certain prohibited transactions. I acknowledge that neither the Administrator nor the Custodian has made or will make any determination as to whether this investment is prohibited under §4975 or under any other federal, state or local law. I certify that making this investment will not constitute a prohibited transaction and that it complies with all applicable federal, state, and local laws, regulations and requirements.
I understand that my account is subject to the provisions of IRC §§511-514 relating to Unrelated Business Taxable Income (UBTI) of tax-exempt organizations. If this investment generates UBTI, I understand that I will be responsible for preparing or having prepared the required IRS Form 990-T tax return and any other documents that may be required. I understand that neither the Administrator nor the Custodian makes any determination of whether or not investments in my account generate UBTI.
I understand that the assets in my account are required by the IRS to be valued annually as of the end of each calendar year. I agree to provide the prior year end value of this investment by no later than January 10th of each year on a form provided by the Administrator, with substantiation attached to support the value provided.
I understand that with some types of accounts there are rules for Required Minimum Distributions (RMDs) from the account. If I am now subject to the RMD rules in my account, or if I will become subject to those rules during the term of this investment, I represent that I have verified either that the investment will provide income or distributions sufficient to cover each RMD, or that there are other assets in my account or in other accounts that are sufficiently liquid (including cash) from which I will be able to withdraw my RMDs. I understand that failure to take RMDs may result in a tax penalty of 50% of the amount I should have withdrawn.
I understand that all communication regarding this transaction must be in writing and must be signed by me or by my authorized agent on my behalf, and that no oral modification of my instructions will be valid.
I understand that neither the Administrator nor the Custodian reviews or approves the subscription agreement, operating agreement, by-laws, limited or general partnership agreement, trust agreement or any other similar agreement regarding the purchase or operation of the entity I am instructing the Administrator to invest in for my account via this Purchase Authorization (the “Entity”).
I understand that I am solely responsible for making sure that the Entity was not formed and will not operate in a way that does or may lead to a prohibited transaction under IRC §4975. I understand that if the Entity becomes a “disqualified person” (as that term is defined in IRC §4975) upon funding, then any future mandatory capital calls may be considered to be a prohibited transaction under IRC §4975. I agree to indemnify and hold harmless the Administrator and the Custodian and their respective officers, directors, shareholders and employees against any liability associated with investing in the Entity, including funding a capital call, and including any liability that arises because the investment is or may be a prohibited transaction under IRC §4975. I understand that I am responsible for confirming that no “disqualified person” with respect to my account will benefit from this investment in any way which is prohibited by IRC §4975.
I represent that I have done my own due diligence on the Entity. I understand that neither the Administrator nor the Custodian makes any attempt to evaluate the Entity or the individuals involved with the Entity. I understand that I am solely responsible for evaluating the Entity, its operations and its investment potential.
I understand that my investment in the Entity may be subject to the Plan Asset Regulations (29 C.F.R. § 2510.3-101) and Interpretive Bulletin 75-2 (29 C.F.R. § 2509.75-2) issued by the U.S. Department of Labor. If these regulations apply to this investment, the Entity is disregarded for purposes of the prohibited transaction rules of IRC §4975, and officers, directors, managers and the like may become fiduciaries of my account. I represent that I understand the Plan Asset Regulations and Interpretive Bulletin 75-2 or I have consulted with competent legal counsel regarding these regulations and their potential application to the Entity prior to making my investment decision.
I understand that no person at the office of the Administrator or the Custodian has the authority to modify any of the foregoing provisions. I certify that I have examined this Purchase Authorization and any accompanying documents or information, and to the best of my knowledge and belief, it is all true, correct and complete.
Print Name:
Signature: Date:
Private Placement Disclaimer and Indemnity Agreement
Account Owner Name: ____________________________________________ Account Number: _________________________________________________ Name of Entity for Investment: ______________________________________ Name of Administrator or Record-keeper: NuView IRA, Inc Please complete the following information: Within the above named entity I personally am (select one):
Manager, managing member or partner, officer, director, trustee or a person with similar duties
Member, shareholder, partner or beneficiary (with no management duties) None of the Above
This Disclaimer and Indemnity Agreement will confirm our mutual understanding and agreement regarding the proposed investment by your Account in the above named entity. Your account is referred to in this document as the “Account”, regardless of whether it is a retirement account under Internal Revenue Code (the “IRC”) §401, §408 or §408A, a Coverdell Education Savings Account under IRC §530, or a Health Savings Account under IRC §223. You must sign this agreement and return it to us prior to making the investment in the entity.
1) You understand and agree that the Custodian, the Administrator and/or the Record-keeper for your Account (including, but not limited to NuView IRA, Inc or any agent, affiliate or designee of NuView IRA, Inc) do not approve investments or actions you personally take or direct the Custodian, Administrator and/or Record-keeper to take on behalf of your Account. The Custodian, Administrator and/or Record-keeper are limited in their responsibilities under your Account, and their responsibilities do not include investment selection. 2) You understand and agree that the Custodian, the Administrator and/or the Record-keeper for your Account (including, but not limited to NuView IRA, Inc or any agent, affiliate or designee of NuView IRA, Inc) do not review and approve the subscription agreement, operating agreement, by-laws, limited or general partnership agreement, or any other similar agreement regarding the purchaser operation of the entity you want your Account to invest in. 3) You understand and agree that you are solely responsible for making sure that the entity was not formed and will not operate in a way that does or may lead to a prohibited transaction under IRC §4975. 4) You understand and agree that if the entity your Account is investing in becomes a “disqualified person” (as that term is defined in IRC §4975) upon funding (this may occur, for
example, if your IRA and other disqualified persons, including you personally, own more than 50% of the entity), then any future mandatory capital calls may be considered to be a prohibited transaction under IRC §4975. 5) By signing this Disclaimer and Indemnity Agreement, you agree to indemnify and hold harmless the Custodian, the Administrator and/or the Record-keeper for your Account (including, but not limited to NuView IRA, Inc or any agent, affiliate or designee of NuView IRA, Inc), and their respective officers, directors, shareholders and employees against any liability associated with investing in the identified entity, including funding a capital call, and including any liability that arises because the investment is or may be a prohibited transaction under IRC §4975. 6) You understand and agree that the Custodian, the Administrator and/or the Record-keeper for your Account (including, but not limited to NuView IRA, Inc or any agent, affiliate or designee of NuView IRA, Inc) have given you no tax advice regarding the possibility that your Account may be subject to Unrelated Business Income Tax (UBIT) as a result of its investment in the identified entity. If your Account owes UBIT on its profits from the entity, you agree to prepare or cause to be prepared and filed a IRS Form 990T, and any similar filing required under applicable state laws, for each year with respect to which any such form is required, and to cause your Account to pay any UBIT that is reported in such forms. You understand and agree that any UBIT owed must come from funds belonging to the Account. Your agreement to indemnify and hold harmless, as set forth in paragraph 5) above, includes liability of the parties named therein with respect to UBIT and the preparation and filing of IRS Form 990T and similar state tax filings. 7) You agree and understand that NuView is required to report the fair market value of the Account to the Internal Revenue Service and/or to the Plan each year. You agree to obtain a fair market value for the Account’s investment in the entity as of December 31 each year and report this information to NuView on a form approved by NuView no later than January 15 of the following year. You understand and agree that NuView is entitled to rely on the valuation provided by you for reporting purposes and shall bear no responsibility as to the accuracy of the information provided. You understand and agree that until a different valuation is reported to NuView, the value of the investment in the entity will be reported based on the Account’s total investment in the entity. You understand and agree that if you fail to provide a fair market value to NuView as required, NuView may withdraw as administrator of your account and distribute the asset to you or to a successor custodian. 8) You represent that you understand that with some types of accounts there are rules for required minimum distributions from the account. If you are now subject to the required minimum distribution rules for your Account, or if you will become subject to those rules during the term of the investment, you represent that you have verified either that the entity that your Account is investing in provides distributions that will be sufficient to cover each required minimum distribution, or that there are other assets in your Account, or in other accounts that you may access for this purpose, that are sufficiently liquid (including cash) from which you will be able to withdraw your required minimum distributions as they become required.
9) You represent that you have done your own due diligence on the entity you want your Account to invest in. 10) You understand and agree that the Custodian, the Administrator and/or the Record-keeper for your Account (including, but not limited to NuView IRA, Inc or any agent, affiliate or designee of NuView IRA, Inc) do not make any attempt to evaluate the entity you want your Account to invest in. For example, they make no attempt to check the financial strength of the entity, nor do they check with the Secretary of State to see if the entity is in good standing, nor do they check with the Securities and Exchange Commission, the Better Business Bureau or any other governmental or non-governmental agency to see if any complaints have been filed against the entity. You, as the owner of the Account, are 100% responsible for evaluating the entity, its operations and the investment potential of the entity, including taking the steps described in the preceding sentence. 11) You understand and agree that you are also responsible for confirming that none of the “disqualified persons” with respect to your Account (including NuView IRA, Inc, its affiliates and designees, and every other entity that is the Custodian, Administrator and/or Record-keeper with respect to your Account, their officers, directors, shareholders or employees) are associated in any way with the entity you want your Account to invest in. 12) You understand and agree that the Custodian, the Administrator and/or the Record-keeper for your Account (including, but not limited to NuView IRA, Inc or any agent, affiliate or designee of NuView IRA, Inc), and their officers, directors, shareholders or employees have not given you any investment, legal or tax advice pertaining to this investment. 13) You understand and agree that if the Plan Asset Regulations issued by the U.S. Department of Labor apply, the entity is disregarded for purposes of the prohibited transaction rules of IRC §4975. In that case, the underlying assets of the entity are considered to be the assets in which your Account is investing, and each of the statements above regarding the entity must be true with regard to each of the assets that the entity invests in. You represent that you either understand the Plan Asset Regulations and Interpretive Bulletin 75-2 or that you have sought competent legal counsel regarding the Plan Asset Regulations and Interpretive Bulletin 75-2 and their potential application to the entity that you want your Account to invest in, prior to making your investment decision.
To signify your agreement with all of the above paragraphs, please sign below and return it to us by fax or email, with the original being followed up by mail. PLEASE SIGN AND MAIL THIS FORM TO YOUR NUVIEW OFFICE. Accepted, Understood and Agreed to: _____________________________________________________________ (Client’s Signature) (Date)
LLC & LP Acknowledgement
Letter BD LLC’s or LP’s Address _________________________ _________________________ _________________________ RE: __________________________ (IRA holder’s name) NuView IRA, Inc. has received instructions from the above referenced IRA holder concerning an investment in __________________________________ (Name of LLC or LP) As this asset is to be held within an Individual Retirement Account, the following instructions must be followed to ensure compliance with both IRS requirements and NuView IRA, Inc. policy. Please initial all items in the spaces provided showing your intent to comply. _____________ Registration is to be:
NuView IRA, Inc. FBO ______________ IRA#_________ 1064 Greenwood Blvd Suite 312 (Client) (Account #) Lake Mary, FL 32746 Taxpayer Identification Number: 27-0063496
______________ Certificates and/or proof of ownership (showing proper vesting) are
to be held by NuView IRA, Inc. ______________ All payments, income, distributions, and/or payoffs for this holding
must be sent to NuView IRA, Inc. Under the Internal Revenue code, it is never acceptable to send funds directly to an IRA holder (or and IRA holder’s nominee). Should that happen, you agree to indemnify NuView IRA, Inc. against any and all liability concerning IRS compliance.
______________ If an IRA holder has any questions concerning the IRA (such as, but
not limited to, payments, distributions, or fees), you agree to inform the IRA holder to contact NuView IRA, Inc. directly. Under no circumstances will third party inquiries be answered.
______________ You agree to provide NuView IRA, Inc. with a fair market value (as
defined in IRS Publication 590) by January 15th of each year. ______________ You agree to honor all written instructions from NuView IRA, Inc.
concerning changes in asset registration. ______________ You understand and agree that there may be no mandatory capital
calls concerning this investment and that the IRA holder’s risk is limited to the actual investment.
______________ You agree to make potential investors aware that investments in
Limited Partnerships or Limited Liability Companies may generate Unrelated Business Taxable Income, which is the responsibility of the IRA holder.
______________ You agree, as part of your Investor Suitability Process to disclose to
the IRA holder that he/she may be subject to Required Minimum Distributions that may require certain liquidity within their IRA(s).
______________ You agree to inform the IRA holder that you have referred NuView
IRA, Inc. as an accommodation and that NuView IRA, Inc. neither endorses your product, nor has received consideration.
______________ You agree to provide potential investors with Subscription
Documents (or alternately, with Private Placement Memorandums or any offering documents, as may be applicable). The Subscription Document must be signed off as “Read and Approved” by the IRA holder prior to receipt by NuView IRA, Inc. Until NuView IRA, Inc. receives and reviews such documents, no decision will be made concerning whether an NuView IRA, Inc. account holder may hold such an investment based on our understanding of Internal Revenue Code Section 4975.
______________ You agree to inform NuView IRA, Inc. promptly of any change in
address, telephone number, or company status (such as bankruptcy filings, regulatory agency investigations or litigation.)
________________________________ Name of Investment ________________________________ Printed Name of General Partner, Managing Member or Authorized Representative ___________________________________ ________________________ Signature Date
Investor Alert: Self-Directed IRAs and the Risk of Fraud
The SEC’s Office of Investor Education and Advocacy (OIEA) and the North American Securities Adminis-trators Association (NASAA) are issuing this Investor Alert to warn investors of the potential risks associ-ated with investing through self-directed Individual Retirement Accounts (self-directed IRAs). NASAA has noted a recent increase in reports or complaints of fraudulent investment schemes that utilized a self-di-rected IRA as a key feature. State securities regulators have investigated numerous cases where a self-directed IRA was used in an attempt to lend credibility to a fraudulent scheme. Similarly, the SEC has brought numerous cases in which promoters of fraudulent schemes steered investors to self-directed IRAs. While self-directed IRAs can be a safe way to invest retire-ment funds, investors should be mindful of potential fraudulent schemes when considering a self-directed IRA. Investors should understand that the custodians and trustees of self-directed IRAs may have limited duties to investors, and that the custodians and trustees for these accounts will generally not evaluate the qual-ity or legitimacy of an investment and its promoters. As with every investment, investors should undertake their own evaluation of the merits of a proposal, and should check with regulators about the background and history of an investment and its promoters before making a decision.
I. Investing through Self-Directed IRAs
An Individual Retirement Account (IRA) is a form of retirement account that provides investors with certain tax benefits for retirement savings. Some common examples of IRAs used by investors include the traditional IRA, Roth IRA, Simplified Employee Pension (SEP) IRA, and Savings Incentive Match Plan for Employees (SIMPLE) IRA. All IRA accounts are held for investors by custodians or trustees. These may include banks, trust companies, or any other entity ap-proved by the Internal Revenue Service (IRS) to act as a trustee or custodian.
A self-directed IRA is an IRA held by a trustee or custodian that permits investment in a broader set of assets than is permitted by most IRA custodians. Most IRA custodians are banks and broker-dealers that limit the holdings in IRA accounts to firm-approved stocks, bonds, mutual funds and CDs. Custodians and trustees for self-directed IRAs, however, may allow investors to invest retirement funds in other types of assets such as real estate, promissory notes, tax lien certificates, and private placement securities. While self-directed IRAs may offer investors access to an array of private investment opportunities that are not available through other IRA providers, investments in these kinds of assets may have unique risks that inves-tors should consider. Those risks can include a lack of disclosure and liquidity -- as well as the risk of fraud.
According to a 2011 report by the Investment Com-pany Institute, U.S. investors held approximately $4.7 trillion in IRAs. Estimates from various sources ap-proximate that investors’ hold 2 percent, or $94 bil-lion, of IRA retirement funds in self-directed IRAs. The large amount of money held in self-directed IRAs makes them attractive targets for fraud promot-ers. Fraud promoters also may target other types of retirement accounts by attempting to lure investors into transferring money from those accounts to new self-directed IRAs in order to participate in the fraud promoter’s scheme.
In particular, fraud promoters who want to engage in Ponzi schemes or other fraudulent conduct may ex-ploit self-directed IRAs because they permit investors to hold unregistered securities and the custodians or trustees of these accounts likely have not investigated the securities or the background of the promoter. There are a number of ways that fraud promoters may use these weaknesses and misperceptions to perpetrate a fraud on unsuspecting investors. For example:
Misrepresentations Regarding Custodial Responsibilities – Fraud promoters can misrepresent the responsibilities of self-direct-ed IRA custodians to deceive investors into believing that their investments are legitimate or protected against losses. Fraud promoters often explicitly state or suggest that self-di-rected IRA custodians investigate and validate any investment in a self-directed IRA. Self-directed IRA custodians are responsible only for holding and administering the assets in a self-directed IRA. Self-directed IRA custo-dians generally do not evaluate the quality or legitimacy of any investment in the self-direct-ed IRA or its promoters. Furthermore, most custodial agreements between a self-directed IRA custodian and an investor explicitly state that the self-directed IRA custodian has no responsibility for investment performance.
Exploitation of Tax-Deferred Account Char-acteristics – Self-directed IRAs are tax-de-ferred retirement accounts that carry a financial penalty for prematurely withdrawing money before a certain age. This financial penalty may induce self-directed IRA investors to keep funds in a fraudulent scheme longer than those investors who invest through other means. Also, the prospect of an early withdrawal pen-alty could encourage an investor to become passive with a lesser degree of oversight than a managed account might receive, allowing a fraud promoter to perpetrate his fraud longer.
Lack of Information for Alternative Invest-ments – Self-directed IRAs usually allow investors to hold alternative investments such as real estate, mortgages, tax liens, precious metals, and private placement securities. Unlike pub-licly-traded securities, financial and other infor-mation necessary to make a prudent investment decision may not be as readily available for these alternative investments. Even when fi-nancial information for these alternative invest-ments is available, it may not be audited. Fur-thermore, self-directed IRA custodians usually do not investigate the accuracy of this financial information. This lack of available information for alternative investments makes them a popu-lar tool for fraud promoters’ schemes.
III. Ways to Avoid Fraud with Self-Di-rected IRAs
Verify information in self-directed IRA account statements. Alternative investments may be il-liquid and difficult to value. As a result, self-directed IRA custodians often list the value of the investment as the original purchase price, the original purchase price plus returns reported by the promoter, or a price provided by the promoter. Investors should be aware that none of these valuations necessarily reflect the price at which the investment could be sold, if at all.
Avoid unsolicited investment offers. Investors should be very careful when they receive an unsolic-ited investment offer. Whether from a total stranger or from a friend, trusted co-worker, or even fam-ily member, investors should ask themselves, “Why would anyone tell me about a really great investment opportunity?” Investors also should be especially wary of an unsolicited investment offer that promotes the use of a self-directed IRA. As noted above, fraud promoters may attempt to lure investors into transferring money from traditional IRAs and other retirement accounts into new self-directed IRAs in order to participate in the fraud promoter’s scheme.
Ask questions. Always ask if the person offering the investment is licensed and if the investment is regis-tered, then check out the answers with an unbiased source, such as the SEC or your state securities regu-lator. The SEC has a short publication called “Ask Questions” that discusses many of the other questions investors should ask of anyone who wants them to make an investment. Please take a look at it before making any investment decision.
Be mindful of “guaranteed” returns. Every investment carries some degree of risk, and the level of risk typically correlates with the return an inves-tor can expect to receive. Low risk generally means low yields, and high yields typically involve higher risk. Fraud promoters often spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” Don’t believe it. High returns represent potential rewards for investors who are willing and financially able to take big risks.
Ask a professional. For complex investment oppor-tunities, particularly those which involve the open-ing or creation of a new account outside a traditional financial institution or well-recognized broker, inves-tors should consider getting a second opinion from a licensed unbiased investment professional or an attorney.
IV. Recent Cases Involving Self-Direct-ed IRAs
Some recent examples of SEC and state enforcement cases that involve funds from self-directed IRAs in-vested in fraudulent schemes include:
SEC v. United American Ventures
The SEC filed charges alleging that two companies and four individuals misrepresented and concealed numerous material facts in connection with the offer and sale of $10 million in bonds to approximately 100 individual investors in various states. In particular, the SEC alleged that the defendants promised guaranteed returns in purported investments in medical tech-nologies and raised money by convincing investors to invest through self-directed IRAs and steering them to custodians who offered the self-directed IRAs. Ap-proximately $3.5 million of the funds invested in the bonds came from self-directed IRAs.
SEC v. Stinson
The SEC filed charges alleging that an individual perpetrated an offering fraud and Ponzi scheme in which at least $16 million was raised from more than 140 investors. In particular, the SEC alleged that the defendant promised “safe and risk free” returns in purported investments in real estate and commercial mortgage loans. The defendant raised money by tar-geting, among others, investors in self-directed IRAs. Approximately $9.2 million of the funds invested in the fraudulent scheme came from self-directed IRAs.
SEC v. Durmaz
The SEC filed charges alleging that a company and its partners perpetrated a Ponzi scheme in which at least $20 million was raised from more than 120 inves-tors. In particular, the SEC alleged that the defendants promised safe, guaranteed returns in purported invest-ments in foreign bonds and raised money by convinc-ing investors to invest in self-directed IRAs and steer-ing them to custodians who offered the self-directed IRAs. $20 million of the funds invested in the fraudu-lent scheme came from self-directed IRAs.
State v. Smith (24C02-1102-FB-00044) and State v. Snelling (24C02-1102-FB-00046) (Indiana)
T�e Indiana state securities regulators pursued an ac�tion alleging t�at Jerry Smit� and Jasen Snelling bilked investors out of more t�an $4.5 million in a nearly decade�long Ponzi sc�eme ��ere Mr. Smit� and Mr. Snelling told investors t�ey �ere talented day trad�ers and promised up to 20% returns. Mr. Smit� and Mr. Snelling, t�roug� various companies, encouraged investors to roll over t�eir traditional IRA accounts into self�directed IRAs at a trust company. Mr. Smit� and Mr. Snelling �ould immediately take t�e funds from t�ose accounts and use t�em for personal living expenses, but investors continued to receive statements from t�e trust company, as �ell as bills for custodial fees, even after t�eir money �as taken out of t�e ac�counts. Mr. Smit� and Mr. Snelling are c�arged �it� more t�an fifty counts of violations of t�e Indiana Uniform Securities Act.
In re: Stephen Edward Gwin, et al. (Missouri)
T�e Missouri Securities Division issued final orders against Step�en G�in in t�o separate cases ��ere Mr. G�in, a federal felon, and ot�ers misled senior citizens into investing in unregistered securities, and divert�ing investment proceeds t�roug� self�directed IRAs at trust companies into accounts t�at Mr. G�in con�trolled. Mr. G�in promoted �is million dollar scam t�roug� free lunc� investment seminars. Mr. G�in and �is co�respondents �ere found liable and ordered to pay various civil penalties.
Texas v. Warr Investment Group, LLC, et al. (Texas)
T�e Texas State Securities Board �as filed a petition al�leging t�at James Elton Warr t�roug� Warr Investment Group LLC and ot�er entities encouraged investors to transfer t�eir funds to a self�directed IRA t�at �as not independent, but instead �as secretly controlled by �is daug�ter. According to t�e petition t�e Warr entities defrauded t�e public t�roug� t�eir illegal and
deceptive sales of securities in real estate investment programs. Mr. Warr claimed t�at investors �ould re�����ceive a guaranteed 8% annual return and t�at t�e real estate investments �ere a safe and lucrative alternative to more traditional investments suc� as certificates of deposit and stocks. Mr. Warr and �is entities raised at least $970,000 from 30 investors. A Texas court granted t�e Texas State Securities Board request to freeze Mr. Warr’s assets and appoint a receiver to take control of Warr Investment Group LLC and its related entities.
V. Recourse for Fraud Victims
If you �ave lost money in a fraudulent investment or sc�eme involving a self�directed IRA or a t�ird�party custodian or trustee, or �ave information about one of t�ese scams, you s�ould contact:
• T�e SEC Complaint Center.
• Your state’s securities administrator. You can find links and addresses for your state regula�tor by visiting t�e Nort� American Securities Administrators Association’s �ebsite.
You also can c�eck t�e SEC’s Investor Claims Funds �ebpage for information concerning t�e ap�pointment of a receiver or claims administrator in any SEC enforcement action.
For additional educational information for inves-tors, see the SEC’s Office of Investor Education and Advocacy’s homepage, the SEC’s Investor.gov website or NASAA’s investor education webpage. For additional information related to avoiding fraud, also see:
· Questions You Should Ask About Your Investments
· How to Avoid Fraud
For additional information regarding IRAs, please see the Internal Revenue Service’s IRA Online Resource Guide.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.
