Avoid Fraudulent Investments -- How spending $500 could possibly save you from a $50,000 scheme
When investing with your self-directed IRA, it's always important to research the investment and do YOUR OWN due diligence. If you have questions about a particular investment, then it would be wise to speak with a tax attorney or CPA to get their opinion. If a deal sounds too good to be true, it probably is. The State of New Mexico has come out with a great website to give people information about Ponzi schemes and other fraudulent investments. The goal of the website is to inform the investing public about scams and give them helpful information that will allow them to make better investment decisions. The following is directly off of the website, which can be found at http://www.redflagsNM.com. As we have stated numerous times throughout the site, including on our blog that Sunwest Trust does not offer legal or tax advice. We do not offer any due diligence for any investment that a client may wish to purchase through their self directed IRA Account, so it is very important that each client do their own research on any investment opportunity before committing money to a transaction whether it is in a retirement account or not. It's always highly recommended that you speak with a CPA or an attorney PRIOR to purchasing any investment. Case In Point
A client that I recently spoke with told me that he lost $50,000 due to a Ponzi scheme that he had invested in through his self-directed IRA. The client told me that after everything had happened, he spoke with his attorney. The attorney looked over all the paperwork and quickly told the client that if he had asked his legal advice on the investment, the attorney would have told him not to go through with it. The consultation with the attorney would have cost the client $500, which he was not willing to spend at the time. In hindsight, spending $500 to meet with an attorney could have saved the man $50,000 in losses. It's always a good idea to do as much research as you can when you are thinking about purchasing an investment through your IRA. Paying the money up front to a CPA or attorney may seem like a lot at the time, but it's usually worth paying for their expertise. Here is another take away from this unfortunate situation: Self directed IRAs in and of themselves aren't fraudulent, but the assets they may acquire or the people they invest with "the Promoters" might be.
When considering any investment and you hear the following things said.... Watch Out!
"CUSTODIAN APPROVED INVESTMENT": Take it from us here at Sunwest Trust. There is NO Such Thing. "I HAVE INSIDE INFORMATION": The promoter claims to have inside or non-public information that he's willing to let you in on, but you need to keep it confidential. Trading on non-public information about a publicly-traded stock is a violation of federal securities law. Even if the info is legitimate, do you want to be party to a crime? "SECRET METHODS, BREAKTHROUGH TECHNOLOGY": He's trying to get you to act without getting an outside opinion or checking his story with the authorities. "ACT NOW or LOSE OUT": He's trying to get you to make a snap decision without thinking it through and seeing the holes in his story. If it's a good investment, it will still be there after you've checked the promoter's credentials and done your own research on the offering. "RISK-FREE or GUARANTEED RETURNS": should also ring alarm bells. There is no "risk free" investment. Remember the iron law of investing: risk and return are inseparably linked - the higher the return, the more risk you're taking. Low risk with high returns does not compute. "DON'T TELL ANY ONE": If the promoter urges you to keep the investment confidential, even from your family, he's afraid of what their questions may uncover. "ABOVE MARKET RETURNS or HIGH YIELD INVESTMENT PROGRAM (HYIP)": If you are promised higher profits than comparable investments, there's something you're not being told about the deal. "YOUR PASTOR (or MINISTER, or LOCAL BANKER) HAS ALREADY INVESTED": Con artists may try to convince you to invest because others you know and respect are participating. Remember, in a Ponzi scheme earlier investors may appear to make money at first, but it's only cash flowing through the con from newer victims. Ultimately, everybody loses. "LIMITED to a FEW SELECT INVESTORS": The promoter may be attempting to evade securities regulations by limiting the pool of investors so he is not subject to federal or state disclosure requirements. Or he may be trying to stampede you into making an unwise decision. Questions You Should Ask Prior To Investing
What risks are involved? Don't be dazzled by the prospect of making big money on your investment. Ask about what can go wrong. What's the risk you'll lose some or all your money? Can I get a detailed explanation of this investment in writing? Don't rely on verbal promises or vague explanations. Get a clear, detailed description of your investment in writing, and make sure you understand the offering before you invest. Are you licensed to sell securities in such and such State? Individuals who sell securities or provide investment advice are required to earn a license by passing rigorous examinations before they can offer their services to the public. Those who bypass this requirement often are predators offering bogus investments. Is this investment offering registered with the SEC or the State Securities Division? The law requires that investments offered to the public in New Mexico must be reviewed by either state or federal regulators.  | | Closing Through a Title Company and Other Investment Advice |
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