What To Do If Your Self-Directed IRA Falls Victim to a Scam
Nobody wants it to happen. Being the victim of a scam is a lousy feeling, especially if the scam targeted your Self-Directed IRA. However, in the unfortunate event that it happened, what should you do? Is there any way to report the scam? What about recovering the funds that were stolen? There is no one right answer for every situation, but there is a series of actions you can take to make the best of it.
Scams Involving Securities
“Security” is the name given to certain kinds of financial vehicles that in some way involve investing. The definition can be grey at times and there have been a number of court cases whose outcomes hinged upon whether a certain transaction could be classified as a security. Stocks and bonds are certainly securities, and in general, most sponsored investments will also receive this label. The label is important because it determines which set of laws apply and which governmental body will be charged with addressing the situation. For an investment placed by a Self-Directed IRA with an investment sponsor, there is a good chance that the investment will be considered a security. For non-sponsor investments (e.g. if your Self-Directed IRA independently buys a private piece of property,) then it most probably won’t be considered a security. That doesn’t mean that you have no redress; rather, it will just be under a different set of laws.
The government organization tasked with handling securities scams is the SEC – Securities and Exchange Commission. The easiest way to reach them is by giving them a call: (800) SEC-0330. You can also register a complaint on their page dedicated to reporting fraud. As with most things pertaining to the government, the interface may be a little clunky and you will be asked for a lot of information. However, in this case a lot of information is a good thing. The more you can inform the SEC about the scam your Self-Directed IRA fell victim to, the more information they will have at their disposal to chase down the perpetrators.
An important thing to keep in mind is that the SEC will not always have the liberty to inform you as to the progress of the investigation. The investigations are generally kept confidential to avoid them being used as a tool of retribution. However, if the investigation finds evidence of wrongdoing, it will often result in a public enforcement action. You can find out more about public enforcement actions here. In all cases, the SEC officer who takes your complaint will be able to give you a more detailed timeline of what to expect and what other options may be at your disposal.
Reporting a Self-Directed IRA Scam
In addition to the SEC, there are a number of government agencies that can assist in the prosecution of a crime. (This is true even for crimes not involving securities.) It can be worthwhile to reach out to more than one. You never know which investigator has an affinity for your specific scam or which agency may be best suited for bringing justice.
- Federal Bureau of Investigation – The FBI investigates federal crimes, especially those of a high profile nature. They can be reached at (800) 225-5324. The FBI also has a dedicated Victim Services Division which offers support to victims in the aftermath of a crime. You can find out more about what they do and how to contact them here.
- Federal Trade Commission – The FTC protects individuals from all types of consumer fraud. They have a dedicated site for reporting scams. Although typically they will not personally help scam victims, they will give you the information your Self Directed IRA needs in terms of next steps and possible recovery. The FTC itself uses your report to update their database and shares that information with over 3,000 law enforcement agencies.
- Internet Crime Complaint Center – The IC3 is a governmental organization which focuses on scams and crimes that have been perpetrated online. They function as a clearinghouse for other law enforcement agencies. Scams can be reported here.
- Local Enforcement Agencies – You can also report the scam to your local police HQ, district attorney, and your state's Attorney General's Consumer Protection Unit.
Practical Steps for Scam Victims
If your Self-Directed IRA was scammed, reporting the crime is very important. However, you also want to take steps that will help guarantee your future security and minimize any damage. Here are some that the FTC recommends.
- Funds recovery – Depending on how your Self-Directed IRA paid the scammer, you may be able to get some or all of the funds back. Call the company you used to transfer the funds, explain that it was a fraudulent transaction, and find out if you can be refunded. Major financial companies like credit card providers, wire transfer agencies, banks, and money transfer apps all have standard protocols to deal with these situations. If you sent a check or cash physically, the USPS can intercept the package before it reaches its final destination. You can reach them at 877-876-2455.
- Identity Theft – If you gave a scammer personal information or practical information regarding your Self-Directed IRA, you may become a victim of identity theft. The first practical step is to change your passwords in general. The second step is to find out next steps for your specific situation. Those steps can be found at www.identitytheft.gov.
Beware the Post-scam Scam
Unfortunately, Self-Directed IRA account holders can be victimized at every step of the process. Even after an account holder has been scammed, there are still opportunities for other scammers to try make a quick buck. One of the more popular scams is to impersonate a government employee. This could be from the IRS, the SEC, or any other agency that may be tangentially related. The account holder will receive a communication from one of these organizations and will be instructed regarding services they can access to regain their lost funds. In order to access these services a certain amount of money will have to be put forth. This could be a sophisticated scam as the scammer may possess authentic looking letterhead or a reputable-looking website. The giveaway, though, is the request for money. The SEC will never ask a consumer for any kinds of funds whatsoever. To protect yourself from this kind of scam, make sure to never forward any money for any reason whatsoever. If you think it may be a legitimate request, have your accountant make a call to see what’s happening.
Similar to this, but operating more legally, are asset recovery companies. These are companies that target fraud victims and offer to help them make their claims and recoup their funds. The SEC is generally not in favor of these companies. You can find out the reasons why in this Investor Alert.