Just would like your opinion on the WSJ & SEC article about Lawsuits & Fraud over Self Directed IRA’s

Concerned Investor: Just would like your opinion on the WSJ article about Lawsuits over Self Directed IRA’s: (Read WSJ Article Here)

Is the article of immediate concern?  Is this just scam artists at work?

Also, read the article from the Securities Exchange Commission (SEC) on fraud within self-directed IRAs (Read SEC Article Here)

Question: Thoughts on question Above?  This lawsuit has scared some people for sure. Notice this article is directed at SDIRA’s and not specifically to Equity and Entrust, that could be a perception to people who do not understand. I think I should tell him to go to Quest and not worry about it, but would I love to give a little substance to relieve his concern.  Thoughts?

Answer: Regarding the article and the lawsuit, it basically is a fundamental misunderstanding of what roles the custodian and administrator play versus what role the client plays in making their own decisions.  There is no doubt that scam artists use self-directed IRAs as tools to get money.  But the question is whose role is it to police the investments that the clients choose, the client or the custodian?  The correct answer is that it is the client’s responsibility to do their due diligence on the investment and the people they are investing with.  This is very clearly spelled out in numerous places in the documents signed by every client.  And that’s why the product is called a ‘SELF-DIRECTED IRA.’

Having said this, the industry as a whole is doing as much as we can to help educate our clients and potential clients on how to avoid fraud, and of course we are setting up our own internal auditing processes as well to assess whether it is administratively feasible to handle certain investments.  However, we do not do due diligence for the clients and we do not recommend any investment or service provider.  Clearly a self-directed IRA is not for everyone, and here at Quest at least we do not pretend that it is.  We merely educate people as to what the possibilities are and then it is up to the client to decide if they want to pursue a self-directed IRA, and if they do open an account to find their own investments and do their own due diligence.

The Texas State Securities Board has come out with an explanation of self-directed IRAs which we agree with completely (the SEC issued a similar statement as well).  I have attached a copy.  At first blush you might read it to be against the use of self-directed IRAs, but really what it is saying is that you have to be careful of investment providers who may use self-directed IRAs to take your money.

Let me know if you have any further questions.  Have  a great day!

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