Julie Jason: Second opinions help beat scams.
Payroll Protection Program scams are in the news these days, but frauds that target retirees haven’t gone away.
Last week, the Securities and Exchange Commission charged a San Antonio-area businessman and his company with victimizing scores of investors from 2013 to 2019, among them retired San Antonio police officers and other first responders.
Retirees were lured by an offer of returns of 10-12 percent per year through investments in aircraft engines and other aircraft parts that would be leased to major airlines.
You have to ask yourself this question: What would you have done if you were offered this opportunity?
The SEC alleged that promises made to investors were false, including the seller’s investment experience, the seller’s “competitive advantages, such as an algorithm that supposedly identified profitable leasing opportunities,” and the seller’s representations about securing the investments with the seller’s assets.
Allegedly, no engines were purchased, and only a small portion of investor funds was used to purchase aircraft parts. $14 million was “misspent.”
Amazingly, the alleged fraudster “continued to mislead investors after he learned of the SEC’s investigation, including by using the letterhead from the SEC’s investigative subpoena as ‘proof ’ for investors that he was working with the SEC to take [the company] public.”
There was another wrinkle: Retirees made these investments with oneys withdrawn from their retirement accounts and funneled into newly created “selfdirected IRAs.”
Your typical IRAs are set up by custodians, such as banks and brokerage firms, usually limiting investments to stocks, bonds, mutual funds, certificates of deposit and other liquid, tradeable investments.
Alternative assets, such as private placement securities, real estate, promissory notes, tax lien certificates, digital assets, initial coin offerings or aircraft parts, can be held in IRAs that are “self-directed.”
It turns out, as you might imagine, that self-directed IRAs can be riskier due to the nature of these holdings. In fact, the SEC’s Office of Investor Education and Advocacy issued an August 2018 investor alert noting that “Investments in selfdirected IRAs raise risks including fraudulent schemes, high fees, and volatile performance.”
Further, the SEC has cautioned that “fraudsters may misrepresent the duties of self-directed IRA custodians to deceive investors into believing that their investments are legitimate or protected against losses . ... Selfdirected IRA custodians generally do not evaluate the quality or legitimacy of any investment in the self-directed IRA or its promoters.”
According to David Peavler, regional director of the SEC’s Fort Worth Office, “Investors should always proceed cautiously whenever someone suggests moving funds from traditional retirement accounts to selfdirected IRAs in order to make an investment.”
And, here is the best advice that one can get: “For investment opportunities like alternative assets in self-directed IRAs, investors should consider getting a second opinion from a licensed, unbiased investment professional or an attorney,” said the SEC in the alert. “This is especially important if an investor is opening or creating a new account outside a traditional financial institution or well-recognized broker-dealer.”
From my point of view as someone who started her Wall Street career as a lawyer and who later moved into money management, I wholeheartedly agree. There is no need to go it alone when considering investing hardearned retirement assets in a too-good-to-be-true venture.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2018 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.