Self-Directed IRA Scams Are on the Rise, State Securities Regulators Warn

In separate comments to ThinkAdvisor, Lubin said that “as a next step, Congress should use its oversight and investigations tools to gather additional information regarding SDIRAs so that lawmakers and regulators can better understand the scope of the problem and evaluate proposals to strengthen the regulatory framework.”

For instance, Lubin continued, Congress, through the Government Accountability Office, “should gather information from the regulators that collectively work to protect SDIRA owners,”  which includes the Securities and Exchange Commission, federal and state bank regulators, the Internal Revenue Service and state securities administrators.

“Speaking for NASAA, I know we’re eager to participate in a GAO interview and/or provide congressional testimony regarding this issue of importance to investors across the United States,” Lubin said.

Precious metals, for instance, is an example of a type of investment that can be put into a self-directed IRA, as is real estate, Borg said. “But the trust company that is set up as the custodian has no duty to tell you—‘Oh, by the way, the folks you’re dealing with have four or five government orders against them.’”

The bottom line: Individuals who open a self-directed IRA bear “all the risk,” Borg said. “There really is no real oversight. That may change going forward in that NASAA, as a group, is talking to the trust companies … to come up with best practices, and say, ‘Perhaps there is an area here where the trust company should have additional duties’” to the individual.

NASAA,  Borg continued, is in dialogue with the Association of Trust Companies and others in the marketplace to say: “’It’s time you stepped up to the plate and had duties to the customers, not just being an accounting sheet that says, ‘you bought this.’”

Bad actors also are leveraging technology to conduct their schemes, said Joe Rotunda, director of the Enforcement Division at Texas State Securities Board.

When it comes to digital assets and social media scams, state securities regulators reported 125 investigations this year compared to 67 investigations in 2019.