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When Can You File an Investment Fraud Claim for Losses from a Self-Directed IRA?

March 31, 2023 Blog

The U.S. Securities and Exchange Commission (SEC) recently issued an Investor Alert warning of the fraud risks associated with self-directed IRAs. Unlike a more-traditional IRAs, self-directed IRAs allow retirement investors to make their own decisions about how to invest their life savings. As the SEC notes, “[c]ustodians for self-directed IRAs may allow investors to invest . . . in ‘alternative assets’ such as real estate, precious metals and other commodities, crypto assets, private placement securities, promissory notes, and tax lien certificates.” This combination of control and flexibility is attractive to many investors.

However, it can also be very risky.

As the SEC also notes, “[i]nvestments in these kinds of assets have unique risks that investors should consider . . . include[ing] a lack of information and liquidity – and the risk of fraud.” While self-directed IRA investors generally cannot pursue fraud claims based on losses from individual investments (because they choose these investments themselves), those who get defrauded into opening self-directed IRAs or buying fraudulent investments may be able to file claims to recover their lost principal and any fraudulent fees.

3 Fraud Risks Associated with Self-Directed IRAs

If you’ve lost money in a self-directed IRA, do you have a claim for investment fraud? Here are three scenarios in which you may have a claim:

1. Falling for a Self-Directed IRA Custodian Scams

“Fraudsters may use a fake self-directed custodian to attempt to steal your money,” the SEC explains. If you thought you opened a self-directed IRA but fell for a fraud scam, you have a clear claim for fraud. As a practical matter, however, recovering your losses in this situation may prove challenging, and it will be important for you to discuss your options with a lawyer as soon as possible.

2. Buying Fraudulent Investments in a Self-Directed IRA

You may also have a claim if you purchased a fraudulent investment through your self-directed IRA. But, in this scenario, you most likely will not have a claim against your IRA’s custodian. With self-directed IRAs, the custodian plays no role in the decision-making process—the investments you buy are entirely up to you. As a result, your claim, if any, will generally be against the fraudster that sold you the illegitimate investment.

3. Paying Excessive Fees

As the SEC explains, “Fees for self-directed IRAs may be significantly higher than those for other types of investment accounts. In addition to transaction fees, there may be account opening fees, annual account fees, administrative fees and asset-specific fees in the account.” High fees, in and of themselves, are not necessarily indicative of fraud. However, if you were not informed of the fees you would be paying, or if you are being charged fees above and beyond those disclosed to you, you may have a claim for fraud.

Request a Free Consultation at Zamansky LLC

If you believe that you may have a fraud claim related to losses or fees you incurred in a self-directed IRA, you should consult with a lawyer about your legal rights. To request a free consultation with a lawyer at Zamansky LLC, please call 212-742-1414 or inquire online today.

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