Fraud Prevention on Self-Directed Accounts
While self-directed IRAs have the potential to offer owners otherwise unavailable investment opportunities, the Securities and Exchange Commission noted that they also can come with unique risks such as “a lack of disclosure and liquidity — as well as the risk of fraud.” The best way for any investor to prevent fraud in a self-directed account is through proper due diligence and ongoing monitoring of their investments. CamaPlan does not perform any due diligence to evaluate investments for legitimacy; this is the responsibility of the investor and his/her advisor. We do, however, encourage all of our clients to be well informed and educated in addition to always working with your financial professionals when considering a self-directed investment. CamaPlan offers many education opportunities to enable you to make smarter investment decisions through our Cama Academy.
Even though CamaPlan does not perform due diligence, nor do we evaluate the appropriateness of your investments, we understand the importance of assisting our clients in the prevention of fraud. If you have reservations about a potential investment opportunity, or if you’ve been victimized by a financial scam, you might turn to one or more of the following agencies:
Better Business Bureau
With offices nationally, in every state and most large and mid-sized cities, the BBB can alert you to problems with local businesses, work-at-home programs, distributorships, sales routes you can buy and other one-on-one type rip-offs. They usually have lists of current online offers that are suspect or drawing lots of complaints. You can access the national BBB website and navigate to your home state or city chapter.
U.S. Securities and Exchange Commission (SEC)
Although the risk of fraud in any type of account and in particular, self-directed IRAs, can never be completely eliminated, the SEC’s alert provides a number of safeguards that potential investors can employ to minimize the possibility of falling for a fraudulent investment. See alert on self-directed IRAs.
Information is also available on all securities-related fraud issues and investment scams, and you can file your own personal complaints or suspicions online. Your SEC complaint can be anonymous or you can provide only limited personal data. However, the more information you give them, the more likely they’ll be able to help you. Either way, include specific details about how, why and when you were bilked with any contact information you have on the fraudulent person or company involved. You can also verify financials and regulatory standing on all publicly traded U.S. companies by accessing the SEC’s EDGAR Database.
For state and local fraud matters
Please contact your local Police Department or State Attorney General’s Office.
U.S. Commodity Futures Trading Commission (CFTC)
If the scam involves commodity futures or options rather than stocks or bonds, the CFTC.
Internal Revenue Service
Since most scammers don’t pay taxes, the IRS tries to keep track of them as well – not only to put them out of business but to prevent having to let you deduct your fraud losses. Check out posted IRS fraud information.
U.S. Federal Bureau of Investigation (FBI)
For any kind of Internet fraud, bank-related scams or other interstate criminal activity, check with the FBI or report complaints. (Just for fun, you can also review the “10 Most Wanted” list on the FBI homepage to see if you recognize anyone).
Financial Industry Regulatory Authority (FINRA)
A professional association of investment regulators and agencies, FINRA has a web page where you can check out brokers.
Protect Yourself from COVID and Tax Season Scams
1. Check your savings, checking, credit card and other key financial accounts for unauthorized charges or withdrawals.
Contact your financial institution immediately if you notice any suspicious activities that was not done by you. Explain your situation, ask about your options and for any additional information that you may need.
2. Use strong and unique passwords for online account
Set up strong passwords (unique to each account) that have more than eight digits and include upper- and lower-case letters, numbers and at least one symbol. Also, use multi-factor authentication whenever possible. This help prevent thieves from easily hacking your account. It is recommended that you change your password every 90 days.
3. Remove personal information from your social media accounts.
Start by reviewing the privacy settings for each of your accounts and update them to remove excess information if need be. To reduce the risk of someone impersonating you, keep your mailing address, email address, phone number and other personally identifying information private.
4. If your identity has been used to cash your stimulus check or apply for unemployment or other benefits, file a report with the relevant authorities.
Unfortunately, recent reports show that identity thieves have targeted those in the most need of financial aid during the Covid-19 pandemic. If you suspect that you have not received the aid you are eligible for because you are a victim of identity theft, contact the relevant local or federal authorities.
5. Shop at sites where the web address begins with “https” – the “s” is for secure communications over the computer network. Also, look for the “padlock” icon in the browser window.
The Ponzi scheme, named for Charles Ponzi who first used it in the early 1900s to fleece investors out of $10 million, continues to head every list of top financial frauds, probably because of its simplicity. The perpetrator merely promises huge returns and then delivers them, using money from new investors to pay off older ones, who praise the investment and draw in more and more new investors – until the operator has built up a big enough cash pool to abscond with all the money. The big difference now is that the Internet can bring in money to the Ponzi operator in days rather than the months it used to take. The same is true of pyramid scams, where early investors profit by bringing in new suckers and raking off a share of the new money – until the whole thing collapses. The Internet is even better suited to more complicated frauds. Using e-mail and/or highly professional-looking Internet web sites, white-collar thieves can send out hundreds of thousands of sophisticated marketing appeals or official-looking documents in a matter of hours, reaping hundreds or even thousands of responses. The problem is, the charities are bogus, the investments are phony, and the operators are long gone. Seniors are particularly susceptible to many of these scams, being sold false charitable gift annuities, viatical settlements, reverse mortgages, or having their pension funds drained. In 2005, for example, Pennsylvania authorities shut down a well-promoted “IRS-approved, IRA-authorized” investor plan that pulled more than $2 million out of senior pension programs in the state. Of course, anyone can fall victim to an investment scammer. Following are nine other types of frauds or dubious investment offers you might encounter:
1. Affinity Fraud
These scams target groups with common interests, such as alumni associations or religious or ethnic clubs, letting the members sell one another on bad or fake investments.
2. Annuity Misrepresentation
These aren’t scams so much as failure to disclose hefty sales commissions, huge surrender fees and other things that eat up the buyer’s money.
3. Promissory Notes
These are short-term, supposedly high-return debt instruments issued by obscure or non-existent companies and sold by unlicensed individuals posing as brokers, insurance agents, etc.
4. “Prime-Bank” Schemes
These offer small investors high returns by giving them supposed access to the world’s elite banks and entry into the exclusive world of the ultra-rich.
5. Brokerage Scams
These can range from outright fraud, such as selling phony securities, to “pump-and-dump” promotions of penny stocks, unauthorized trading of customer accounts (known as “churning”), excess or hidden fees and other irregularities.
6. Unlicensed Agents
Nearly every financial endeavor is regulated and sales people are required to be licensed at either the state or federal level – but most scammers aren’t. Even non-regulated operations usually have professional or business associations you should be able to check with if you have doubts.
7. Pressure Tactics
Cold callers operating out of boiler rooms similar to those portrayed in the 1980s film “Wall Street” promote commodity futures, precious metals, penny stocks, coins, and travel and vacation properties. While some cold calling operations are legitimate, many aren’t. The bad ones typically offer either “a special one-time deal” or an opportunity you have to “grab now or you’ll miss out.” Diamond investments are popular among pressure sales teams since they’re one of the few commodities not traded on any organized exchange, meaning you have no real way to compare prices to actual market values.
8. False Sales Premises
These are often used in response to major shifts in public mood, such as the present distrust of Washington. A popular pitch currently being used promotes the purchase of antique gold coins because “the government has secret plans to confiscate all gold and prohibit individual ownership,” as it did to a limited degree in 1933.
9. Fake Real Estate Sales or Leases
These scams reflect the recent mortgage crisis and collapse of the real estate market in many areas of the country. Because of foreclosures, weak sales and abandonment, many homes sit empty in places like Phoenix, Las Vegas and California’s Central Valley. Scammers fake ownership papers to the empty properties, advertise them for sale or lease at below-market prices and then walk away with the deposits or down payments when they hook bargain-hungry buyers or tenants.
A comprehensive list of potential financial and investment scams would have many more entries, but the ones above should suffice to raise your suspicions any time you encounter an offer that sounds “too good to be true.” Don’t put your money on the line for anything you don’t completely understand – that goes for potential risks, as well as rewards. And always verify that the offering company actually exists and the person presenting the offer is properly licensed, not just a glib talker with a slick presentation.