Maine Securities Honcho Warns Of Potential Risk Of Defrauding Yourself With Self-Directed IRAs

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elderly ladyMaine Securities Administrator Judith M. Shaw is alerting Mainers of the potential risks associated with investing through self-directed Individual Retirement Accounts (IRAs), and is releasing a new consumer awareness publication. The brochure, “Self-Directed IRAs: What Every Investor Needs to Know,” is available as a downloadable document through a link on the Office of Securities’ website (, or by hard copy upon request to the Office.

“A substantial number of Maine investors have retirement savings in IRAs opened directly or set up through employers,” Administrator Shaw stated. “While IRAs are understandably popular retirement savings vehicles because of tax benefits and other features, self-directed IRAs—which permit investment in a much broader range of assets, including unregistered securities—can be used as a clever tool for scammers promoting fraudulent investment schemes.”

Governor Paul R. LePage joined Administrator Shaw in noting that Maine’s business community includes many banks, credit unions and securities firms that provide expertise and services designed to help investors make decisions about IRAs based on reliable information.

“We encourage investors to contact the Office of Securities with questions or concerns, and to utilize the expertise found at financial institutions and securities firms throughout Maine’s business community,” Governor LePage commented.

Shaw cited a recent case investigated by the Office of Securities in which an investor lost $10,000 to a scam that used a self-directed IRA account administered by a third party custodian. “The investor was contacted by a promoter of what was supposedly a start-up website company after she reviewed information on the internet. She mistakenly believed that because she was rolling over IRA funds into an account administered by a separate company, her IRA money was somehow safer. It wasn’t. The scammer simply withdrew the IRA money and replaced it with what turned out to be worthless securities.” The IRA custodian, as is often the case, was not a licensed securities firm and had no obligation to review or verify the legitimacy of the investment she directed the funds to be invested in.

A recent joint alert issued by the U.S. Securities and Exchange Commission and the North American Securities Administrators Association noted that state and federal securities regulators are seeing a similar uptick in complaints.

IRAs are regulated by the U.S. Internal Revenue Service, but tax rules governing the accounts do not address the safety or quality of the underlying investments, or whether accurate information has been provided on the investment. According to a 2011 report by the Investment Company Institute, U.S. investors held approximately $4.7 trillion in IRAs. Estimates from various sources suggest that self-directed IRAs comprise 2 percent, or $94 billion, of the total–an attractive target for fraudsters and unscrupulous promoters.

Shaw says that while self-directed IRAs can be a safe way to invest retirement funds, investors should be mindful of the potential for extremely risky or even fraudulent investments in these accounts. “As with every investment, investors should thoroughly evaluate the merits of the investment and always check with regulators about the background and history of the investment and its promoters before making a decision,” she cautioned.

Consumers may contact the Office of Securities for a copy of the new brochure, or to check an adviser, salesperson or investment, by calling 1-877-624-8551 (TTY 1-888-577-6690), by visiting the Office’s website (, or by writing to Maine Office of Securities, 121 SHS, Augusta, ME 04333-0121.

October 28, 2011
Professional & Financial Regulation – Securities