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Protect Your Retirement Funds Against Fraud

Protect your retirement against fraud
5 Minute Read

The team at IRA Financial Group is committed to helping their clients make safe and financial investments with their self-directed retirement accounts. While Self-Directed IRAs and Solo 401(k) plans can be a safe way to invest retirement funds, you, as an investor, must be mindful of potential fraudulent schemes when using a self-directed retirement structure.

Recently, the Securities and Exchange Commission (“SEC”) issued an Investor Alert to warn investors of the potential risks of fraud. This is an attribute of investing through self-directed Individual Retirement Accounts, such as Self-Directed IRAs and Solo 401(k) plans. The SEC states that there was a recent increase in reports or complaints of fraudulent investment schemes that use a self-directed IRA or solo 401(k) plan as a key feature.

It’s important to realize that the IRA Financial Group cannot guarantee the success of an investment. As a result, you must evaluate the merits of a proposal on your own. You should certainly check with regulators about the background and history of an investment and its promoters. This helps better inform you before making a decision of potential fraudulent schemes when considering a self-directed retirement structure.

Also, you should understand that custodians of self-directed retirement accounts may have limited duties to investors. The custodians and trustees for these accounts will generally not evaluate the quality or legitimacy of an investment and its promoters. As with every investment, you need to check the background and history of an investment and its promoters. Always do this before you make any decision.

What is Fraud?

Fraud occurs when a person or business intentionally deceives another. Deception comes in the from of promises of goods, services, or financial benefits that do not exist, were never intended to be provided, or were misrepresented. Typically, victims give money but never receive what they paid for.

Who are the victims of fraud?

Virtually anyone can fall prey to fraudulent crimes. Con artists do not pass over anyone due to their age, finances, educational level, gender, race, etc. In fact, fraud perpetrators often target certain groups based on these factors.

Who commits fraud crimes?

According to the U.S. Government, like their victims, fraud criminals vary. They have a variety of educational, social, geographical and financial backgrounds. Most con-artists make a career of their criminal activities. Some even join professional organizations to legitimize their schemes and project a respectable front.

What are some common types of fraud?

The weapon of choice for fraud criminals is not a gun or a knife. Rather, it is most often a:

  1. Telephone
  2. Letter
  3. Glossy publication
  4. Brochure offering free vacations
  5. Merchandise
  6. Investment opportunities
  7. Services

Of course, not all frauds involve the direct sales of goods to consumers. Some frauds target institutions or businesses. Examples include:

  • Telemarketing fraud (telephone solicitation for phony goods or services)
  • Mail fraud
  • Health care and insurance fraud
  • Pension and trust fund fraud
  • Credit card and check fraud (including fraud by impersonation resulting from theft of mail or credit cards)
  • Identity theft
  • Fraud related to securities, commodities, and other investments
  • Bank fraud
  • Embezzlement
  • Pyramid or Ponzi schemes
  • Advance fee schemes
  • Internet fraud

Here is a list of resources for retirement investors seeking information on investments and investment advisers:

  • 12 Warning Signs An Investment Is A Scam, by Sy Harding.
  • U.S Securities and Exchange Commissions.
  • FINRA: FINRA provides an online service for investors to check the backgrounds of brokers. This is “Broker Check.”
  • FINRA’s website also has tools and resources to protect senior investors. It helps them make informed investment decisions, including “Investor Alerts.” These provide timely information on steering clear of investment scams and problems.
  • NASAA: The North American Securities Administrators Association (NASAA). This site also has helpful information available for specific states. This organization is very proactive in providing resources for senior investors.
  • FTC: The Federal Trade Commission (FTC). They work for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace. Additionally, they provide information to help consumers spot, stop and avoid them. FTC also enters Internet, telemarketing, identity theft, and other fraudulent complaints into Consumer Sentinel. This is a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. You can visit the FTC website or call 877-FTC-HELP.
  • BBB: The Better Business Bureau is also an excellent resource for researching businesses that have been reported for fraudulent or deceptive practices.
  • AARP: The Association of Retired Persons provides resources and funding for many research projects. This occurs in various states to uncover scams targeted at senior citizens. They also have numerous free publications to help seniors become more astute investors.

Tips to Avoid and Prevent Being Financially Cheated

First, you should shred financial documents and paperwork with personal information before you discard them. Protect your social by providing it only when necessary. Or, you can ask to use another identifier. Never give out personal information over the phone, mail or the Internet unless you know who you are dealing with. Protect all of your passwords. Don’t give out your password accounts to anyone – including family members.

Of course, you must also keep your credit card safe. Don’t give out your credit card numbers to any strangers. If you believe the contact is legitimate, go to the company’s official website. Simply type the site address directly or use a page you have previously bookmarked. This is better than using links that have come from your e-mail.

Be careful of promoters who use “aliases.” For example, pseudonyms are common online. Some salespeople will try to hide their true identity. Furthermore, be wary of promises of quick profits. Don’t be persuaded by offers of “inside” information. Always research the opportunity before you make investments.

Additionally, it’s highly advisable to talk over all financial decisions with a trusted family member, friend or financial adviser.

Watch out for:

  • Offshore scams and investment opportunities in other countries
  • If a company has no registration with the SEC or the Secretary of State where it is located

In like manner, do not heed any assurances from your sales representative that an error in your account is due solely to a computer or clerical error. Insist that the branch manager or compliance officer promptly send a written explanation and follow up to make sure the error is fixed.

Other Tips to Avoid Fraud

  • Review all offers in writing.
  • Be aware of being kept on the phone for a long time.
  • Words like “guarantee,” “high return,” “limited offer,” or “as safe as a CD” are red flags.
  • If a financial adviser cannot be found through FINRA.
  • Don’t assume that people online are who they claim they are.
  • Ask the online promoter whether-and how much-they are being paid to sell the product.
  • Do business with people you know.
  • Report any frauds and any potential investment frauds affecting Americans to local, state or federal regulators.
  • Never make a check out to a financial adviser.
  • Never allow statements or confirmations to be sent directly to your financial adviser without receiving copies.
  • Recommendations from a sales representative based on “confidential information”, an “upcoming favorable research report” a “prospective merger or acquisition,” or the announcement of a “dynamic new product.”
  • Never act on a recommendation from your sales representative that you make a dramatic change in your investment.
  • Pressure to trade the account in a manner that is inconsistent with your investment goals and the risk you want or can afford to take.


In general, the best prevention technique is to identify and research the persons, products and companies offering their services. The more education and understanding of the product features, especially investment products, the higher the level of scrutiny you can apply. In the event of any suspicious calls, emails or personal solicitations, report it to the proper authorities.

Always take the time you need to understand and evaluate a potential investment. Make sure you understand the investment you’re going to make and understand how the promoter will generate the returns being promised. Also, make sure the promoter of the investment has the necessary qualifications or licenses, if applicable, to offer the investment. Be cautious if a sponsor or advisor uses the affiliation as the reason to make the investment, rather than relying on the underlying merits of the investment or trust in the sales person.

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