Self-Directed IRA & Financial Advisor

[JohnH]

I've run across a client situation that disturbs me, and I'd like to ask if anyone here may have some insight. A client had a financial advisor who convinced the client to move money from a qualified plan into a Self-Directed IRA. The trustee for the Self-Directed IRA then executed a promissory note with the financial advisor and loaned the the money to the financial advisor. I'm fairly sure the promissory note is in default.

The client is (FINALLY) onto the financial advisor's shenanigans and has a lawyer involved. For a host of unrelated reasons, there's no question in anyone's mind that the financial advisor is a low-life. Legal action of some sort is under way, although recovery prospects are looking slim.

But my question involves the trustee for the Self-Directed IRA. Would they not have some duty to refuse to handle a transaction of this type, or am I just too close to the situation and am expecting the trustee to have exercised 20/20 hindsight?

[Roland Slugg]

Well, you stated that this was a "self-directed" IRA, so I would assume that the trustee (presumably a bank) required the IRA owner to sign a statement directing it to make the loan to the FA. Even so, the trustee may have acted imprudently and could be at risk. My advice: Let the lawyer handle it.

[JohnH]

Thanks Roland. Yes, it's in the hands of a lawyer, but this particular question hasn't come up (if the client is explaining things to me accurately).

I can't figure out why it hasn't come into the conversation, because if there's any recovery at all, this will be the most likely source. So I was just wondering offhand if I was expecting too much from the trustee in the way of due diligence, etc.

[S T]

Hmm

Should we stayed tune to CNN or local TV channel - and see if this appears - such as Maddoff, and MFS Global or the local newspapers for lesser known "culprits"

A lot more transparancy now --- Info on "schemes" being published at least weekly! Just seems to take some time to find them and bring the "charges of illegal activity"

Sandy