The Securities and Exchange Commission is sounding the alarm bell about potentially fraudulent crypo-asset investment schemes targeting the Self-Directed IRA market. The SEC’s warning encompasses crypto-currencies, tokens and initial coin offering (ICO) investments. While there are certainly many legitimate investment opportunities that Self-Directed IRA investors can choose from within the cryptocurrency asset class, the track record is not very long, and the ‘wild West’ global climate has attracted a lot of unsavory and unethical promoters. Self-Directed IRA owners should be cautious when considering investments in crypto assets.
According to the SEC deceptive promoters may falsely claim that the investment has been signed off on by your IRA custodian, administrator or some other trusted third party. But Self-Directed IRAs do not work like this. Neither custodians nor third-party Self-Directed IRA administrators like American IRA, LLC routinely check out individual investments on clients’ behalf. We are neutral as to the worth of any given investment. In Self-Directed IRAs and other similarly-run retirement accounts, we do not evaluate the legitimacy or worth of any specific investment opportunity. That is entirely the purview of the individual account owner and his or her investment advisors.
To avoid falling for unsound or fraudulent crypto investments, follow these guidelines:
- Conduct a thorough, independent due diligence. Do not rely on the promoter’s own assurances.
- Do not fall for assurances of ‘guaranteed returns,’ or ‘no risk.’ No crypto promoter is in a position to guarantee the future performance of any crypto asset, and many such assets have already seen their value collapse.
- Be wary of unsolicited investment offers. Most successful crypto investors have been following the asset class for some time and are already familiar with the advantages and disadvantages of crypto. Generally, they find their own investment opportunities.
It is true that crypto assets are frequently traded over “exchanges.” But these exchanges are not regulated by the SEC or any other U.S. regulatory body. Self-Directed IRAs can acquire crypto assets, but in the event, you get stung by a fraudulent investment within your Self-Directed IRA, the SEC has little or no means of pressuring or penalizing either the exchange or the crypto asset promoters themselves to get them to make good on their promises.
Also, the SEC has noted that because the typical time horizon on IRAs can go for years, and even decades, many investors do not pay close attention to the day-to-day news for their specific crypto investments. Because these assets are generally highly volatile, investors can take big losses in just days and even hours. Do not be too passive when investing in crypto assets. This is one of those asset classes where it pays to be vigilant and take a proactive role.