Office of Financial Institutions
Investor Alert: Beware of 'IRA Approved' Scams
FRANKFORT, Ky. (Feb. 14, 2008) –The Kentucky Office of Financial Institutions (OFI) is warning investors to be wary of fraud as they consider opening or contributing to an Individual Retirement Account (IRA) before the tax day deadline of April 15. Investment schemes have recently surfaced that are falsely promoted as “IRA Approved” or endorsed by the IRS.
“There is no such thing as an ‘IRA Approved’ investment, and the IRS does not give its blessing to specific investments,” said OFI Executive Director Cordell Lawrence. “With these investments, there is an extremely high likelihood that investors will lose 100 percent of their principal.”
The North American Securities Administrators Association (NASAA) estimates that tens of thousands of unwary investors have already invested hundreds of millions of dollars of their savings through IRAs and other tax-deferred retirement savings vehicles that will end up being largely or entirely worthless.
Promising high returns with a bonanza of retirement income, the “IRA Approved” investment schemes range from the latest in high-tech (including wireless cable television and specialized mobile radio) to exotic livestock (such as ostrich farming) to real estate investment pools. Some “IRA Approved” schemes have been promoted through slick television “infomercials” and radio ads.
“The promoters try to appear legitimate by linking themselves to the IRS,” said OFI Securities Division Director James Strode. “They also seek to evade state and federal securities laws by claiming to be unregulated ‘general partnerships’ and ‘limited liability companies.’”
OFI urges Kentucky investors to take the following steps in order to avoid falling victim to an “IRA Approved” investment scheme:
- Contact OFI toll-free at 800-223-2579 or visit www.kfi.ky.gov if you believe you may have uncovered a bogus IRA scheme.
- Exercise extra caution during the tax season when it comes to making IRA investments. Just because the pressure may be on to make a decision about your IRA or other retirement plan contribution, don’t make the mistake of going along with the first sales pitch you hear.
- Avoid any investment touted as “IRA Approved” or otherwise endorsed by the IRS. Those who promote legitimate investment opportunities do not pretend to have the blessing of the IRS. The IRS does not endorse specific tax deals or investments.
- Proceed with caution when you are encouraged to invest in a “general partnership” or “limited liability company.” Some scam artists use these designations in an attempt to evade the consumer protection requirements of state and federal securities laws.
Kentucky investors are also encouraged to attend one of the four free Senior Scam Jam events this spring to learn about how to avoid falling victim to investment scams and other fraud. For more information, visit http://kfi.ky.gov/consumerinformation/cwsi.htm.
OFI is an agency of the Department of Public Protection in the Environmental and Public Protection Cabinet. It supervises the financial services industry by examining, chartering, licensing and registering various financial institutions, securities firms and professionals operating in Kentucky. OFI’s mission is to serve the public through effective and efficient regulation that promotes consumer confidence and economic growth.