Both the SEC and the NASAA are becoming increasingly concerned about the
potential for investment fraud in self-directed individual retirement
accounts (IRAs). Though the self-directed IRA market is small, the products’
use of unregistered securities has quickly made it a favorite tool of
con artists and scammers. A recent Indiana investment fraud case highlights
exactly how self-directed IRAs can be used to perpetrate fraud.
Randall Morrison, a former businessman in Fort Wayne, Indiana, used self-directed
IRAs to defraud fifteen investors out of their retirement savings. According
to state officials, Morrison used his religious affiliation to gain investors’
trust, and then convinced them to roll their traditional IRAs and life
insurance proceeds into Ohio-based Equity Trust Co., a self-directed IRA
custodial company. He then gained access to the investors’ funds
and used it for personal expenditures.
"Randall Morrison preyed on those who considered him a friend,"
said Indiana Secretary of State Charlie White. "He didn’t just gamble
with their life savings, he squandered their life savings."
Morrison was not a registered broker-dealer. According to the Indiana Securities
Division, he never even applied to be one. But, the use of a self-directed
IRA enabled him to present a legitimate front.
"What investors need to understand is that the custodians and the
trustees of self-directed IRAs have very limited duties," Christopher
Naylor, the head of the Securities Division for the Indiana Secretary
of State’s Office,
told The Journal Gazette. Those duties do not include the evaluation of the proposed investment
product or the product’s promoter (in this case, Morrison). Additionally,
it is the promoter (Morrison) who is responsible for reporting the investment’s
worth to the custodian.
All together, investors lost approximately $1.4 million in Morrison’s
scheme. For many of them, it was everything they had.
Morrison is currently serving a six-year prison sentence for his role in
the securities scheme. He was charged with seven felony counts of securities
fraud and one felony count of corrupt business influence in September
2010. He agreed to plead guilty to one count of corruption in exchange
for a lighter sentence. (For more information about Morrison’s investment
fraud scheme and Ohio-based Equity Trust’s role in it, read The
Journal Gazette’s article