There are several reasons why self-directed IRA Custodians ("Custodians") must be regulated and changes in the laws governing self-directed IRAs ("SDIRAs") must be strengthened. First, the law needs to be clarified to give the Securities and Exchange Commision jurisdiction to investigate any claims of wrongdoing by Custodians. Second, the Federal Deposit Insurance Corporation ("FDIC") needs to be given clear jurisdiction to monitor transactions and investigate and prosecute Custodians where necessary. Although most Custodians are referred to as "trust companies" or "banks," which adds to their perceived role as a "financial institution," the FDIC has never to our knowledge initiated an enforcement action against a Custodian. The regulation of SDIRAs by the federal government is right now in limbo. It is not clear from the federal laws and regulations which, of any, federal agencies can undertake any type of enforcement action.
These loopholes have permitted Ponzi schemers like Bernie Madoff, Louis Pearlman, Ephren Taylor and others to perpetuate Ponzi schemes FOR DECADES using SDIRAs without any type of regulatory scrutiny. Billions of investment dollars have been lost by trusting investors/victims who had no clue that by using a self-directed IRA they had absolutely no protection. It is inconceivable that one could invest thousands or millions of dollars in an investment which turned out to be bogus even though the account statements received from the Custodian each month indicated that the investment was maintaining or even increasing in value!
How is an inexperienced investor supposed to uncover this kind of well- orchestrated fraud? Simply stated, they can't which is these types of fraud promoters are so successful. It will not be possible to stop Ponzi schemes utilizing SDIRAs until the responsibilties of the Custodians are clearly identified and there is a federal agency specifically charged with the responsibility of monitoring, policing and prosecuting Custodians who fail to follow specific guidelines.