An Ohio-based self-directed IRA provider finds itself in hot water, accused by the SEC of ignoring red flags for accounts with investments that turned out to be fraudulent. The regulatory agency alleges that Equity Trust Company took an active role in marketing investments offered by Ephren Taylor, who targeted churchgoers while supposedly running a Ponzi scheme, and Randy Poulson, who has been indicted in federal district court for an alleged offering fraud targeting investors in New Jersey.
The SEC says that Taylor and Poulson defrauded more than 100 investors out of $5 million invested through accounts at Equity Trust, and that Equity Trust was a cause of violations of Section 17(a) of the Securities Act of 1933 by Taylor and Poulson.
“We allege that Equity Trust failed to protect the interests of its customers when it acted as more than a passive custodian,” Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, said in a ststement. “When custodians like Equity Trust are aware of red flags suggesting an ongoing fraud, they must take action to try to prevent it.”
In its order instituting proceedings, the Enforcement Division alleges among other things:
- Equity Trust representatives participated at events hosted by Taylor and Poulson, and they encouraged attendees to transfer their retirement savings from traditional IRAs to self-directed IRAs at Equity Trust so they could invest in the Taylor or Poulson offerings. Equity Trust also sponsored Poulson dinner events with prospective investors.
- Equity Trust processed investments in notes offered by Taylor and Poulson in spite of serious red flags. These included knowing that Taylor and Poulson had not provided them with documentation of the investments’ collateral as it required as custodian of the self-directed IRAs, and that Taylor made false statements to thousands of people at a church near Atlanta.
- Equity Trust continued to charge fees to customers invested in Taylor’s notes as recently as this year despite the fraud charges announced against him in 2012.
The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.
The SEC’s investigation was conducted by Andrew Dean and Lara Shalov Mehraban in the New York Regional Office and Luke Fitzgerald in the Asset Management Unit.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
