Recovering Losses caused by Investment Misconduct

Indiana Case Highlights Investment Fraud Dangers of Self-Directed IRAs

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. (To find out more about regulators’ warnings, read "Self-Directed IRAs Carry Risk of Fraud, Warns SEC and NASAA.")

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 here.)

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