A Westlake, Ohio, company that offers self-directed IRAs has been charged by the Securities and Exchange Commission with being involved in a $5 million Ponzi scheme that targeted churchgoers.
Equity Trust Company ignored red flags for accounts with investments that turned out to be fraudulent, the SEC says.
Equity Trust denies the SEC's allegations and will vigorously defend itself, Equity said in a written statement. Equity Trust is an industry leader in fighting fraud, and stopped permitting its self-directed IRA clients to make investments with these sponsors more than two years before the SEC brought actions against them.
The SEC Enforcement Division alleges that Equity Trust took an active role in marketing investments offered by Ephren Taylor, who targeted churchgoers while running a Ponzi scheme, and Randy Poulson, who has been indicted in federal district court for an alleged fraud targeting investors in New Jersey.
Taylor was the subject of an earlier complaint by the SEC for running the Ponzi scheme.
Taylor and Poulson defrauded more than 100 investors out of $5 million invested through accounts at Equity Trust, according to the SEC.
“We allege that Equity Trust failed to protect the interests of its customers when it acted as more than a passive custodian,” says Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “When custodians like Equity Trust are aware of red flags suggesting an ongoing fraud, they must take action to try to prevent it.”
Equity Trust representatives participated at events hosted by Taylor and Poulson, and 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, the SEC says.
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 required. Taylor also made false statements to thousands of people at a church near Atlanta.
Equity Trust also 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.
Over the years, the SEC has published investor alerts stating that self-directed IRA custodians do not evaluate the quality or legitimacy of an investment and its promoters, and that custodians are responsible only for holding and administering the assets. Numerous courts and other regulators have agreed with this SEC guidance. Consistent with SEC guidance, Equity Trust and other custodians state the same thing in their customer contracts and in each direction of investment form its customers sign. Equity Trust does not endorse any investment or investment sponsor, the Equity statement said.