RECOMMENDED READING: Prospective Class Action Against Accused Ponzi Schemer Ephren W. Taylor II Names Alleged Facilitators And Raises Specter Of Crime Spigot Involving ‘Self-Directed’ IRAs

This cash came from the Trevor Cook Ponzi scheme and was stashed, according to filings in the civil case against Cook. Cook is serving a 25-year-sentence in federal prison. Photo source: Court records.

EDITOR’S NOTE: As America’s fraud plague continues, some of the scammers are polluting the free market with incongruous and even bizarre schemes  — even as they purport to represent the best that freedom offers.

The PP Blog highly recommends that readers check out this September 2011 document from the SEC that warns about scammers targeting holders of self-directed IRAs. Reading the document may help improve your understanding of the story below. There are differences between IRAs (emphasis added below): 

“An Individual Retirement Account (IRA) is a form of retirement account that provides investors with certain tax benefits for retirement savings,” the SEC says. “Some common examples of IRAs used by investors include the traditional IRA, Roth IRA, Simplified Employee Pension (SEP) IRA, and Savings Incentive Match Plan for Employees (SIMPLE) IRA. All IRA accounts are held for investors by custodians or trustees. These may include banks, trust companies, or any other entity approved by the Internal Revenue Service (IRS) to act as a trustee or custodian.

A self-directed IRA is an IRA held by a trustee or custodian that permits investment in a broader set of assets than is permitted by most IRA custodians,” the SEC continues. “Most IRA custodians are banks and broker-dealers that limit the holdings in IRA accounts to firm-approved stocks, bonds, mutual funds and CDs.

“Custodians and trustees for self-directed IRAs, however, may allow investors to invest retirement funds in other types of assets such as real estate, promissory notes, tax lien certificates, and private placement securities. While self-directed IRAs may offer investors access to an array of private investment opportunities that are not available through other IRA providers, investments in these kinds of assets may have unique risks that investors should consider. Those risks can include a lack of disclosure and liquidity — as well as the risk of fraud.”

Here, now, a story about how holders of self-directed IRAs allegedly had their pockets picked . . .

There’s Trevor Cook, who’s doing 25 years for his massive Minnesota Ponzi caper aimed at Christians, even as the trial of three of his accused colleagues is getting under way. Then there’s Kurt Barton, who’s doing 17 years for his Texas fraud scheme that also targeted people of faith and was described by the FBI as a robbery that took place without the aid of a gun.

Meanwhile, there’s William Wise, a onetime international fugitive charged in California with a massive Ponzi scheme centering on offshore CDs. (Wise surrendered earlier this week.) And then there’s Robert Stinson Jr., the Pennsylvania Ponzi swindler now doing more than 33 years for his “Life’s Good” scam. (The FBI said he was wiring money even as a raid was under way.)

And who could forget Californian Daniel C.S. Powell, implicated by the SEC in a life-settlement scam? (The venture became known as “Christian Stanley,” and its website traded on the name of former President Bill Clinton.)

Then there’s Chris Cornett, implicated by the CFTC in a Forex swindle.

Here’s why these names are important: All of these individuals — and more — are listed as scammers or alleged scammers in a proposed class-action lawsuit against Ephren W. Taylor II, now implicated by the SEC in a massive Ponzi swindle known as “City Capital.” The alleged City Capital targets were  people of faith.

Though not defendants in the Taylor/City Capital lawsuit, the other alleged (or proven) scammers all had something in common beyond their abilities to separate people from their money, according to the complaint: complicit bankers and/or a means of plowing customers’ money from self-directed IRAs (SDIRAs) into their fraud schemes.

SDIRAs are sold as freedom-celebrating devices that encourage personal responsibility and permit their holders to be more flexible in their investment choices. By law, the accounts are held by a custodian or trustee. Even so, sharks allegedly swim in these waters — and the worst of the worst may deny they have any duties to their customers and may be turning a blind eye to fraud schemes as a means of keeping a fee-generating, steady supply of fresh meat and blood in the water.

“I am encouraging our plaintiffs to raise their voices and to make their legislators and regulators aware of how Ponzi schemes continue to be perpetrated through the use of self-directed IRA investment vehicles,” said Cathy Lerman of Cathy Jackson Lerman PA, one of the firms involved the prospective class action.

Other attorney/firms involved in the litigation include California local trial counsel David Dorenfeld of Snyder Dorenfeld LLP; Michael W. Brown, an associate at Snyder Dorenfeld; and Jim Gitkin, principal of Salpeter Gitken LLP.

Among the defendants named in the Taylor class action are Bank of America; Missouri Bank and Trust of Kansas City; Equity Trust Corp. of Ohio (an SDIRA provider); Entrust New Direction IRA Inc. of Colorado; The Entrust Group of California (an SDIRA provider); Entrust Administration Inc. of California; and Sunwest Trust Inc. of New Mexico. Other defendants also are named, and there is an allegation that Taylor used as many as 50 shell companies as part of his long-running fraud.

A separate proposed class action has been filed against SDIRA providers named in the Taylor class action. That lawsuit alleges that as much as $94 billion may be tied up in SDIRAs nationwide, suggesting that fresh meat and blood could churn in the waters indefinitely.

In effect, the lawyers are arguing that SDIRAs, which are lightly regulated or not regulated at all, have become the tools of criminals and are being used to separate investors from their money in one scam after another. Unlike traditional IRAs, SDIRA vessels may end up steering vast sums of cash into “opportunities” that not only may be exceptionally risky, but also may be downright crazy — such as Taylor’s purported “sweeps machines.”

The Taylor lawsuit, for instance, argues that African American Christians effectively found themselves owning machines used in illegal gambling parlors and that churches that had invited Taylor to speak also got swept into incongruous schemes.

Liberty City Church of Christ in Miami lost $100,000, owing to Taylor’s scams, the lawsuit contends. William Lee of Raleigh, N.C., got duped of $160,000 because Taylor and associates caused him to believe he was making a “socially conscious” investment that would help the public at large while at once resulting in an individual profit.

The same thing happened to Gennet Thompson of Delray Beach, Fla. Thompson entrusted $17,200 to Taylor in one “opportunity” and $10,500 in another, according to the complaint.

Trudy Morgan of Lithonia, Ga, had a similar experience — one that sucked away $30,000, according to the complaint.

Read the complaint against Taylor, the banks and the SIDRAs.


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One Response to “RECOMMENDED READING: Prospective Class Action Against Accused Ponzi Schemer Ephren W. Taylor II Names Alleged Facilitators And Raises Specter Of Crime Spigot Involving ‘Self-Directed’ IRAs”

  1. In addition to being outright scams, self directed IRA’s can also be used to transfer retirement funds offshore and later “lost” in order to exclude a spouse from the proceeds. It seems that since hedge funds and private equity firms want to assure themselves of a source of investors, that lobbies for these entities have insured that loopholes and lack of investor protections are approved by or overlooked by legislators and regulators.