ComplianceJune 24, 2015

Ohio IRA Provider Ignored Red Flags, SEC Says

Sponsored dinners with Ponzi operators and fees charged to the account-holders even after fraud charges were announced are among the allegations against Equity Trust Company.

Reported by Jill Cornfield

The Securities and Exchange Commission (SEC) announced charges against Equity Trust Company, an Ohio-based self-directed IRA provider accused of ignoring red flags for accounts with investments that turned out to be fraudulent.

Equity Trust Company, in Westlake, Ohio, allegedly 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 targeting New Jersey investors in a real estate Ponzi scheme, according to the enforcement division

The division alleges that Taylor and Poulson defrauded more than 100 investors out of $5 million invested through accounts at Equity Trust, and that the retirement plan custodian was a cause of Securities Act of 1933 violations, Section 17(a), by Taylor and Poulson.

Representatives of Equity Trust took part in events hosted by Taylor and Poulson, and they encouraged attendees to transfer their retirement savings from traditional individual retirement accounts (IRAs) to self-directed IRAs at Equity Trust so they could invest in offerings by Taylor or Poulson. Equity Trust also sponsored Poulson dinner events with prospective investors.

Equity Trust processed investments in notes offered by Taylor and Poulson despite 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.

“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 enforcement division, said in a statement. “When custodians like Equity Trust are aware of red flags suggesting an ongoing fraud, they must take action to try to prevent it.”