SAN FRANCISCO (CN) – The Entrust Group and others targeted elderly people in a multimillion-dollar, IRA-based Ponzi scheme, eight people and two estates say in a federal class action.
The named plaintiffs say they lost $1.7 million to the scam. They say the Ponzi was based on self-directed investment retirement accounts, or SDIRAs.
They sued The Entrust Group and five affiliates, including New Direction IRA and Vantage Retirement Plans, and Equity Trust Co.
The class claims: “Equity Trust and Entrust have made hundreds of millions of dollars while claiming to ‘administer’ SDIRAs that have resulted in many of their customers losing their entire live savings (which were invested in SDIRA ‘investments’ that were illegal, illusory, nonexistent, or failing).”
The defendants, also referred to as “the custodians,” are accused of “making false and misleading representations that the investments made by plaintiffs and the class members were safe, profitable and legitimate when in fact the money invested by plaintiffs and the class members was being stolen by the individuals who urged them to invest.”
According to the complaint: “Plaintiffs and the class members were convinced to invest in the SDIRAs by fraud promoters, a term used by the SEC to describe individuals who devise and orchestrate Ponzi schemes to defraud innocent investors. The fraud promoters insisted that plaintiffs and the class members invest in SDIRAs administered by specific custodians. The use of established companies like the custodians provided a sense of legitimacy to an otherwise fraudulent investment scheme and helped entice inexperienced investors to invest their money into the fraud promoters’ fraudulent investments. The fraud promoters frequently emphasized the size and experience of the custodians as evidence of their credibility as investment advisers.
“The fraud promoters invested the money deposited by plaintiffs and class members in their SDIRAs in ‘investments’ that were fraudulent, illusory, or nonexistent. The custodians aided and abetted the fraud by periodically sending out investment account statements showing extraordinary investment returns in the SDIRAs when in fact the fraud promoters were absconding with the victims’ money.”
Equity Trust, a South Dakota corporation based in Elyria, Ohio, describes itself as “‘the nation’s leading provider of self-directed IRAs and 401ks, with over 128,000 clients in all 50 states and close to $10 billion dollars of retirement plan assets under administration,'” according to the complaint.
Entrust Group, a Delaware corporation based in Oakland, Calif., “touts itself as the ‘world’s premier provider of account administrative services for self-directed IRAs’ and ‘the only self-directed IRA administrator that serves you right in your community.’ Entrust Group, until December 2011, had a national network of affiliated companies that were franchisees of the Entrust Group,” the complaint states.
One named plaintiff, an 85-year-old Californian, claims he lost his entire $85,000 “investment” to the scam. A 76-year-old plaintiff from Texas says he lost his entire $159,000. A family trust from Texas claims they lost $1.3 million.
“The fraud promoters were acutely aware that their affiliation with and use of the custodians provided a sense of legitimacy to an otherwise fraudulent investment scheme and enticed inexperienced investors, who might otherwise be more cautious, into an investment scam because they believed they were protected by large, purportedly well-funded companies with trustworthy names like ‘Equity Trust’ and ‘Entrust,'” the complaint states.
It adds: “The custodians maintained company websites and engaged in extensive email marketing campaigns that targeted inexperienced investors with retirement savings accounts, including 401ks and Roth IRAs, and provided investment advice and information about SDIRAs.
“To enhance the appearance of legitimacy of their services, the custodians sponsored webinars about the safety, efficiency and profitability of investing in IRAs.
“In fact, Equity Trust sponsored webinars about investing in SDIRAs featuring IRS agents as spokespersons. Such marketing ploys were intended to lead consumers to believe that the custodians’ services were validated and approved by the IRS.”
The class claims the fraud promoters encouraged victims to use limited liability companies to hold their investments because it enabled the promoters to hide past bankruptcies and securities violations.
“The custodians aided, facilitated, and supported the fraud promoters’ control of the victims, so they could maintain a revenue stream comprised of hundreds or thousands of dollars per year per account from each victim for essentially doing nothing,” the complaint states.
“In fact, the custodians knew that the fraud promoters were defaulting on loans and notes in the SDIRAs owned by plaintiffs and the class members repeatedly over multiple years but turned a blind eye. The custodians’ failure to accurately report the value of the SDIRAs of plaintiffs and the class members resulted in plaintiffs and the class members being unaware that their investment monies had actually been stolen, although their SDIRAs appeared to be increasing in value.
“The custodians viewed and treated the fraud promoters as their partners and clients, not plaintiffs and the class members, which is why when the money ran out and the Ponzi schemes crumbled, the custodians refused to provide assistance or help plaintiffs and class members understand what happened to their investment money.”
The complaint lists 44 suspected fraud promoters, 34 people and 10 corporations or LLCs, and claims that many of them “have either gone into hiding, are awaiting trial or are serving criminal sentences for their crimes.”
The plaintiffs seek compensatory and punitive damages and statutory penalties for fraud, conspiracy, and financial elder abuse. They also seek a court order freezing Entrust and Equity’s assets.
Their lead counsel is L. Timothy Fisher with Bursor & Fisher of Walnut Creek.
Here are the defendants: The Entrust Group Inc., Entrust Administration Inc., Entrust New Direction IRA Inc. nka New Direction IRA Inc., Entrust Arizona LLC nka Vantage Retirement Plans LLC, and Equity Trust Co.