Poor Self-Directed IRA Investment Leading to Total Loss

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Topic Author
Spur08
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Joined: Wed Aug 10, 2016 7:20 pm

Poor Self-Directed IRA Investment Leading to Total Loss

Post by Spur08 » Mon Jan 13, 2020 9:27 am

I'm not sure which forum this belongs in, but I'll start here and go from there.


I made a very foolish, non-Boglehead type of investment. The regret I have is indescribable and now I’m just trying to fully understand the consequences I should be expecting.

I took a portion of a rollover IRA that I had and invested it into a self-directed IRA. The fund and business that I invested in did okay at the start, but then quickly devolved to what I believe is a total loss. The fund manager has made accusations against 2 people, stating they mismanaged and, possibly, committed fraud/crimes (one of which was non-payment of taxes) during their management of the business. They have all essentially filed suit against each other stating the other is at fault.

I’m expecting my money is lost, but what I’m trying to understand is whether or not I am going to be out additional funds based on their lawsuits and/or non-payment of taxes. If additional details are needed, the business was, essentially, a corporate-type contracting business. I was invested into a LLC-type “fund”, which was likely 1 of 3 or 4 funds that were used to purchase the business.

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ResearchMed
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Joined: Fri Dec 26, 2008 11:25 pm

Re: Poor Self-Directed IRA Investment Leading to Total Loss

Post by ResearchMed » Mon Jan 13, 2020 9:40 am

Spur08 wrote:
Mon Jan 13, 2020 9:27 am
I'm not sure which forum this belongs in, but I'll start here and go from there.


I made a very foolish, non-Boglehead type of investment. The regret I have is indescribable and now I’m just trying to fully understand the consequences I should be expecting.

I took a portion of a rollover IRA that I had and invested it into a self-directed IRA. The fund and business that I invested in did okay at the start, but then quickly devolved to what I believe is a total loss. The fund manager has made accusations against 2 people, stating they mismanaged and, possibly, committed fraud/crimes (one of which was non-payment of taxes) during their management of the business. They have all essentially filed suit against each other stating the other is at fault.

I’m expecting my money is lost, but what I’m trying to understand is whether or not I am going to be out additional funds based on their lawsuits and/or non-payment of taxes. If additional details are needed, the business was, essentially, a corporate-type contracting business. I was invested into a LLC-type “fund”, which was likely 1 of 3 or 4 funds that were used to purchase the business.
You wrote: "The fund and business that I invested in..."

Did you actually invest in the business, or just in the "fund" (although it isn't clear how this "fund" is structured).
Were you any type of partner or LLC member?

RM
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Dottie57
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Re: Poor Self-Directed IRA Investment Leading to Total Loss

Post by Dottie57 » Mon Jan 13, 2020 9:43 am

Doesn’t an LLC limit liability? If true, you lost money you invested, but that should be all. Others will come along and correct me if wrong. Check any documents you signed.

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ResearchMed
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Re: Poor Self-Directed IRA Investment Leading to Total Loss

Post by ResearchMed » Mon Jan 13, 2020 10:00 am

Dottie57 wrote:
Mon Jan 13, 2020 9:43 am
Doesn’t an LLC limit liability? If true, you lost money you invested, but that should be all. Others will come along and correct me if wrong. Check any documents you signed.
I'm not sure that protection applies in all circumstances (corporate veils can be pierced, after all), and especially if there is fraud.
One could imagine all sorts of mischief otherwise.

RM
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Spur08
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Re: Poor Self-Directed IRA Investment Leading to Total Loss

Post by Spur08 » Mon Jan 13, 2020 10:11 am

I invested only in the LLC fund and had no participation in the management of the business. Per the docs, I am a "Class A" member/investor. The "Class B" member is the Manager.

Also, to my knowledge, the 2 persons alleged to have committed the fraud are not part of this LLC and, rather, have their own LLC funds that invested in the business.
Last edited by Spur08 on Mon Jan 13, 2020 10:15 am, edited 1 time in total.

Dottie57
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Re: Poor Self-Directed IRA Investment Leading to Total Loss

Post by Dottie57 » Mon Jan 13, 2020 10:13 am

ResearchMed wrote:
Mon Jan 13, 2020 10:00 am
Dottie57 wrote:
Mon Jan 13, 2020 9:43 am
Doesn’t an LLC limit liability? If true, you lost money you invested, but that should be all. Others will come along and correct me if wrong. Check any documents you signed.
I'm not sure that protection applies in all circumstances (corporate veils can be pierced, after all), and especially if there is fraud.
One could imagine all sorts of mischief otherwise.

RM
As you mentioned up thread - op may have invested in a fund or business. If he invested in a business, that could be problematic. If invested in a fund, well maybe a problem.

Eta - only invested in the fund. So I think you have no liability.

Topic Author
Spur08
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Joined: Wed Aug 10, 2016 7:20 pm

Re: Poor Self-Directed IRA Investment Leading to Total Loss

Post by Spur08 » Mon Jan 13, 2020 11:23 am

Thank you, all.

I'm sad it took this event for me to learn a harsh lesson. As a result, I've maxed out my 4o1K contributions to catch-up as best I can and have now defaulted to indexing investment strategies.

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