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prohibited transaction?


randagulp

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-investment manager/broker for bank screws up by executing a trade twice

-gets the administrative people at the bank to fix the loss by carrying out transaction on his own personal IRA

-is this a prohibited transaction? has he "dealt with the assets of a plan for his own account"?

Also, where is the best place to find examples of prohibited transactions in self-directed IRAs? ERISA cases, DOL Advisory Opinions, Private Letter rulings? I'm having trouble finding official sources that give examples.

Thanks in advance for any responses.

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Am I missing something here? Why would the investment manager/broker involve his own assets when the liability for the error (if any) belongs to the bank?

And how would executing some sort of transaction in an account unrelated to the account affected by the error "fix the loss"?

Always check with your actuary first!

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I understood it as follows:

The manager ordered the sale of certain stock (we'll say Stock A), which was sold from various accounts he managed.

To ensure the sale took place, the manager had placed a "back-up" order for the sale, which he forgot to cancel. This resulted in the bank selling twice as much Stock A as intended. When he realized the error, the manager directed the bank to debit the Stock A in his personal IRA to "cover" the second sale. Essentially, he used the Stock A in his own IRA to make the bank whole, as the bank had sold assets it wasn't supposed to.

I have no idea why the investment manager decided to take the loss upon himself. He's currently acting as an independent contractor for the bank, and was brought on fairly recently, so best I can guess is that he was embarrassed at the gaffe and didn't want to report it, so tried to cover it himself.

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I understood it as follows:

The manager ordered the sale of certain stock (we'll say Stock A), which was sold from various accounts he managed.

To ensure the sale took place, the manager had placed a "back-up" order for the sale, which he forgot to cancel. This resulted in the bank selling twice as much Stock A as intended. When he realized the error, the manager directed the bank to debit the Stock A in his personal IRA to "cover" the second sale. Essentially, he used the Stock A in his own IRA to make the bank whole, as the bank had sold assets it wasn't supposed to.

I have no idea why the investment manager decided to take the loss upon himself. He's currently acting as an independent contractor for the bank, and was brought on fairly recently, so best I can guess is that he was embarrassed at the gaffe and didn't want to report it, so tried to cover it himself.

Alas! Trying to cover things up only makes them worse.

Always check with your actuary first!

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...the manager directed the bank..."

Perhaps the IRA owner, and anyone else observing this situation, will think twice about the questionable control procedures here.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I agree with you both.

Any legal guidance here?

Does there need to be a deemed distribution of the IRA because this was a prohibited transaction? (See Code Sec. 408(e)(2)).

Any DOL/IRS sources I can look to for examples?

Thanks.

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Whose interests do you represent? From the perspective of the manager, who would not like to conclude that a prohibited transaction occurred, I think someone who has appropriate skills and knowlege should analyze the events. From the sketchy facts presented, I can narrate to a conclusion that the IRA simply distributed Stock A to the manager. The distribution is taxable, and may involve an early distribution penalty, but there is no prohibited transaction.

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Representing the bank.

We do not want a prohibited transaction, so I agree, the picture we want to paint is that the IRA simply distributed Stock A to the manager.

I was just hoping that by some stroke of luck someone had come across an ERISA case or official DOL/IRS guidance supporting our position, as my research has turned up nil. There might just not be anything out there...

Thanks for all the responses.

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