IRAs subject to government forfeiture?

[Gudgergirl]

Have several clients with IRAs. Their IRA custodian has just been indicted for operating a ponzi scheme. Government is searching for assets. Would clients' IRAs be subject to government forfeiture?

[J Simmons]

Contributed amounts shouldn't be; they're held in trust by the custodian. 'Earnings' paid from later ponzi contributors might be subject to claw back.

[mbozek]

Have several clients with IRAs. Their IRA custodian has just been indicted for operating a ponzi scheme. Government is searching for assets. Would clients' IRAs be subject to government forfeiture?

You need to provide more information on what assets the government is searching for and whether they were innocent investors or insiders. If the clients invested IRA assets in the Ponzi scheme, recovery of their losses on their investment will be subject to whatever the bankruptcy trustee collects on their behalf. However if the clients profited from the Ponzi scheme then they may have to give back their profits. For example, in the Madoff ponzi scheme some innocent investors received more in total distributions than they paid into the Madoff fund as an investment The trustee is seeking a return of the excess funds on the basis of equity, i.e., the recovery of all investors should be treated equally based on the amount they invested. Other Madoff inside investors received returns of 50% or more per year on their principal and the trustee claims that they should have known that the payments were from a Ponzi scheme and not a legitimate investment. Google litigation on Sterling investments and Stanley Chais.

The clients would also be required to repay distributions received that were a "fraudlent conveyance" or a voidable transfer under the bankruptcy law. The statute of limitations for commencing an action for a fraudlent conveyance is 2 years from the bankruptcy filing while the s/l for a voidable preference is only 90 days.

What government agency is looking for assets? Is it the bankruptcy trustee, the SEC, SIPC?

Note: state laws that protect IRA assets from creditors claims do not apply to a fraudlent conveyance. I dont know about claims for recovery made by the bankruptcy trustee under a claim of equity or another government official.