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Questions For A Custodian After Scams Hit I.r.a.’s

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http://www.nytimes.com/2009/07/25/business...mp;ref=business

Three unrelated Ponzi schemes, including Bernard L. Madoff’s, erased more than $1 billion from hundreds of individual retirement accounts set up through a single financial company.

At a minimum, this coincidence would appear to be a mystery worthy of investigation by regulators. After all, that financial company is part of an important industry that is supposed to help keep America’s retirement savings safe from crooks like Mr. Madoff.

But so far, no one prosecuting those three giant frauds appears to be asking why Mr. Madoff and two other large-scale swindlers steered virtually all of their victims to a single company: Fiserv, a giant in the I.R.A. service industry until it sold the business last year and still a prominent provider of bank and credit technology services.

The company, which is still responsible for legal issues that arose during its ownership, said it bore no blame at all for the losses its customers incurred in these various Ponzi schemes.

But the relative silence on the matter from a variety of financial regulators suggests how little attention government watchdogs have paid to a business whose protections many Americans take for granted.

“If you had asked me, point-blank, whether there could be any I.R.A. money lost in these Ponzi schemes, I’d have said ‘no,’ †said Mercer Bullard, a law professor at the University of Mississippi.

Given the protections he assumed would be in place, he said, tapping into I.R.A. accounts “would be almost like running your Ponzi scheme through the police department.â€

Mr. Madoff was not the only criminal who ripped off I.R.A. accounts set up through various units of Fiserv. Fiserv customers were also victims of a Florida con artist, Louis J. Pearlman, a music impresario who ran the Backstreet Boys and N’Sync before being jailed last year for a huge fraud he ran largely through a company called Transcontinental Airlines.

And other Fiserv clients were swindled by Daniel Heath, a Bible-quoting promoter in Southern California, who was convicted early last year after defrauding hundreds of elderly churchgoers attracted to his seminars by offers of a free lunch.

All three con artists preyed on an increasingly popular kind of retirement account, the self-directed I.R.A. — a misnomer that usually refers to I.R.A.’s that are invested in a range of assets beyond traditional stocks, bonds and mutual funds.

A person who sets up a self-directed I.R.A. picks the investments — anything from real estate to hedge funds to commodities. The investor then typically relies on a support firm, called an I.R.A. custodian, to follow those directions, make the purchases and do the administrative work.

According to interviews and court records, Mr. Madoff, Mr. Heath and Mr. Pearlman all told their victims to use various units of Fiserv as their I.R.A. service firm.

“From the beginning, that was the only firm that Madoff recommended,†said Peter Moskowitz of Corona, Calif., one of dozens of Madoff victims who said they were directed to a Fiserv unit called Retirement Accounts.

“Once, when I wanted to change, they told me ‘absolutely not’ — they would only deal with Fiserv,†he added.

In the Madoff fraud, about $1 billion was lost from self-directed I.R.A.’s set up through Fiserv. The Heath and Pearlman scams took hundreds of millions more from other Fiserv customers.

To be sure, Fiserv’s past expansion may have made its presence in all three scandals more likely. “Over the years, we acquired several companies that act as custodians for individuals with self-directed I.R.A.’s,†said Judy Wicks, a spokeswoman for Fiserv.

Pending lawsuits that blame the company for investor losses in these frauds “have no merit whatsoever,†Ms. Wicks added. “Fiserv intends to vigorously defend against the assertions contained in the complaints.â€

Unbelievable.

The regulators have been on the ball again with this.

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