A recent Wall Street Journal article, A Couple Stored IRA Gold at Home. They Owe the IRS More than $300,000, is a reminder about what can be complex rules for using an IRA to invest in esoteric assets, such as gold, silver, platinum, and other precious metals. Precious metals tax avoidance strategies and investment scams proliferate on the internet and social media. These scams are so common that the Commodity Future Trading Commission published a fraud advisory. According to the California Department of Financial Protection & Innovation, Department of Business Oversight Sues to Stop $185 Million Coins Scam that Targeted Senior Citizens | The Department of Financial Protection and Innovation, for example, the business behind metals.com targeted senior citizens through advertisements on conservative media and websites. Metals.com, according to the state, used fear tactics to pressure seniors to purchase overpriced coins through self-directed IRAs. The promotion of self-directed IRAs to hold esoteric or alternative investments is common in precious metals investing scams. These scams often combine bad tax advice with bad investment advice. They also often charge high fees, which in some cases are not disclosed. In some instances, the people and entities behind the investments are unlicensed. The Wall Street Journal article makes it clear that an investor considering using an IRA to invest in precious metals would be wise to obtain professional advice.
In an article about insider stock sales at publicly traded companies, the Wall Street Journal reported that the father of the CEO of Carvana, an online car dealer, sold $3.6 billion in company stock since October. Much of the sales took place while Carvana was losing money. The WSJ reported that Carvana had net losses of around half a billion dollars over the past six quarters and only reported its first quarterly profit in spring 2021. The WSJ’s article is available here.
According to the WSJ, Carvana’s ownership structure allows the family that founded the company to sell billions of dollar worth of stock but at the same time keep control. Like many other publicly traded companies, Carvana has different share classes—one available to certain insiders and another available to the public. The WSJ explained that each share held by Carvana’s CEO’s family counts for 10 votes, while each share held by members of the public is worth only one vote. Even after $3.6 billion in sales, the WSJ explained, Carvana’s CEO and his father still control more than 85% of all the voting shares.
The WSJ also reported that the CEO’s father sold the shares under what is known as a 10b5-1 plan. Often used by insiders, these plans are designed to purportedly prevent insiders from making trading decisions based on nonpublic information by automating the insider’s sale of company stock. Rule 10b5-1 creates an affirmative defense to insider trading, so long as the automated trading plan is adopted in good faith and at a time the insider does not possess material nonpublic information. Perhaps contrary to the intent of these plans, the WSJ reported that Carvana’s CEO’s father modified the plan twice over six months, while selling hundreds of millions of dollars worth of stock.
In a June 7, 2021 speech, SEC Chair Gary Gensler expressed concern about potential abuses of 10b5-1 plans. The speech can be found here. Chair Gensler said he asked SEC staff to consider “how we might freshen up Rule 10b5-1.” He raised the issue again on September 14, 2021, in testimony before the United States Senate Committee on Banking, Housing, and Urban Affairs. Chair Gensler told the committee that he asked SEC staff to recommend ways to tighten and modernize the rule “and fill perceived gaps in our insider trading regime.”