Victims in Rick Siskey case had accounts at Kansas IRA firm | Charlotte Observer

Mainstar Trust’s website could belong to any upscale Wall Street financial services firm, complete with an explanation that it’s “the trusted guide for alternative, cost-effective retirement solutions.”

But the company is actually located in rural Kansas. Until 2016, it was known as First Trust Company of Onaga, after its hometown (population 702), about two hours northwest of Kansas City. It’s housed in a one-story office building with an unpaved parking lot.

Mainstar’s customers included dozens of Charlotte investors who have become entangled in the Rick Siskey Ponzi scheme case. They invested their retirement money with Siskey, but the Kansas company – which hasn’t been accused of wrongdoing – served as the custodian of their individual retirement accounts, handling statements and paperwork for the IRS.

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The Siskey case has highlighted the role that lightly regulated companies such as Mainstar play in the retirement savings business. These companies allow investors to make riskier investments but say they play no role in vetting the actual assets.

Billy Packer, a former CBS college basketball announcer who lives in Charlotte, is among the Siskey investors trying to get money back in a federal bankruptcy court case. He said he and other investors were shocked when they saw a photo of Mainstar’s Kansas office during a Google Maps search.

“We thought we were getting first-class representation,” said Packer, who is seeking to get back about $400,000 in bankruptcy court. “You assume this is a Wall Street firm. It doesn’t mean that if somebody’s got a bad building that they can’t be smart, but it doesn’t make any sense to me.”

He wouldn’t comment further about his case, which is part of ongoing litigation.

Mainstar did not respond to multiple requests for comment.

Warnings from regulators

Siskey, 58, took his own life in December 2016, shortly after public filings alleged he was involved in fraud. For years, the Charlotte businessman had sold insurance and other financial services to wealthy customers from his SouthPark office.

For more than a year, a court-appointed trustee has been unraveling the case in federal bankruptcy court, working to gather assets and figure out claims that can be paid to investors. A “high percentage” of the victims are beyond retirement age and lost their life savings, trustee Joe Grier has said in court filings.

Of the initial $51 million in claims in the case, about $17 million, or about one-third, had been held in accounts administered by Mainstar, according to documents obtained by the trustee. Three investors also had accounts with an Ohio-based company called Equity Trust, which did not return calls seeking comment.

Grier, the trustee, wouldn’t comment about Mainstar’s role in the case. He has indicated that investors may eventually get back their “base claims,” which exclude promised interest and money they already got back – and could potentially get back more.

Companies such as Mainstar allow investors to maintain “self-directed” individual retirement accounts where they can put money in alternative investments such as real estate, rather than more mainstream stocks and mutual funds. While self-directed IRAs are a small portion of total IRAs, investors hold as much as $94 billion in them, according to some estimates.

Mainstar’s website explains that a self-directed IRA lets people put their money in a range of investment types while taking advantage of tax deductions and other benefits. The site notes, however, that “by providing custody services, Mainstar Trust is not making any judgment as to the quality or suitability of any investment.”

The company also “shall have no liability for any loss or damage that may result from or be associated with any requested investment transaction,” according to account documents.

In 2011, federal and state securities regulators warned investors of the potential risks associated with self-directed IRAs, saying they had noted an increase in complaints about fraudulent investment schemes that used these types of IRAs as a “key feature.” The regulators said they had investigated numerous cases where a self-directed IRA was used to lend credibility to a Ponzi scheme.

Investors “should understand that the custodians and trustees of self-directed IRAs may have limited duties to investors, and that the custodians and trustees for these accounts will generally not evaluate the quality or legitimacy of an investment and its promoters,” the alert added.

Complex history

Mainstar has a complex corporate history, documents show.

According to its website, the company has “specialized in providing quality non-discretionary custodial services for self-directed IRAs” since 1978. But First Trust Company of Onaga was incorporated in 2002, Kansas Secretary of State documents show.

The 1978 citation appears to be a reference to a banking institution called Morrill Bancshares, based in Sabetha, Kan. First Trust Company of Onaga was a wholly owned subsidiary of Morrill Bancshares until Dec. 31, 2005, when “this investment was ‘spun off’ to the parent company shareholders,” according to a report filed with the Federal Reserve Bank of Kansas City. In 2008, the Kansas City Business Journal reported that the co-owners of a trust company in Overland Park, Kan., called Benefit Trust purchased First Trust of Company of Onaga for an undisclosed amount. Those co-owners either declined to comment or could not be reached.

Mainstar has an active license with the State Bank Commissioner of Kansas, records show. Officials at the commission did not respond to requests for comment.

The company’s headquarters is at 214 W. Ninth St. in Onaga, according to its website and banking commission records. The low-slung building at that address is in a residential area apart from the town’s main street. Photos taken of the location recently showed there was one small noticeable sign out front, and it bore the company’s former name: First Trust Company of Onaga.

In a video from a June 2017 Angel Capital Association conference in San Francisco, Mainstar’s president, Jean Meyer, discussed how the company lets customers make “alternative investments” with their retirement money. The type of investments that angel investors make in early-stage companies “fit really great into that type of retirement planning,” she added.

For “many people the base of their wealth is in their retirement accounts,” Meyer said in the video. “So if somebody wants to invest in an angel investment the best source of their money is their 401(k) plan that they can rollover into an IRA and use the IRA to make that investment.”

Meyer did not respond to requests for comment.

As for Siskey investors such as Packer, they have been unable to take money out of their Mainstar accounts since the Ponzi scheme allegations became public. Late last year, they received letters that put a new fair market value on their accounts: zero.

Mark Davis of the Kansas City Star contributed

This story was originally published March 12, 2018 8:00 AM.