(5) Roth IRA association with Clarium Capital. As I mentioned above, I have reviewed some documents relating to Mr. Thiel`s New Zealand residence visa application. In one part, Mr. Thiel`s representative discusses Roth IRA`s investments. It describes how, starting in 2005, Roth IRA`s main investment was made through Clarium Capital, LLC. Clarium Capital LLC has been described as an “offshore feeder fund” for Clarium LP, a hedge fund. Clarium LP was managed by Clarium Capital Management LLC, of which “Mr. Thiel is 100% owned.” This means that Clarium Capital Management LLC was definitely a “disqualified person” (because Mr. Thiel owned more than 50%). From an IRA legal perspective, I`m concerned that if Roth IRA were to invest heavily in Clarium Capital LLC, it would likely result in more management fees (and deferred interest) for Clarium Capital Management LLC.
In return, there could at least be a personal benefit to Mr. Thiel (individually) of his Roth IRA investing in Clarium Capital LLC (via more fees/carry that comes from Clarium Capital Management LLC). If one of my clients suggested this kind of interaction between their Roth IRA and their hedge fund, I would be extremely concerned about the problems with prohibited trading. (3) Application for a New Zealand residence visa. The ProPublica article, while discussing Mr Thiel`s application to reside in New Zealand, said: “Thiel transferred $749,967 to a bank in New Zealand and kept it under Roth`s umbrella.” This phrase caught my attention because I`ve had clients in the past who have suggested that their IRA could invest in a foreign country, and one of the benefits of that investment would be that they would get residency status (or citizenship) abroad. From the legal point of view of the IRA, the problem with this concept is that the investment of an IRA is not currently intended to personally benefit the IRA account holder (or any other disqualified person) – the only benefit is rather in the future (if the IRA account holder receives a personal distribution of the IRA in his 60s, 70). 80s, etc.). For this reason, for example, it is prohibited to use a self-directed IRA to purchase vacant land next to your home and build a driveway across the property – i.e.
the purchase of the property by the IRA is not a direct financial interaction with a disqualified person, but it is still prohibited because the disqualified person benefits from the transaction (now or in the future). In Mr Thiel`s case, the use of Roth IRA`s assets in support of his application for a New Zealand residence visa provided him with a personal advantage and therefore constituted a prohibited transaction. [Note: Documents related to Mr. Thiel`s New Zealand visa application were obtained from Matt Nippert of the New Zealand Herald as part of a public information request. In the documents, Jason Portnoy (Mr. Thiel`s financial representative) talks at length about Mr. Thiel`s Roth IRA. For the purposes of this blog post, I assume that the information provided by Mr. Portnoy to the Government of New Zealand was accurate]. When I read the ProPublica article, I was obviously curious about whether Mr. Elliott had used any of my comments and/or quotes. In reality, my contribution was minimal – especially because the article focused its outrage on the idea that Peter Thiel is ripping off the federal government and therefore also the common man.
However, I also saw many references in the article to “facts” (at least when I consider ProPublica`s reports and apparent access to confidential tax information to be 100% accurate) that raise important questions about whether Peter Thiel`s Roth IRA remains legally valid. The purpose of this blog post is to discuss some of these potential legal issues. Given that Peter Thiel was one of the six founders, it is extremely unlikely that he owned more than 50% of the company`s shares, but he was the CEO of PayPal, so certainly a senior executive, probably a director, and probably more than 10% shareholder at the time of the share purchase. While the definition of the first disqualification in the tax code is quite clear, the second reads a little heavier and seems to be read as “not an officer, director or shareholder at 10%” or “not an officer, director or shareholder at 10% of a company that owns 50% of the company”. While I am not sure how to correctly interpret the wording of the second definition, there is certainly a legal precedent for these transactions. Consider this your just warning that I`m not 100% clear about exactly how you do this thing, and there are a whole bunch of question marks and legal gray areas where you might run into the IRS (which is probably a bad idea, especially now that you`re going to get a lot of the investment to investigate tax evaders). and I`m not a CPA or a tax lawyer either, so be very clear that none of this is tax advice. The keystone of the maneuver is an investment vehicle called a self-directed IRA (SDIRA). Self-directed IRAs can fit into both Roth and traditional flavors like a regular IRA, but where non-self-directed IRA funds can typically only be invested in publicly traded securities, SDIRA can be used to invest in a range of alternative investments such as precious metals, real estate and, you guessed it, private companies.
(4) Family Trust Company as custodian of Roth IRA. The ProPublica article refers to the fact that the custodian of Mr. Thiels Roth`s IRA (presumably several Roth IRAs) switched from PENSCO Trust Company to Rivendell Trust Company, which ProPublica refers to as a “family trust company” in 2019. A quick online search reveals that Rivendell Trust is run by many consultants who have worked for Mr. Thiel in the past. It is believed that 100% ownership of Rivendell Trust is in the hands of M. Thiel and/or business units or trusts associated with Mr. Thiel. If so, I wonder if Rivendell Trust is a “disqualified person”. However, aside from potentially prohibited transactions, if the Roth IRA pays fees (e.g. custodial fees, management fees, etc.) to a disqualified entity, I would also be concerned about the personal benefit to Mr. Thiel (individual).
If Rivendell Trust owns a Roth IRA (or a number of Roth IRAs) worth $5 billion, I assume Mr. Thiel benefits from that custody relationship in some way – for example, the fees paid by the Roth IRA for asset management. Conversely, if the Roth IRA is not charged for custody and/or asset management fees, I wonder if a “stuffing” transaction takes place [i.e. Mr. Thiel`s personal business units and consultants (who, by the way, could themselves be “disqualified parties”) offer services that have value for the IRA, but that value is left only in the Roth IRA. Maximizing growth even more].