You would think that with all of the responsibility that goes with holding large amounts of cash, that intermediaries would be highly regulated, but they are not. There are no laws governing, or regulating, qualified intermediaries. Not any of the 50 states, and not the federal government. Nobody regulates intermediaries. Nobody.

So it should come as no surprise that there have been abuses involving theft of clients exchange money. There are two ways that intermediaries hold money for their clients: a commingled account where all of the clients money is combined into one account (probably 95% of the intermediaries use commingled accounts), and separate, or segregated accounts where each clients money is put into its own account.

In each instance of theft of client's money by the intermediary that I can find, the intermediary dipped into a commingled account. In a recent case in Minnesota, the intermediary filed bankruptcy after depleting the commingled account through day trading losses.

The court subsequently ruled that, because the intermediary held money in a commingled account, the account was an asset of the intermediary company and the small amount remaining in the account could be used to pay other creditors, including, for example the landlord. In addition, because the commingled account was determined to be an asset of the company, all clients who had completed their exchanges in the 90 days before the bankruptcy had to send their money back to also be used for the other creditors.

How do you protect yourself? Make sure that your exchange money goes into an account with only your money in it. As soon as your exchange is completed, verify with the bank that only your money is in the account. And then, from time to time, check on it to make sure that it is still there. Our company is one of the few companies that put every client's money in its own separate account. In addition, we are the only company in the Nation to offer 1031Access™. 1031Access allows every one of our clients to come through a secret portal in our web site, and using their private password, view their account at the bank. They can see, 24/7, everything that has come into, or gone out of the account, including all of the interest the account has earned, and the interest rate the bank is paying the client on the account.

Like the court said, "caveat exchanger," or exchanger beware!