I have someone who invested $250,000 with a hedge fund in a SEP-IRA.  Long story short:  the account value went to zero by selling naked call options, and the clearing firm is saying he owes an additional $125,000 to cover further losses. This is a bad story.  I am trying to find the authority/source on what might prevent an IRA from engaging in selling naked call options.  When looking around online, it appears that most commentators say it’s not allowed and that it’s even “illegal”, but I cannot seem to find the regulation or source to confirm this.  Is the prohibition determined by the broker-dealer or is it a prohibited transaction by regulation, rule, or statute?  And would it make a difference if the client is an accredited investor or the account was being managed by an advisor on a discretionary basis?…in this case, a hedge fund.  A further concern is that, if selling naked call options is a prohibited transaction in an IRA, could this account be deemed by the IRS to have been distributed once a naked call option was sold – and therefore piling a tax liability on top of the other two losses?