CANADIAN GOVERNMENT’S BLACK LIST:
FBI WARNING: Binary Options Fraud
A Word of Warning to the Investing Public
Stock options. It’s a pretty common investment term meaning, in general, that one party sells or offers to another party the opportunity to invest by buying a particular stock at an agreed upon price within a certain period of time. All perfectly legal and highly regulated—and if the investor takes advantage of the opportunity and the stock performs well, there’s money to be made. And if the stock doesn’t perform well, the investor knew the risk.
But here’s another similar-sounding financial term that the public should be wary of—binary options. While some binary options are listed on registered exchanges or traded on a designated contract market and are subject to oversight by U.S. regulators like the Commodity Futures Trading Commission (CFTC), much of the binary options market operates through websites that don’t comply with U.S. regulations. And many of those unregulated websites are being used by criminals outside the U.S. as vehicles to commit fraud.
Binary options fraud is a growing problem and one that the FBI currently has in its crosshairs. In 2011, our Internet Crime Complaint Center (IC3) received four complaints—with reported losses of just more than $20,000—from binary options fraud victims. Fast forward five years, and the IC3 received hundreds of complaints with millions of dollars in reported losses during 2016. And those numbers only reflect victims who reported being fleeced to the IC3—the true extent of the fraud, which has victims around the world, isn’t fully known. Some European countries have reported that binary options fraud complaints now constitute 25 percent of all the fraud complaints received.
What exactly is a binary option? It’s a type of options contract in which the payout depends entirely on the outcome of a yes/no proposition, typically related to whether the price of a particular asset—like a stock or a commodity—will rise above or fall below a specified amount. Unlike regular stock options, with binary options you’re not being given the opportunity to actually buy a stock or a commodity—you’re just betting on whether its price will be above or below a certain amount by a certain time of the day.
For example: You expect the price of an individual stock will be above $80 at 3:30 p.m. today. So you buy a binary option that allows you to place this bet at a cost of $60. If, at 3:30 p.m., the stock price is $80.01, your payout is $100, for a profit of $40. If the price of the stock at 3:30 is $79.99, you lose your $60. Of course, you can buy multiple binary options, which can significantly increase your winnings as well as your losses.
So where does the fraud come into it? The perpetrators behind many of the binary options websites, primarily criminals located overseas, are only interested in one thing—taking your money. Complaints about their activities generally fall into one of three categories:
The perpetrators behind many of the binary options websites, primarily criminals located overseas, are only interested in one thing—taking your money.
- Refusal to credit customer accounts or reimburse funds to customers. This is usually done by cancelling customers’ withdrawal requests, ignoring customer phone calls and e-mails, and sometimes even freezing accounts and accusing the customers themselves of fraud.
- Identity theft. Representatives of binary options websites may falsely claim that the government requires photocopies of your credit card, passport, driver’s license, utility bills, or other personal data. This information could potentially be used to steal your identity.
- Manipulation of trading software. Some of these Internet trading platforms may be reconfiguring the algorithms they use in order to purposely generate losing trades, often by distorting prices and payouts. For example, if a customer has a winning trade, the expiration time is extended until the trade becomes a loss.
Fraudulent binary options website operators go to great lengths to recruit investors. They advertise their platforms—often on social networking sites, various trading websites, message boards, and spam e-mail—with big promises of easy money, low risk, and superior customer service. Potential investors are also cold-called from boiler room operations, where high-pressure salespeople use banks of phones to make as many calls as possible to offer “once-in-a-lifetime” opportunities.
What’s being done to combat binary options fraud? The FBI currently has a number of ongoing binary options fraud cases, working with partners like the CFTC and the Securities and Exchange Commission (SEC). And this past January, the Bureau organized the 2017 Binary Options Fraud Summit held at Europol in The Hague, bringing together law enforcement and regulators from throughout North America and Europe to discuss the growing binary options fraud problem.
Special Agent Milan Kosanovich, who works out of our Criminal Investigative Division’s Complex Financial Crimes Unit, was one of the FBI’s representatives at this gathering. “The summit,” he said, “gave all of us the chance to sit down and talk about what we’ve discovered through our respective binary options fraud investigations, where the challenges are, and how we can all work together.”
One of the biggest challenges law enforcement faces, according to Kosanovich, is the fact that the scammers are sophisticated and have operations spanning multiple countries. “So the key to addressing this type of fraud,” he continued, “is national and international coordination between regulatory agencies, law enforcement, and the financial industry.”
Another important factor, said Kosanovich, is investor awareness and education. “Investors need to be aware of the significant potential for fraud on binary options websites, and they need to make sure they do their due diligence before ever placing that first trade or bet.”
What Can You Do to Avoid Being Victimized
- Make sure that the binary options trading platform you’re interested in has registered its offer and sale of its products with the SEC. (Registration provides investors with key information about the terms of the products being offered). To do this, you can use the Security Exchange Commission’s (SEC) EDGAR Company Filing website.
- Check to see if the trading platform itself is registered as an exchange at the SEC’s Exchanges website.
- Ensure that the trading platform is a designated contract market by checking the Commodity Futures Trading Commission’s (CTFC) Designated Contract Markets website. Thousands of entities promote binary options trading in the U.S., but only two are currently authorized to do so by the CFTC.
- Check out the registration status and background of any firm or financial professional you are considering dealing with. You can do this through the Financial Industry Regulatory Agency’s BrokerCheck website and the National Futures Association Background Affiliation Status Information Center.
- Take a look at the CFTC’s RED List, which contains the names of unregistered foreign entities that CFTC has reason to believe are soliciting and accepting funds from U.S. residents at a retail level for, among other things, binary options.
- Finally, don’t invest in something you don’t understand. If you can’t explain the investment opportunity in a few words and in an understandable way, you may need to reconsider the potential investment.
Source: Investor.gov (SEC’s Office of Investor Education and Advocacy/CFTC’s Office of Consumer Outreach)
Australian Government’s Warning
16-142MR ASIC warns investors about services advertised by Top Ten Binary Brokers also known as Top 10 Binary brokers.com (Top Ten Binary Brokers)
ASIC is warning the public not to use the Top Ten Binary Brokers website to sign up for any of the binary option services advertised.
ASIC is concerned that Top Ten Binary Brokers is offering unlicensed financial services in Australia:
- through various web advertising that is directed at Australians; and
- via websites such as http://www.toptenbinarybrokers.com/au and http://www.toptenbinarybrokers.com/au2 (Top Ten Binary Brokers Websites).
In addition, ASIC is concerned that the entities listed on the Top Ten Binary Brokers review website are, for the most part, also not licensed to provide financial services in Australia.
ASIC notes that the Top Ten Binary Brokers Websites purport to be a reputable review of the top binary option brokers that offer financial services to Australians.
Until adequate Australian licensing has been obtained by Top Ten Binary Brokers and by the brokers listed on the Top Ten Binary Brokers Websites , the Australian public should avoid signing up for any of the financial services listed on those websites.
We believe the advertising by Top Ten Binary Brokers and the information on the Top Ten Binary Brokers Websites is likely to mislead the Australian public into believing the entities listed are appropriately licensed and regulated in Australia. The public should avoid clicking on that advertising.
ASIC is satisfied that potential investors are likely to suffer detriment as a result of being misled.
ASIC has made numerous attempts to contact Top Ten Binary Brokers but there has been no response to any of our requests.
ASIC is also satisfied that it is in the public interest to warn the public about the conduct of Top Ten Binary Brokers.
Canadian provincial regulator, the Manitoba Securities Commission (MSC), has issued an alert, warning the public against investing with unregistered binary options broker TorOption, according to a regulatory statement.
The brokerage, which operates online at www.toroption.com and is owned and operated by Smart Choice Zone LP provides investors and traders with the ability to trade stocks, currency pairs, commodities and indices on the exotic options market.
TorOption is, however, not registered to sell securities in Manitoba, or anywhere else in Canada, and has therefore failed to comply with provincial securities laws.
In its capacity as one of Canada’s provincial regulators, MSC seeks to protect investors while promoting fair and efficient capital markets throughout the province. The regulator website provides information, tools and resources for investors, including investor warnings about individuals and companies that appear to be engaging in unauthorized activities.
In response to escalating binary options scams, provincial and territorial securities commissions across Canada have formed a task force and launched a new dedicated website to crack down on its aggressive marketing tactics, cloning and false claims of regulation.
In addition to the Binary Options Task Force, the Canadian Securities Administrators (CSA), comprised of the country’s thirteen key financial market regulators across their respective provinces, launched a new resource site, www.BinaryOptionsFraud.ca. The move is part of a campaign to educate Canadians about the binary options scams.
The initiative against binary options activities comes after the Canadian watchdogs received more than 800 reports and inquiries from investors in 2016 alone, saying the schemes have the become nation’s most widespread securities fraud targeting the general public, namely to retail investors.
GOVERNMENT OF MANITOBA PROVINCE, CANADA WARNING
FOR IMMEDIATE RELEASE
APRIL 18, 2016
Social media ad leads another Manitoban to financial peril
Winnipeg – The Manitoba Securities Commission (MSC) is cautioning the public on investing with so-called ‘Binary Options’ firms. MSC recently received a complaint regarding fmtrader.com, a company purportedly located in Cyprus and Belize, which is not registered to sell securities in Manitoba, or anywhere else in Canada. The company is not in compliance with provincial securities laws. This is one of a growing number of recent complaints regarding Binary Option firms.
“We recently spoke with a Manitoba resident who had invested $28,000 in Binary Options trades after discovering FMTrader through an ad on social media,” said Len Terlinski, investigator with MSC. “This investor was attracted by the promise of ‘risk-free trading,’ and ‘high profits.’ After investing $5,000 in cash and $23,000 via credit cards, the investor was told he couldn’t withdraw any money until he’d placed a minimum $1,000,000 in trades. Based on previous cases involving Binary Options, it is very unlikely this 24-year-old will be able to recover any of his investment.”
This year, Manitobans have reportedly lost nearly $160,000 to unregistered, offshore Binary Options firms, trading under a variety of names. MSC suspects losses may be higher due to unreported cases.
Binary Options are a sort of ‘wager’ where investors bet on the performance of an underlying asset, often a currency, stock index or share, usually in a short period of time—sometimes minutes or even seconds. When that period is up, the investor receives a predetermined payout or loses his wager. It’s an “all or nothing” proposition. With some of these offshore investments, no actual trading takes place and it is just a tactic used to steal an investor’s money. A request to send your money offshore to an unregistered firm is a red flag for investment fraud.
MSC advises all investors to follow these tips to prevent becoming a victim of investment fraud:
- Never send money to anyone you only know from an unsolicited phone call or email
- Never give out sensitive personal information online or over the phone
- Research an investment before making a commitment
- Make sure the firm and individual you are dealing with are registered in Manitoba by checking their registration status at recognizeinvestmentfraud.com
Investors who believe they’ve been approached by an unregistered individual or firm are encouraged to contact MSC immediately at 1-855-FRAUD-MB to file a complaint or speak with an investigator.
The Manitoba Securities Commission is a division of the Manitoba Financial Services Agency, a Special Operating Agency of the Government of Manitoba that protects investors and promotes fair and efficient capital markets throughout the province.