The FBI warns about Binary Options Fraud

AsstModerator

FPA Forums and Reviews Admin
First, I'd like to thank Simona Weinglass of the Times of Israel for writing about this. I don't have time to visit every regulator's website every day. I'd also like to thank FPA member Keysha for sending me a message about it.

Here's the full text of what the FBI has to say about Binary Options...

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:

  • 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)


Original post on the FBI website

Simona's Article in the Times of Israel
 

Pharaoh

Colonel
It's great that the FBI is taking more interest in dealing with binary frauds. From what I can tell, they want reports from victims around the world instead of only from US citizens and residents.

If you've been scammed by a binary broker:

1. Gather your evidence. Anything about where money sent to the broker really went (bank wire instructions, info on credit card charges, etc. could be very important in tracking these scammers).

2. Open a thread in Scam Alerts.

3. Leave a shiny 1 Star review for the broker.

4. File complaints with:

a. The ISA - www.isa.gov.il/sites/ISAEng/CONTACT/Pages/default.aspx

b. The FBI - www.ic3.gov

c. The CFTC - www.cftc.gov

d. The SEC - www.sec.gov

e. eConsumer - www.econsumer.gov

f. Your local financial regulators - ask your local police and bank or else look them up here.

g. Any regulator or registry the binary company claims to belong to.

5. Some of these places you report to will give case/complaint numbers. Add those to your Scam Alerts thread so that other people complaining about the same company can refer to your complaints.
 

MartinH

Recruit
It's great that the FBI is taking more interest in dealing with binary frauds. From what I can tell, they want reports from victims around the world instead of only from US citizens and residents.

If you've been scammed by a binary broker:

1. Gather your evidence. Anything about where money sent to the broker really went (bank wire instructions, info on credit card charges, etc. could be very important in tracking these scammers).

2. Open a thread in Scam Alerts.

3. Leave a shiny 1 Star review for the broker.

4. File complaints with:

a. The ISA - www.isa.gov.il/sites/ISAEng/CONTACT/Pages/default.aspx

b. The FBI - www.ic3.gov

c. The CFTC - www.cftc.gov

d. The SEC - www.sec.gov

e. eConsumer - www.econsumer.gov

f. Your local financial regulators - ask your local police and bank or else look them up here.

g. Any regulator or registry the binary company claims to belong to.

5. Some of these places you report to will give case/complaint numbers. Add those to your Scam Alerts thread so that other people complaining about the same company can refer to your complaints.
Why is it the UK law enforcement agencies are not interested in this online fraud. If you report to Action Fraud they do nothing. Good on the rest of the world.
 
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F***X

Sergeant
Well that's a bit better news that Government is interested in these scammers but there's much more that needs to be done.
For example, instead of absurd regulations like FIFO, etc. the banking industry should be put on notice: if banks provide a service to scammers that refuse to process withdrawals then the banks that received these client funds could be held liable.

These detrimental regulations such as FIFO, no hedging, no leverage etc.. regulations have done nothing but drive investors and traders to look overseas to restore some normalcy and freedom of choice.

Thus defeating the purpose: the Government is ineffective against bandits that get away with stealing someone's life savings, lets' change that!
 
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