Binary Options Fraud

A Word of Warning to the Investing Public

Stock image depicting stock prices with a red arrow pointing down and a green arrow pointing up in foreground.

Stock options. It's a pretty common investment term meaning, in full general, that one party sells or offers to another party the opportunity to invest by buying a particular stock at an agreed upon price inside 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 hazard.

Merely here's another like-sounding financial term that the public should exist wary of—binary options. While some binary options are listed on registered exchanges or traded on a designated contract market place and are subject area to oversight by U.S. regulators like the Article Futures Trading Commission (CFTC), much of the binary options market operates through websites that don't comply with U.South. regulations. And many of those unregulated websites are being used by criminals exterior 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 Net Crime Complaint Middle (IC3) received four complaints—with reported losses of just more $twenty,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 existence fleeced to the IC3—the true extent of the fraud, which has victims around the world, isn't fully known. Some European countries accept reported that binary options fraud complaints now constitute 25 percent of all the fraud complaints received.

What exactly is a binary option? It'south a type of options contract in which the payout depends entirely on the outcome of a aye/no proffer, typically related to whether the price of a detail nugget—like a stock or a commodity—will rise higher up or fall below a specified amount. Different 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 exist to a higher place or below a certain amount by a sure fourth dimension of the 24-hour interval.

For instance: You expect the price of an private stock will be higher up $80 at 3:30 p.thousand. today. So you purchase a binary option that allows you to place this bet at a cost of $60. If, at three:30 p.g., the stock price is $80.01, your payout is $100, for a profit of $40. If the cost of the stock at 3:30 is $79.99, you lose your $60. Of form, you lot can buy multiple binary options, which tin can significantly increase your winnings likewise as your losses.

And so where does the fraud come into it? The perpetrators backside many of the binary options websites, primarily criminals located overseas, are merely interested in 1 thing—taking your coin. Complaints about their activities more often than not 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 client telephone 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'south license, utility bills, or other personal data. This data 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 past distorting prices and payouts. For example, if a customer has a winning merchandise, the expiration time is extended until the trade becomes a loss.

Fraudulent binary options website operators become to great lengths to recruit investors. They advertise their platforms—often on social networking sites, various trading websites, bulletin boards, and spam e-post—with large promises of easy money, low run a risk, and superior customer service. Potential investors are too cold-called from boiler room operations, where high-pressure level salespeople use banks of phones to make as many calls equally possible to offer "one time-in-a-lifetime" opportunities.

What's being washed to combat binary options fraud? The FBI currently has a number of ongoing binary options fraud cases, working with partners similar the CFTC and the Securities and Exchange Committee (SEC). And this by January, the Agency organized the 2017 Binary Options Fraud Tiptop held at Europol in The Hague, bringing together law enforcement and regulators from throughout N America and Europe to discuss the growing binary options fraud problem.

Special Agent Milan Kosanovich, who works out of our Criminal Investigative Division'due south Circuitous Financial Crimes Unit, was one of the FBI'south representatives at this gathering. "The tiptop," he said, "gave all of the states the chance to sit down and talk about what nosotros'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 police force enforcement faces, according to Kosanovich, is the fact that the scammers are sophisticated and have operations spanning multiple countries. "So the central to addressing this type of fraud," he connected, "is national and international coordination between regulatory agencies, police force enforcement, and the fiscal industry."

Some other important factor, said Kosanovich, is investor sensation and education. "Investors need to be aware of the significant potential for fraud on binary options websites, and they demand to make sure they do their due diligence before ever placing that first trade or bet."

What Can Yous Do to Avoid Being Victimized

  • Brand sure that the binary options trading platform you're interested in has registered its offer and auction of its products with the SEC. (Registration provides investors with central information about the terms of the products being offered). To exercise this, yous can use the Security Exchange Commission's (SEC) EDGAR Visitor Filing website.
  • Bank check to see if the trading platform itself is registered as an exchange at the SEC'due south 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.South., but only two are currently authorized to practise so by the CFTC.
  • Bank check out the registration status and background of any firm or fiscal professional you are considering dealing with. You tin can do this through the Financial Industry Regulatory Agency's BrokerCheck website and the National Futures Association Background Affiliation Status Data 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, amid other things, binary options.
  • Finally, don't invest in something you don't understand. If you tin can't explain the investment opportunity in a few words and in an understandable manner, you may need to reconsider the potential investment.

Source: Investor.gov (SEC'due south Office of Investor Instruction and Advocacy/CFTC'southward Function of Consumer Outreach)