Binary Options Fraud

A Discussion 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. Information technology'due south a pretty common investment term significant, in general, that one party sells or offers to another party the opportunity to invest by ownership a detail stock at an agreed upon toll inside a certain menses of time. All perfectly legal and highly regulated—and if the investor takes advantage of the opportunity and the stock performs well, at that place's money to be made. And if the stock doesn't perform well, the investor knew the chance.

Merely here'south some other similar-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 and are bailiwick to oversight by U.S. regulators like the Commodity Futures Trading Commission (CFTC), much of the binary options marketplace operates through websites that don't comply with U.Due south. 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 ane that the FBI currently has in its crosshairs. In 2011, our Internet Criminal offence Complaint Center (IC3) received four complaints—with reported losses of just more than $20,000—from binary options fraud victims. Fast forwards 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 take reported that binary options fraud complaints at present establish 25 percent of all the fraud complaints received.

What exactly is a binary pick? 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 detail asset—like a stock or a commodity—will ascent above or fall below a specified amount. Unlike regular stock options, with binary options y'all're not existence given the opportunity to actually buy a stock or a commodity—y'all're just betting on whether its price will be above or beneath a certain amount by a sure time of the solar day.

For case: You wait the price of an individual stock volition be above $80 at 3:30 p.m. today. So you buy a binary option that allows y'all to place this bet at a cost of $60. If, at 3:30 p.grand., the stock price is $lxxx.01, your payout is $100, for a profit of $40. If the cost of the stock at three:xxx is $79.99, you lot lose your $lx. Of grade, you can buy multiple binary options, which can significantly increase your winnings as well 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 one thing—taking your money. Complaints well-nigh their activities generally fall into one of three categories:

The perpetrators behind many of the binary options websites, primarily criminals located overseas, are merely interested in ane 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 exist reconfiguring the algorithms they use in social club to purposely generate losing trades, often by distorting prices and payouts. For instance, if a client has a winning trade, the expiration time is extended until the trade becomes a loss.

Fraudulent binary options website operators get to great lengths to recruit investors. They annunciate their platforms—frequently on social networking sites, various trading websites, message boards, and spam east-mail—with big promises of easy coin, low risk, and superior customer service. Potential investors are also cold-called from boiler room operations, where high-pressure salespeople employ banks of phones to make as many calls as possible to offer "once-in-a-lifetime" opportunities.

What's existence done 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 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 hash out the growing binary options fraud trouble.

Special Agent Milan Kosanovich, who works out of our Criminal Investigative Sectionalisation's Complex Financial Crimes Unit, was ane of the FBI's representatives at this gathering. "The meridian," he said, "gave all of united states of america the take chances 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."

I of the biggest challenges police enforcement faces, co-ordinate to Kosanovich, is the fact that the scammers are sophisticated and accept operations spanning multiple countries. "Then the fundamental to addressing this type of fraud," he continued, "is national and international coordination between regulatory agencies, constabulary enforcement, and the financial industry."

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

What Tin You lot Do to Avert Being Victimized

  • Make certain that the binary options trading platform you're interested in has registered its offering and auction of its products with the SEC. (Registration provides investors with key information about the terms of the products beingness offered). To practise this, y'all tin use the Security Exchange Commission'south (SEC) EDGAR Company Filing website.
  • Check to see if the trading platform itself is registered every bit 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 past the CFTC.
  • Check out the registration status and groundwork of any firm or fiscal professional person yous are considering dealing with. You can practice this through the Financial Industry Regulatory Bureau's BrokerCheck website and the National Futures Association Background Affiliation Status Information Center.
  • Take a look at the CFTC's Crimson 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 lot don't understand. If you can't explain the investment opportunity in a few words and in an understandable way, y'all may need to reconsider the potential investment.

Source: Investor.gov (SEC's Office of Investor Didactics and Advocacy/CFTC'due south Office of Consumer Outreach)