The CFTC and a U.S. District Court take action against two firms for alleged binary-options trading scams.
Two web-based binary-options firms, Vault Options, Ltd. and Global Trader 365, have been hit with a $3 million civil monetary penalty, plus $1,587,731 in restitution, and have been banned from future trading, for defrauding their customers and violating the Commodity Exchange Act.
The two companies, both based in Israel, apparently are no longer doing business via the Internet, at least not while using the names under which they have been sanctioned and banned.
The CFTC’s initial legal action in February describes Vault and Global Trader 365 (GT 365) as having “the same owner, who formed both Vault and GT 365.” The firms also shared the same bank account for accepting and commingling customer funds, and shared the same telephone number and staff names. The two firms operated “as a common enterprise,” according to the CFTC.
The penalties and the bans were ordered by the U.S. District Court for the Northern District of Illinois. The plaintiff in the case, filed in February of this year, was the CFTC, which has seemingly succeeded in putting out of business two unregulated “binary option” scams that preyed on at least 50 Americans, including the elderly and obviously vulnerable, who were defrauded out of at least $1.6 million, often over the telephone.
The court found that the defendants “violated the Commodity Exchange Act’s ban on off-exchange options trading and off-exchange swaps trading by offering to enter into and entering into binary commodity option contracts with retail U.S. customers,” the CFTC says in a statement. “The [court’s] Order also finds that Defendants defrauded customers by making false representations in their solicitations and misappropriating their funds.”
Both the CFTC and the SEC have received “numerous complaints of fraud associated with websites that offer an opportunity to buy or trade binary options through Internet-based trading platforms,” according to a CFTC fraud advisory, which notes that there are at least three types of complaints: “refusal to credit customer accounts or reimburse funds to customers; identity theft; and manipulation of software to generate losing trades.”
The Illinois federal court’s order of final judgment characterizes “binary options” as “financial products that allow customers to predict whether the price of a certain commodity, index or foreign currency ‘asset’ will go ‘up’ or ‘down’ at a future date and/or time,” according to a CFTC statement.
The binary-option payout depends “entirely on the outcome of a yes/no proposition,” a CFTC fraud advisory explains.
“The yes/no proposition typically relates to whether the price of a particular asset that underlies the binary option will rise above or fall below a specified amount. For example, the yes/no proposition connected to the binary option might be something as straightforward as whether the stock price of XYZ company will be above $9.36 per share at 2:30 pm on a particular day, or whether the price of silver will be above $33.40 per ounce at 11:17 am on a particular day,” according to the CFTC. “When the binary option expires, the option holder will receive either a pre-determined amount of cash or nothing at all. Given the all-or-nothing payout structure, binary options are sometimes referred to as ‘all-or-nothing options’ or ‘fixed-return options.’ ”
Because neither of the penalized companies was “registered as a designated contract market, exempt board of trade or bona fide foreign board of trade,” the court’s order states, the binary-options deals the defendants proposed “constituted unlawful off-exchange options and unlawful swaps.”
Despite the illegal nature of the transactions, the defendants “nonetheless solicited and accepted at least $1.6 million from U.S. customers from 22 states for the purpose of entering into these unlawful off-exchange binary options contracts,” according to the CFTC.
The court’s final order of judgment finds that, since at least October 2012, the two companies have through “websites, e-mails, and other communications … solicit[ed] and scam[med] U.S. customers, many of whom are non-eligible contract participants, to trade binary commodity options.”
The court’s order contains brief descriptions of some of individuals who were defrauded, including an 82-year-old Massachusetts man who deposited approximately $17,500 with Vault Options and who received a fraudulent check when he tried to get his money back; and a Michigan woman who deposited more than $30,000 with Global Trader 365, which subsequently urged her to send an “additional approximately $14,200 to pay taxes and fees.”
When the Michigan woman “stated that she did not have the cash … for this additional amount, a GT 365 broker urged her to ‘max-out’ her credit cards to send in the additional sums.” The woman eventually did send company the $14,200, but “to date [she] has not received any of her funds back,” the order finds.
Furthermore, the court order found that the two companies “operated as unregistered Futures Commission Merchants,” and “knowingly or recklessly” claimed that “customers can make large profits, when, in fact, many Vault and GT 365 customers quickly lose most of their funds trading Defendants’ binary options. The Order further finds that Defendants falsely represented to customers that their funds were insured against losses, failed to respond to customer inquiries about the status of their funds, and ultimately misappropriated the customers’ funds.”
A CFTC consumer alert also warns about “fraudulent schemes involving binary options and their trading platforms. The Alert warns customers that the perpetrators of these unlawful schemes allegedly refuse to credit customer accounts, deny fund reimbursement, commit identity theft, and manipulate software to generate losing trades.”
The court’s final order notes also that “Vault and GT 365’s websites currently claim that they do not accept funds for trading from U.S. customers. In fact, Vault and GT 365 actively solicit U.S. customers and even provide a telephone number for U.S. customers to contact to establish trading accounts, conduct trades, and purportedly resolve customer disputes. Further, during the relevant period, Vault and GT 365 have accepted $1,600,531 from U.S. customers from twenty-two different states … and continue to accept money, securities, or property to margin, guarantee, or secure U.S customers’ options transactions.”
While the court’s order refers to the companies’ then-functioning websites, FTF News was unable to locate current contact information or a current Web presence for either of the penalized and now-banned companies.
An Internet search for “Vault Options,” for example, led only to this assertion: “This domain registration expired on 07/05/2016.” A similar search for “Global Trader 365” also discovered no company Web presence, but found both scam accusations and glowing reviews, neither of which could be verified, as well as an offer to “Buy this domain.”
Both companies have been red listed by the CFTC. The “red list,” which stands for “registration deficient list” and was first promulgated last September, compiles information about foreign entities that “illegally solicit U.S. residents to trade in foreign currency or binary options.” The list is available at: www.SmartCheck.gov/REDList .
As it happens, Israel is a center for binary-options fraudsters, according to the online Times of Israel newspaper, which finds that the “Israeli binary options industry is estimated to turn over hundreds of millions of dollars a year, if not billions. A large portion of the industry engages in deceptive and fraudulent practices, from lying about their names and locations to rigging the trading platforms to refusing to allow customers to withdraw their money under any circumstances.”
Furthermore, according to the newspaper, more than one-third of the companies on the CFTC’s red list are “operating from Israel.” The entire Times of Israel article, with a link to a second article on the subject, entitled “The wolves of Tel Aviv,” is available at: http://bit.ly/2aPSfbW
The CFTC recommends that any potential investor should check the “registration status and background of any firm or financial professional that you are considering. If you cannot verify that they are registered, don’t trade with them, don’t give them any money, and don’t share your personal information with them.”
The entire order of final judgment against the two companies, which notes that neither defendant responded to a summons or to the original complaint, is available at: http://bit.ly/2aGe5Ps
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