The CFTC has launched a website alerting retail investors to foreign companies soliciting and/or accepting funds from U.S. investors without permission to operate in this country. The website lists FOREX and binary options brokers and is called the RED List. The new tool complements other CFTC initiatives to fight financial fraud such as the CFTC’s SmartCheck.
The SEC and CFTC previously issued a joint alert warning investors about fraudulent schemes involving binary options. Binary options are an all-or nothing payout – if the value of the underlying asset has increased as of the contract expiration, a pre-determined amount of money is paid out on the option. If not, no money is paid out. Unlike options that trade on the stock market, they do not offer the ability to purchase the underlying asset. Instead, they are exercised automatically and paid in cash.
Only a portion of binary options are listed on registered exchanges in the United States. A number of vendors offer internet-based trading in these securities. Providers of binary options operating in the United States in this fashion may be operating without a license in violation of section 5 of the Securities Act (unregistered offer and sale of securities) and Section 15(a) of the Exchange Act (unregistered broker-dealer).
Investors have reported securities fraud to the SEC and CFTC securities in connection with these platforms. In their alert, the agencies broke this down into three different categories of alleged fraud. They include (1) the failure to credit customer accounts or reimburse funds after accepting the money; (2) identity theft involving information provided; and (3) manipulation of the trading software and rules to game the results and avoid payouts to winning customers.
Forex investors have been the target of fraud by both the small players as well as the big players (recently fined more than $1 billion collectively for market manipulation and anti-competitive actions).
Although these firms may be overseas making enforcement difficult, the Dodd-Frank whistleblower programs created by the SEC and CFTC do offer up the possibility of a reward for reporting information about these frauds if one of the securities regulators is able to collect monetary sanctions as a result of their conduct. Our CFTC whistleblower attorneys can assist you with answers to questions about this information as well as assistance reporting violations of the Commodity Exchange Act to the U.S. Government. To speak to an attorney, fill out our contact form or call 1-800-590-4116.