Individual Fined for Selling Fraudulent Binary Options
An unregistered foreign individual and his various controlled entities settled CFTC charges for operating a binary options scheme that defrauded customers.
In a Consent Order, the United States District Court for the Northern District of Illinois stated that the individual and related entities "solicited individuals located in the United States and elsewhere to enter into illegal, off-exchange transactions in binary options through various fictitious trade names." In its Complaint, the CFTC alleged that these platforms falsely claimed to provide legitimate trades, but that the outcomes were manipulated by the individual and entities to ensure customer losses. The Court found that the company profited by acting as the counterparty to the trades, adjusting risk settings to control the outcome and misrepresenting the nature of the transactions as being subject to actual market conditions.
The Court also found that the individual falsely assured customers that their funds were safe, even though the money was commingled and transferred to over 40 offshore accounts controlled by the individual. The Court found that approximately 95% of customers lost their investments, and many were misled into depositing more money through promises of "bonuses" and "risk free trades," which made it difficult for them to withdraw their funds. The CFTC found that the binary options trades, which were not executed on a registered exchange, were made available to retail customers who were not eligible contract participants.
The Court stated that the individual and entities consented to the findings and to violations CEA Sections 4c(b) ("Prohibited transactions"), 6(c)(1) ("Prohibition regarding manipulation and false information"), 2(e) ("Jurisdiction of Commission"), 4d ("Dealing by unregistered futures commission merchants or introducing brokers prohibited") and CFTC Regulation 32.4 ("Fraud in connection with commodity option transactions").
To resolve the charges, the individual and entities agreed to (i) a permanent ban from trading or soliciting in commodity markets; (ii) pay $7 million in disgorgement; and (iii) comply with all conditions outlined in the Consent Order, including restrictions on future financial activities.
In a press release, the CFTC stated that the individual was indicted by the United States Attorney for the District of Maryland on criminal charges for "wire fraud and conspiracy to commit wire fraud on the same conduct charged in the CFTC’s complaint." The CFTC stated that the individual pleaded guilty to the charges, was sentenced to 66 months in prison and ordered to pay a $7 million penalty.