US FINRA alerts of binary options follow-up schemes

US FINRA alerts of binary options follow-up schemes

The Financial Industry Regulatory Authority (FINRA), a US self-regulatory organization (SRO), joined a long list of authorities that warn about the high risks of binary options. The SRO issued on Thursday a notice, in which it signaled how risky trading in such instruments is and alerted of scams taking advantage of investors who already lost to binary options.

“Binary options are inherently risky all-or-nothing propositions. When a binary option expires, it either makes a pre-specified amount of money, or nothing at all, in which case the investor loses his or her entire investment,” the FINRA warned.

The regulator emphasized on two particular schemes for which investors should be on guard – recovery scams and IRS impersonation scams. Usually, scammers contact investors, telling them they know about their trading accounts and the money they’ve lost to binary options and asking for money to help them recoup the generated losses.

In some cases, scammers impersonate IRS representatives and request from investors to pay taxes for trading in binary options or to pay a fee for an “indemnity letter.” They ask for debit or credit card details and threaten to bring in police if investors do not pay immediately.

There are a few tricks that scammers often use to pressure investors into paying the requested amount. Following are some popular ones:

  • urgent correspondence and high-pressure calls that specifically refer to your binary options accounts;
  • claims that the caller is with, or acting at the behest of, US government agencies; and
  • subsequent correspondence with official-looking documents that make it look as if money is available, and can be recovered for a fee.

The FINRA noted that investors using unregistered non-US trading platforms or services or such who may be unwittingly involved in “shady” binary options businesses may be particularly vulnerable to follow-up scams.

“Following a significant loss, investors may be anxious to get back at least some of their money,” said Gerri Walsh, FINRA’s Senior Vice President of Investor Education. “This can leave them vulnerable to follow-up frauds that add to existing losses with devastating financial consequences.”

Earlier this week, the US Federal Bureau of Investigation (FBI) also warning that binary options frauds are growing in number and in amount of losses.

In the US, binary options trading is allowed only via licensed exchanges and there are just two such – Cantor and Nadex. Off-exchange binary options trading is strictly prohibited. In neighboring Canada, such instruments are not prohibited, but there are no brokers authorized to offer them. Quebec’s Autorite des Marches Financiers (AMF) recently proposed the prohibition of the sale of binary options to citizens in the province, becoming the first Canadian province to consider a full ban on this type of instruments.

In other jurisdictions, mainly across Europe, binary options are limited or are about to get banned. Belgium has banned the distribution via online channels of over-the-counter (OTC) binary options, spot forex, and CFDs with leverage. The Netherlands and Germany have also announced they consider the ban on the advertising of such instruments, while Spain is to address the issue some time later in 2017.

Outside the EU, other countries have also taken similar measures. Israel is drafting a legislation that would allow it to shut down binary options broker that solicit customers abroad, as currently its authority is limited to the country’s borders. The country is also a hub for binary options call centers. Otherwise, brokers are not allowed to offer binary option instruments within the country, but they can still target foreign investors.

FINRA is an independent entity that acts as a SRO. It regulates all securities firms doing business in the US in every aspect of business – from registering industry participants to examining them, writing and enforcing rules, and informing and educating the public. In addition, the association provides surveillance and other regulatory services for equities and options markets. It also takes on other responsibilities, such as administering the largest dispute resolution forum for investors and firms.

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