Clone Wars persist – Do you know what to be wary of?

Published: 10 October 2016
By: Tom Cleveland

Is it “déjà vu” all over again? The emergence of clone broker websites began in 2014, but here we are, two years later, and warnings persist from the likes of the FCA and the CFTC of fraudsters impersonating legitimate offerings in the foreign exchange and binary option’s arena. Complaints continue to rise, and, as with other frauds of this nature, they will continue to morph into other shady pursuits. Scams also evolve, as in the survival of the fittest. We are already witnessing this evolutionary phenomenon on social media networks. No place is immune from the tricks of the fraudster.

For a moment, it seemed as though we were back at the turn of the century, when it was common news for a broker site, typically a foreign-based one, to promise the world for your deposits, then, after receiving your hard earned cash, it would disappear in the night, never to be heard from again. But this is not 2001, a forex odyssey. It is 2016. The tactics may have changed, but the result is the same – you end up defrauded of your money, or worse yet, your personal identity information has been compromised. The consequences of that theft may be longer lasting, as the criminal element of our society adds your name to its hit list of potential marks and then sells it to the highest bidder.

What warnings suggest that clone websites are refusing to go away?

The regulator that seems to be at the forefront of this turf war is the Financial Conduct Authority (FCA), the UK’s aggressive and take-no-prisoners regulator. It took the lead back in 2014 to warn of potential problems along these lines and coined the phrase of “clone website”. The phrase took hold and soon became “clone wars”, to place emphasis on the fact that this type of fraud was far more nefarious and difficult to detect than other more sanguine schemes.

Back in 2014, the advisories from the FCA spoke to cloning operations that seemed to be targeted at the burgeoning Chinese market in Asia. The agency singled out Sapien Capital Limited, PMG Forex, and Max Forex as London-based firms that “made use of site domains based on variations of the names of the real firms whose identities they are copying.” The FCA also pointed the finger at the Singapore-based clones London Capital Group Asia, LCGA Fxplatform, LCG Asia and LCG Forex, as being far too close to the legitimate UK-based prime broker LCG, a coincidence too close for comfort.

In 2015, as well as before, other global regulators did not choose to sit idly by, while the FCA pounded away on this issue. The Commodity Futures Trading Commission (CFTC) in the U.S. jumped upon “IB Capital FX, LLC for soliciting and accepting at least $50 million from nearly a thousand clients all over the world”, but it had absolutely no remote association with IB Capital FX, a large regulated forex broker. The Australian Securities and Investments Commission (ASIC) discovered that www.fxabs.com.au and www.fxabs.com were using the credentials of ABS Group Pty. Ltd, a fully licensed broker. Hong Kong’s Securities and Futures Commission also shut down a few scams that were presenting themselves as Wells Fargo Bank subsidiaries, and the list goes on.

The FCA’s current take on clones is that, “Many bogus trading / brokerage firms will use the name, ‘firm registration number’ (FRN) and address of firms and individuals authorised by us to suggest they are genuine. This is what we call a ‘clone firm’. The scammers then give their own phone number, address and website details to possible victims. We have also heard of fraudsters claiming that a firm's contact details on the Register are out of date, but this is unlikely as we update the Register each evening.”

The FCA also went on to say that, “These scammers might claim to be from overseas firms that appear on the Register as these firms do not always have their full contact and website details listed. These scammers may even copy the website of an authorised firm, making subtle changes such as to the phone number listed. We have even seen fake versions of our website and Register that include the fraudsters’ contact details rather than those of the genuine, authorised firm.”

These comments were made earlier this year, when complaints were rising about these bogus brokers. It is no surprise that the FCA should be the focal point or esteemed “Sheriff in town” to fight for justice and law and order. London is the undisputed capital of the foreign exchange world. Crooks gravitate to London, if only by inference on their websites, to attract an air of credibility. Most consumers jump to the belief that their broker will be heavily regulated, if it has a London address, but such may not be the case. At present, the FCA does not even have oversight responsibility for binary option brokers. That job goes to the local Gambling Commission, which does approve of “the latest form of online gambling”, as forex regulators are quick to call binary options.

We are now more than two years into this clone problem, but here are a few recent advisories from just the past twelve months:

•    In October last year, the FCA warned of attempts to masquerade as FXCM, one of the world’s largest retail forex trading giants. The clone was operating as “FXCM Money Central” and using http://www.fxcmoney.com as its website address;
•    In a similar notice, the FCA warned of an Alpari UK clone. Alpari UK was another popular forex broker that was also in the news after the Swiss France Debacle forced its parent to sell the operation. Headlines raised the profile of this broker unit, and thereby provided an easy target for clone scam artists;
•    The FCA exposed ADVinvest for using the authorized credentials for ADV Investment Bank. The ruse seemed to be directed at the Arab community, since Arabic commentary on its website promoted forex trading that was safe and secure, due to FSA, not the FCA, an error on their part, in the UK. The legitimate company does not even deal in foreign exchange trading;
•    The FCA revealed that IBL Markets was posing as Interactive Brokers, an FCA-registered firm and one of the leading brokerage firms in the industry, providing services to a wide, global clientele. On the other hand, this clone was a binary options dealer, flying under the local regulatory radar;
•    The FCA uncovered another brazen scheme to appear like Morgan Stanley and Co. Ltd, an officially registered firm in London. The clone repeated the name and appeared as “Morgan Stanley/Morgan Stanley & Co Ltd”, using the same corporate address, as a blatant attempt to scam people on the front end;
•    Lastly, in September of 2016, a new twist on the clone tactic was exposed. The offending firm, “Markets DL”, claimed on its website that it had an association with Currencies Direct, an FCA-registered financial services provider located in London. The agency emphasized that consumers should be wary of cold-callers that freely hand out false details to add credibility to their offering and to confuse the public.

There is one more serious issue that must be discussed, if you happen to have dealings with one of these unauthorized firms. Occasionally, the FCA includes the following statement at the end of its clone advisories: “The FCA strongly advises investors to only deal with financial firms that are authorised, and check the Financial Services Register to ensure they are. It also noted that you should be aware that if you give money to an unauthorised firm, you will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.” To be forewarned is to be forearmed!

How is this cloning scam morphing onto the social media stage?

Criminals are not stupid, although many are portrayed to be that way in movies and television. The simple fact is that, if something works well, then a few variations on the central theme should work as well or better. Innovation is alive and well in the world of forex frauds and scams. Many of the newer variations over the past two decades have used technology to advantage, whether it be from anonymity on the Internet, clever malware installed by robots, or, as we have discovered, over-the-top copies of legitimate websites, down to registered credentials, official addresses, phone numbers, and even email servers. Be especially wary of any legitimate looking email that directs you to another server for password changes or the entry of personal information.

It appears that our social media networks are just too tempting an environment for fraudsters to ignore. Many of these networks do not vet new members, as to their intent, previous dealings, or if they may even pose a problem going forward. While much of the early problems started as phony charity addresses trying to abscond with your charitable donations, the more modern approach is to solicit your targets with misleading ads on many of our most popular websites devoted to personal communication.

In a recent article, it was reported that, “Research carried out by UK’s National Fraud Investment Intelligence Bureaux (NFIB) has shown that fraudsters are using social media sites such as Instagram and Facebook and apps to target younger people to defraud them. The NFIB has seen a dramatic rise in binary options trading fraud, with 33% of victims under the age of 30, and 9% under the age of 20. This is extremely unusual in investment fraud and shows that the use of social media is enabling fraudsters to target a whole new section of society".

It is far too easy to set up fake profiles, where the crooks can pose as successful traders from reputable firms that only want to make you rich. The latest craze has focused on binary options trading, where it is made out to be the hottest investment process in town. The only problem is that binary option brokers in the UK do not fall under FCA protection, and losses from fraud cannot avail themselves of the current protection scheme, as noted in the previous section. Evil lurks in the shady regions of the Internet!

Concluding Remarks  

Unfortunately, the Clone Wars have not abated. There remain a few ingenious copies that attract their share of uninformed clients, but the wiser heads behind these schemes appear to be updating their respective acts. Check local registrations. Call the legitimate firm and ask questions. Report any suspicious types to your local regulator. Healthy skepticism does have its rewards!

Like this article? Please share!

strip