fbpx
ForexFraud Header

As 2016 winds down to a close, these are the headline stories that were

Published:
Updated:

Every new year starts with an abundance of hope, but only with a few pointers as to what might transpire in the months to come. As for 2016, it followed a year when our largest financial institutions admitted to fixing foreign exchange rates for nearly a decade to line their own pockets at our expense. The regulatory establishment, embarrassed to the nines, came out with guns blazing and never let down its guard publicly from January and thereafter.

What happened to the world’s largest banks? It was déjà vu all over again, as with the Great Recession. There were little in the way of prosecutions, but enormous fines, estimated to exceed $10 billion, were assessed. That figure may seem high, but as one pundit noted, with regards to Goldman Sachs, the fines amounted to two weeks worth of profits, merely a cost of doing business from that firm’s perspective. Our friendly banksters have continued the same behavior that previously got us into trouble, and, as everyone has expected, they have paid the largest bonuses in town. Greed won again.

There were a few surprises that came to light, perhaps, nightmares is a better word. Many fraud trends remained unchanged, as well. Ponzi schemes are alive and well across the globe, and bogus fund managers still persist to steal deposits and print phony client account statements. And then there were the political shots heard round the world, namely the Brexit Referendum in the UK and Donald Trump’s victory in the U.S. Presidential election. Financial markets and analysts are still trying to figure out what might happen in 2017 amidst the consternation.

As for organized crime and a host of independent fraudsters, cloning became a refined art, and a new cyber-crime wave threatens to break down the protective barriers at our banks, brokers, and even on our own personal computers. Lastly, the award for the most reprehensible behavior has to go to the lowlifes that have infiltrated our binary options industry. Years of unbridled success in this sector of the forex industry, unencumbered by proactive regulatory oversight, has resulted in a broad based regimen of destructive behavior that has bilked millions of consumers out of billions of dollars over the past few years. Lawsuits are being filed. Licenses are being revoked, but the problem is entrenched in a host of countries and will take years to uproot and correct.

Here then is a brief recap of the eight storylines that dominated our forex headlines in 2016:

#1 – Regulators resort to a full court press

To say that our regulators were embarrassed after overlooking the largest foreign exchange scandal in history, involving our largest and most trusted financial institutions, would be a gross understatement. After our friendly banksters merely had their hands slapped after the financial crisis that brought on the Great Recession, regulators should have heeded the warning call that these scheming bankers would soon find new ways to reap profits, in spite of newly enacted laws and regulations. It turned out that trading rooms had been fixing numerous rates for several years. The press had a field day.

As a consequence, it appeared that both major and minor regulatory agencies had chosen the same public relations firm to promote every case closed and complaint filed to send the fear of God through the minds of anyone bent on criminal intent. From the FCA, the CFTC, ASIC, and many others, the message was clear – compliance is paramount, and anyone found guilty of unauthorized behavior will have their names broadcast from the rooftops and emblazoned in bright lights via advisor alerts. Regulators were mad as Hell, and they were not going to take it anymore.

#2 – Complaints, cross-border fraud, and the revenge of the clones

The first missives from our friendly regulators had to do with a rising tide of complaints. At this stage, regulators were concerned about its sudden rise, but had not had enough time to investigate what the prevailing themes were. The surprises that awaited in the binary options field were months away from exposure, but two things were easy enough to surmise. Withdrawal request delays and abuse were a common complaint across the board, and cross-border solicitations from unauthorized and non-regulated brokers were resulting in enormous consumer losses.

Clone websites were also in the news. They are nothing new. Regulators had noted their existence a year or two back, but “cloning” had seemed to come of age in 2016. The FCA became the new sheriff in town, sending out numerous advisories and warnings. Scammers were also using social media websites to advertise firms that “made use of site domains based on variations of the names of the real firms whose identities they were copying.” Phony credentials, fake addresses, and subtle name changes were often the giveaways that a deception was underway.

#3 – Binary option brokers – What hath thou wrought?

The binary options sector of our industry has been the fastest growing sector of our business for several years. Its popularity has grown exponentially, due primarily to the simplicity of the process and the potential for making monstrous returns in a matter of minutes, sometimes seconds. Most of the new brokers are located in far off tax havens, where casinos are prevalent, and gambling commissions are lenient. Unfortunately, the lack of active regulatory oversight has allowed unscrupulous business practices to infiltrate the industry, causing widespread abuses, complaints and losses.

The extent of these abuses were revealed in a series of articles starting in March, authored by Simona Weinglass, an investigative reporter for the “Times of Israel”. She has determined that, ““Fraudulent binary options is a vast criminal enterprise, employing thousands of people in over 100 companies, many of them in Israel, but also in countries like Romania, Bulgaria, Ukraine and the Philippines. The industry is thought to earn hundreds of millions, if not billions of pounds a year and victims worldwide are believed to number in the millions.”

Lawsuits are in process, and Israeli authorities are finally attempting to shut down the most illicit components operated out of Tel Aviv. The roadblock has been that these “boiler room” cold calling units have been clever enough to exclude Israeli citizens from harm, thereby avoiding local law enforcement. One aggressive cold call leads to another. Once a deposit is made, a more talented caller will seek more money. The goal is to fleece the client for all he is worth. A full 96% lose everything they wager. The losses are estimated to be in the neighborhood of $10 billion on an annual basis.

#4 – Brexit and the rise of populism

2016 will go down in history as the year when populism ruled consumer politics. Various factions within the UK pressed the then current Prime Minister to put “leaving” the EU to a vote. Almost as an afterthought, the PM put the referendum on an upcoming ballot, never believing the option to leave would gain a full majority of support. Survey polls suggested a “Stay” victory, but only by the slimmest of margins. As voting day approached, the margin vanished, and when the final votes were counted, shock ruled the planet and financial markets. Will forex brokers have to re-register to operate in Europe and vice-versa? The process may take two years, while uncertainty reigns.

#5 – Prevalent trends in the forex fraud arena

As much as things change, it is amazing how many things remain the same. Forex Ponzi schemes are alive and well across the globe, despite a torrent of warnings from regulators, the press, and websites like our own. Not a month goes by that another con man bites the dust, having absconded with millions and lived the high life until apprehended. The latest threat is that the schemes have gone mainstream, but at much lower turnover levels, making them more difficult to detect and prosecute. Unscrupulous fund managers are also getting more aggressive with their sales tactics. Be careful with whom you trust with your life savings. The last three areas to be wary of have been discussed – bad practices in binary options, aggressive sales calls, and clones trying to steal your deposits, while appearing to be legitimate enterprises.

#6 – Teddy Sagi and Playtech just keep getting richer

We continue to cover the exploits of Playtech and Teddy Sagi, its effervescent leader and Israeli billionaire. When Playtech, a major firm traded publicly on the London Stock Exchange, began to make forays into the retail forex trading space in 2015 via an aggressive M&A campaign, we began to take notice. Unfortunately for Teddy, regulators in the UK and Ireland blocked his most promising acquisition targets, Plus500 and AvaTrade, but he soon recovered and acquired a number of smaller firms outside the purview of the FCA. He is still on the move, making millions behind the scene, and laughing all the way to the bank.

#7 – Donald Trump is President-Elect in the United States

As if the Brexit Referendum was not a bitter enough pill to swallow, the world gasped and financial markets went into turmoil when none other than Donald Trump posted a surprise victory in the U.S. Presidential election race. After an initial crash, markets abruptly reversed, suddenly surmising that Trump and his policies might actually be good for business – in the U.S., but not globally. Analysts are still struggling to form a consensus as to what 2017 might bring. At first blush, the news is not that great. The recent euphoria may soon melt like snow in the desert, well before Trump ever takes the oath of office. A delicate tightrope walk is awaiting him, with a recessionary downside.

#8 – Cyber-crime is real and threatens to ruin your holidays

Last year at this time, we were warning everyone of the oncoming perils of an all out cyber attack on our banks, brokers, and personal computers. Here we are one year later with a threat that is at least 50% larger and growing. As security professionals have warned us: “Hackers are no longer lone wolves… 80% of cyber-attacks are driven by organized crime rings, in which data, tools, and expertise are widely shared.” The basic prevention advice is to be suspicious of any unwarranted solicitation effort, whether it is a link, a pop-up ad, a tempting email, or even a referral from a friend or family member. Stay skeptical and vigilant!

Concluding Remarks

2016 has been quite a year for surprises, from binary options abuse and Brexit, to Donald Trump and what may come in 2017. The outlook now is for a very bumpy ride, so buckle your seatbelts, and let’s get started! Happy Holidays!