Are you scam resistant? Let’s review the historical record for patterns

Chris Lee

Trade currencies! Learn Forex! Participate in the world’s largest and most liquid market! Achieve massive returns with little or no risk! Who can resist these tempting marketing slogans that appear with great regularity across the Internet, especially on social media platforms? Throw in a few glitzy pictures of people living the good life, and you have a tempting concoction of lies that could entice anyone to fork over a few bucks just for the privilege. It is time, however, to put your greed in check. A scam might be in progress.

Forex Trading

Investors are always looking for greener pastures, which often seem to be located in the world of forex trading, particularly when they have been turned off by the manipulative nature of the stock market. The sad reality, however, is that with popularity, fast growth, and investment dollars on the table in the world’s largest market, no self-respecting scam artist can resist this temptation either. Let’s face it – Forex trading has a mystique about it, one that suggests that riches can be had, if only you have the right “formula”.

Too often, that “formula” entails finding a money manager that purports to having that special expertise that no one else possesses, and if you will only deposit your precious money with him, he will make you a millionaire overnight, with no risk to cause sleepless nights in the process. As tempting as this offer may sound, before you sign on the dotted line and fork over your initial deposit, be aware that many other investors have taken these very same steps before you and regretted them for the rest of their lives.

Whether we like it or not, there is a criminal element within our society, mostly organized, that flocks to anything having to do with money. Investors must always be skeptical and wary of fraud. It goes with the territory, but the world of foreign exchange offers a unique global playing field, and, coupled with the anonymity of the Internet, criminals have found a complex medium to ply their trade, i.e., stealing your hard-earned dollars, well before you ever realized that you were at risk.

Retail forex, the term used to describe the currency trading service provided to individual consumers, has grown leaps and bounds since the nineties, aided by the Internet, sophisticated trading software, and a creative community of brokers, more than willing to contract with global banks and manage the risk between themselves and their clients. The aspiring trader, however, must transfer funds to an unknown party that he has never met face-to-face in order to open an account and start trading. The preponderance of scams originates from this initial point of contact.

There are hundreds, if not thousands, of forex brokers that want your business. Competition is fierce in this industry, and many brokers will resort to most any outrageous marketing tactic to get your initial deposit. Although most firms are legitimate, the vast majority of brokers are situated offshore. The best advice is to stay with a domestic broker, but regulators in both the US and EU have put in place very restrictive regulations, which have actually encouraged investors to consider taking much more risk in overseas markets.

Trying to assert your legal rights in a foreign jurisdiction is often said to be a nightmare waiting to happen. The incidence of a fraudster taking your deposit and leaving town or slowly drain your account down to zero by employing unscrupulous business practices has declined in recent years, but the potential is there to resurrect these shady business practices. The appropriate phrase is that, “Risk never sleeps, not do the crooks.” They are always adapting to market conditions, as any educated trader would do in the same situation. Try to think like a crook, and you might protect yourself to a higher degree.

What does the historical record reveal as to patterns of forex criminal activity?

Forex fraud is not confined to just the brokerage community. Fund managers and sales agents for a host of signal providers, trading systems and robots, and various software tools may resort to “too good to be true” claims to set their hook into your wallet. Yes, there are several hucksters in the forex arena that attempt to use persuasion and your desire to make quick profits to leverage their way into your finances, but you have to remain alert and skeptical to avoid their clever traps.

If you consult the historical record, there are quite a few notable examples to choose from to determine the modus operandi of these criminals. Here are just a few of the more pernicious ones over the last decade or two:

  • Keith Simmons and Deanne Salazar: These two criminals ran the Black Diamond forex trading scam that bilked 240 clients out of a total of $35 million between the years of 2007 through 2010. Promising investment returns of up to 137% while claiming that they were fully regulated, the duo ran a typical Ponzi scheme, where nothing was ever invested, but the money eventually ran out. Simmons received a 50-year sentence, Salazar, only five years.
  • Russell Cline: This fellow operated out of Portland, Oregon. His last contribution to the world of scam-dom was Orion International Inc. By 2003, in one of the earliest forex scams on record, Cline defrauded a multitude of investors out of $40 million after claiming to have a unique forex trading system that could generate annual returns of 150%. As is typical in these cases, court documents noted that Cline had spent the money on a life of luxury, including personal expenses, homes, cars, trips, and entertainment.
  • Michel Geurkink and Emad Echadi: The focus now moves to down under in New Zealand. These two crafty Dutch crooks ran IB Capital FX, which happened to raise $50 million from 1,850 unsuspecting clients in only one year. The scam was founded in 2011, but it was not until 2015 that New Zealand authorities made it difficult to set up a forex enterprise in the country. The US Commodities and Futures Trading Commission (CFTC) actually detected these folks were operating without a license and helped to shut them down, demand restitution, and assess penalties.
  • Gerald Rogers: This enterprising fellow had a decades-long record of financial crimes, but no one made an effort to discover his past history of defrauding clients. By 2005, his Premium Income Corp. had collected over $100 million from clients. Rogers only promised returns of 14.2% per year, a modest sum and possibly the reason why so many people were eager to send along their deposits without doing their necessary due diligence. The SEC shut him down after complaints, restoring some $35 million on behalf of victims. Rogers received a 25-year sentence for his efforts.
  • Trevor Cook: Trevor wins the prize for the second-largest Ponzi scheme in Minnesota history and tops our list, too. Universal Brokerage Services was his vehicle for tricking 700 investors to invest more than $194 million from 2003 to 2010. Cook was into marketing in a big way, using glitzy marketing materials and soliciting a local radio station to draw in customers. He claimed to have over $4 billion in assets under management. He had also acquired a city landmark and outfitted it with various computer gear and flat screens to give the appearance of a forex trading operation. Cook and his associates, who did live the high life of luxury, decided to invest a portion of the client funds with Crown Forex SA, a Swiss trading firm on the brink of bankruptcy that ran afoul of Swiss regulators. When the recession hit, customers were unable to withdraw their funds, which caused his Ponzi scheme to unravel. He is serving a 25-year sentence for mail fraud and tax evasion. Only $19 million has been recovered, and, after fees, court costs, and taxes, only $10 million has been returned to victims.

These five money manager Ponzi schemes were just the tip of the iceberg, but the losses still amounted to over $400 million and counting. In all cases, exorbitant returns were promised and the impression was given that a proprietary trading system would yield enormous profits at little or no risk. While investors deposited their funds, the promoters were busy living lives of luxury, buying all manner of real estate, expensive cars, and jewelry, while jet setting about the globe. The lack of investor due diligence in each of these cases is appalling and part of the historical record, a sad fact, but true.

Concluding Remarks

The Commodities Futures Trading Commission (CFTC) and its cousin, the National Futures Association (NFA), are the regulators that police foreign exchange trading activities in the United States. The FCA, ESMA, and CySEC are their counterparts in Europe. These five agencies have done a yeoman’s task to eliminate outright fraud in the brokerage community, bring criminals to justice, and educate consumers on the level of risk that is involved with currency trading. Offshore fraud is still a major problem, but domestic versions have morphed into something that may appear legitimate at first blush, but that will eventually take your money, just the same.

These regulators are your friends. Check with them first before dealing with any money manager or corporate entity that proposes returns that are just too good to be trusted. Trust is the operative word in these circumstances. Crooks are very adept at gaining your trust from their initial encounter with you. These types of fraud are similar in one respect – they require you to respond. Listen to your “gut”, when it tells you to be wary. Your natural instincts can be of great value, because our brains are actually structured to trust people that we deal with, especially if these crooks have been trained in the art of persuasion.

Remember, you are your first and last line of defense when it comes to preventing fraud!

Chris Lee

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