Five forex scams currently dominate the forex fraud landscape

Chris Lee

Summer is here, and, with it, you can expect to see the latest batch of new and improved fraud schemes from your friendly conmen down the street or online. From a forex perspective, who among us is not looking for a few extra bucks or euros to fund a nice holiday away at some exotic shore? Suddenly your phone rings with an offer too good to refuse or you click on a flashing link on your screen that promises quick returns at little or no risk.

What perfect timing? My stars have aligned, and I am being guided to Nirvana, as if by divine providence. Make no mistake about it – You are being guided, not to the land of plenty, but to financial ruin, if the crooks in our society have any say in the matter. The fellow on the phone is very persuasive, and the link on your PC is cleverly designed and quite attractive. Both approaches look this way because fraudsters have been hard at work for the past few months preparing for the holiday season, when your kids are out of school, and you can be easily distracted.

In the world of foreign exchange, there is a wealth of legitimate brokers and fund managers out there to choose from, but, despite the vigilant efforts of our regulatory agencies, there continue to be five prevalent themes behind forex fraud in 2016. These “Top Five” are by no means the only con games to avoid, but, sadly, the complaint levels in our industry have skyrocketed in the past year or so, a result of slow global growth, increased competition, and, of course, greed. The Internet has come a long way in a few decades, but cyber-related crime has also jumped onto the bandwagon to perpetuate its schemes, not only in foreign exchange, but also in most any financially related industry.

What are we to do to protect ourselves? Prevention always starts with awareness that a problem exists and with knowing the nature of the current threats that might confront us. In each of the five scams to be discussed and for most any other type of con game, the common thread is that you must be suspicious of any unwarranted solicitation, either by phone, a referral from a friend or family member, or a clever ad meant to attract your attention whether in the local paper, an email, or as an online link calling your name.

As one law enforcement official put it, “Be wary of websites or salespersons that promise automatic and big profits in short order with very little risk. Your suspicions should be raised at this point. There is no easy money in this market. Sites that try to sell such services or products will usually have a single page with blinking dollars and no serious explanations. The graphics are usually “loud” and not humble.”

The five forex scams that dominate the forex fraud landscape today are a mix of the old and the new. As you might suspect, the line between outright fraud and shady business practices is becoming quite blurred. If there is a way to hide behind the weaknesses in international law, you can bet that organized crime has found a way to leverage that weakness to its advantage to defraud you and foil any attempt at accountability.

Here then, are the “Top Five” forex scams for 2016 – Be wary and be safe:

Ponzi Schemes – Still Alive and Well

Ponzi schemes are like crabgrass. You cannot eliminate the problem, and, if you turn your back on it, it will grow back quicker than the eye can see. The conman always promises an enormous monthly return from, in our case, a special trading formula that cannot fail in the foreign exchange market. His marketing plan is to use early deposits to pay back promised returns to initial depositors, thereby benefiting from word of mouth, as these minions rush to share their good fortune with friends, family, and business associates. Credibility and trustworthiness are too easily earned at the outset.

The trend in recent years has been for lower tiers in the crime world to get involved. The number of victims and their amounts of money may be smaller in scale, but the reach on an overall basis totals more than the occasional headline grabbing big take. There have been two large Ponzis that have been recently shut down. One was in Nagoya, Japan, where two individuals had tricked 3,000 people to invest ore than 11.7 billion Yen (about $100 million USD) in a forex trading investment ploy. Nearly half of the funds were used for Ponzi-styled paybacks, but the rest of the cash has yet to be found. Officials are not optimistic at this point.

In another similar case, police in the City of London were tipped off by bank officials that an unusually large some of money was suspiciously moving through one 58-yearold man’s business bank account. When they arrested the man, he had £30 million worth of bankers’ drafts in his possession. Officials soon determined that the funds “were allegedly generated from international organized crime including forex Ponzi schemes and laundering through the man’s company bank account.” The identity of victims and their whereabouts are unknown at this time. We can assume that they could be spread across the globe.

Fund Managers – Are They Trustworthy?

Yes, there are plenty of legitimate fund managers in every country on this earth, but, apart from Ponzi schemes, the balance of crooked fund managers rarely pay back any of their ill-gotten loot. Once they have convinced you to invest and you have turned your money over to them, you might as well kiss that money goodbye. Once again, they make outrageous claims as to their ability to generate profits, which has earned the moniker of “High Yield Investment Programs” or HYIP, for short. The funds will typically be held in an offshore bank account, far from any regulator’s eyes.

These frauds can be big and small, as well, but the largest one that came crashing down in 2015 was CWM FX. This firm had made quite a splash in the London tabloid scene, hobnobbing with royalty and signing major sponsorship deals with the likes of the “Chelsea Football Club, Wigan Warriors rugby league team, CWM LCR Honda in MotoGP, CWM Cyclone boxing promotions, the Sport Industry Breakfast Club, the Outstanding Contribution to Sport Award in 2015, and the London Boat Show.” Where was the money coming from to pay for all of these extravagances?

When police raided the CWM FX office suite in the swank Heron Tower, they discovered more than they had thought possible. They had expected a £20 million forex trading fraud operation, but they also uncovered an offshore £50 million investment scheme, where investors had been promised 5% monthly returns, ostensibly from forex market gains. All but £1.2 million has gone missing. Victims have been slow to come forward. It has been reported that, “450 Nepalese, including several current and retired Gurkha soldiers, lost £2.4 million” in this HYIP scheme. Fraud in the City of London is Big Business, according to reports: “About £1.73 billion was reported lost in 5,000 cases of investment fraud in 2014, but police believe the real figure is much higher.”

Aggressive Sales Calls – Be Aggressive Right Back

Neither the first two items on our list, nor the last two to follow, could ever get off of “Square One” without the presence of a very persuasive salesperson at some point in the fraud’s chain of events. Aggressive cold calling has taken on great proportions in the last twelve months and gained the attention of nearly every regulatory agency on the planet. These agencies have their hands tied because these “boiler-room” operations tend to be cross-border by nature, thereby avoiding complaints from citizens in their locale that might raise suspicions with local law enforcement.

These cold callers are after deposits, both small and large, and will keep calling for more, even after your first deposit. Resist the temptation. Be aggressive right back. If you think they are legit, validate their credentials, ask questions, and take your time.

Shady Binary Options Brokers – Gamblers Beware

After years of hyper-growth, the binary options industry is finally cooling down, although competition is heating up. Traditional brokers have now joined the fray with their own digital offerings. Regulators are also coming down hard on complaint generators. Brokers that are barely getting by or losing money are getting desperate. Complaints of shady business tactics, like rigging the system and refusing to honor withdrawal requests, have gone through the roof. The industry is going through growing pains and a phase of consolidation, where winners will survive, and losers will close their doors or be acquired. Be cautious during this period of transition and be sure that you have one of the better brokers as your partner and custodian of your investment capital.

Deposit Stealing Schemes – They Still Exist

There is another form of crabgrass in our forex industry, perhaps a derivation of the Ponzi scheme, but a prevalent form of fraud, just the same. Despite the best efforts of our regulators, there are still brokers out there that will suck you in, and then rip you off by disappearing with your initial deposit. In today’s world, these crooks set up “clone” websites to trick you or rely on aggressive sales tactics to lure you into their traps. Many have fake London addresses to gain credibility, but their true location is a mystery. After bilking one group of unsuspecting investors, they move quickly to greener pastures.

Concluding Remarks

Forex fraud is not going away anytime soon. Regulators had cleaned up the playing field a great deal, just a few years back, but organized crime has come roaring back with a flourish. They are taking no prisoners. Old schemes have been updated, and new curve balls have been designed to gain your trust and fleece your bank account. If you have read this far, then you are ahead of the game and well on the way to protecting your hard-earned capital from these fraudsters.

The “Top Five” listed here are just the beginning. You can expect new approaches to come at you, as well. Always be skeptical when an unwanted solicitation comes your way in any form and from any avenue, whether face-to-face or online. Prepare your mind to be aggressive right back. Accept that it is not easy to make money in forex trading, no matter what the salesperson claims. Be vigilant at all times, and do enjoy peace of mind during the summer months to come!

Chris Lee

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