As experienced law enforcement officials often attest, you cannot eliminate fraud, but you can manage its existence to an acceptable level. Like it or not, our minds are wired to trust the antics of conmen, the reason why we are always having to be skeptical whenever approached randomly by strangers, either in person or online. Fraud is also prevalent on a global basis. It does not discriminate by geographic region, but it does tend to focus on groups that are more susceptible to its cleverly designed traps.
Forex scams come in a number of flavors, each one calling upon our greed and our everlasting desire to get rich quick. Currencies may seem familiar, since they are real money, but the trading of foreign exchange pairs is complex, and that complexity can often cloud our judgment. We can easily be led to believe that experts can make mountains of cash and outrageous returns in no time at all. There are definitely many legitimate brokers and managed account providers to choose from, but there are also a number of shady businesses that prefer to prey on ignorant, uninformed consumers.
How do we manage forex fraud’s “existence to an acceptable level”? The first step to solving any problem is the awareness that a problem exists. Regulators, as part of their consumer protection role, are continually warning and educating us as to the pitfalls to be avoided, but how many of us actually have visited our local regulator’s website or read articles like these that are dedicated to achieving the same purpose?
Consider yourself ahead of the game by being here. In an effort to keep you informed of the latest attempts to beat the fraudsters at their own game, here is a roundup of news stories from around the globe that reveal the current nature of potential forex scams:
Greek prosecutors finally brought charges against a crime syndicate that had reaped over 80 million Euros from 2005 through 2015 via a complex web of partnerships that purported to be investment firms devoted to foreign exchange activities. In all, there were 23 individuals charged, including several public sector employees and “12 Greek nationals, three of whom are lawyers, two Turkish nationals, a Russian and an Indian.”
The two kingpins of the scam were Yannis Litinas and Giorgos Daskaleas. The indictment read that, “The investment structures were approaching individuals investors claiming that Giorgos Daskaleas had specialized knowledge and education in the financial market and was an expert in foreign exchange transactions. They were also claiming that he had invented an innovative worldwide and technically advanced market analysis methodology based on human behavior. This way they persuaded customers to invest large sums in specific structures that were set up for this purpose by promising high profits and returns that exceeded 3% per month.”
The “Times of Israel” continues to press Israeli authorities to stop turning a blind eye to forex and binary options fraud carried on within the country’s borders. Simona Weinglass, the lead author behind the exposé that began last March, is claiming that, “The refusal of the Israeli authorities to tackle the crime means Israel is serving as ‘a shelter’ for massive theft.” Local firms have avoided local investigation and prosecution by focusing only on foreign individuals, but a host of lawyers outside of Israel that support defrauded victims are trying to mount a counterattack.
One lawyer noted that these scams take on two forms: “The first involves unregulated companies that defraud “investors” out of money, then sometimes contact these same investors pretending to be a company that will help them recover their funds for a fee. The second type of fraud involves companies that are ostensibly regulated in Cyprus but fail to comply with the regulator’s requirements of honesty and transparency. Rather, they require brokers to assume false identities, deceive investors about the odds of earning money, rig the trades, and make it hard to withdraw money. Both types of fraud are dominated by Israelis and are often carried out from within Israel.”
French citizens have been particularly hit hard by these Israeli-based fraud schemes and deceptive business practices. The Autorité des Marchés Financiers (AMF), France’s securities regulator, revealed at a recent press conference that, in the last five years, complaints related to forex and binary options have gone from less than 100 to over 6,000 in 2015. In that press conference, the Public Prosecutor of the High Court of Paris, along with the AMF, the Office of Fair Trading of the Economy Ministry and the Prudential Supervisory Authority of the Bank of France, urged victims to come forward. Over 25,000 victims have responded to date, representing an estimated €4 billion in alleged fraud in the past six years.
Each victim’s story has a familiar ring: “At first, their broker was friendly, knowledgeable and highly attentive. After they made their initial deposit, they would experience a series of successful trades, and seeing how easy it was, keep adding funds to their investment account. Until one morning they woke up to see a large portion of their balance wiped out. When they complained, their broker turned cold and unresponsive or, alternatively, tried to persuade them to invest more to try to recover what they’d lost. Eventually, the losses piled on and the client gave up, or had their account closed against their will, while the fraudsters disappeared with the cash.”
In response to complaints from French authorities and others, CySEC released a circular in April that detailed a host of new operating requirements, each one designed to increase fairness and transparency from brokerage entities within its regulated domain. Firms have another sixty days to comply, as platform software companies work feverishly to meet this deadline.
In a recent interview, however, Demetra Kalogerou, the Chairwoman of the Cyprus Securities Exchange Commission, made it clear that changes may not stop there: “Based on CySEC’s experience so far and having identified deficiencies in the monitoring of these call centers, CySEC is considering to require the CIFs to only perform these activities internally from their offices in Cyprus or only through a branch, tied agent or regulated entity based in another jurisdiction. It is provided that all sales people will be well trained and pass CySEC’s exams.”
The Australian Securities and Investments Commission (ASIC) is just one more regulator that is objecting to unregistered firms cold-calling Australian citizens for any type of investment, including forex or binary options. The agency does not forbid trading in these instruments, but complaint levels have risen sharply, as elsewhere. ASIC warned consumers about two firms, FM Trader and RTG Direct Trading, and added them to their growing list of suspicious brokers.”
Ten investors in Borneo reported losing RM100,000 (roughly $25,000) in an alleged forex trading scam. Police reports were filed after the broker’s website went offline. These victims may only be the tip of the iceberg in this scheme. It had all the makings of a classic Ponzi scheme, where friends were used to attract new deposits after having received high returns up front. One victim complained that, “I was promised to receive dividends amounting to RM1,250 from my investment one week after I handed over the RM11,400 cash. Unfortunately I did not hear or receive anything.”
Florida is known as a major travel destination for tourists, retirees, and, unfortunately, scam artists. Teeming with social and cultural diversity, educated observers have also disclosed that, “Coming to Florida in search of stories about scam artists, fraudsters, and outrageous behavior is like going to the Louvre in search of art; it’s everywhere.” Brett Hartshorn, a supposed businessman and expert in currency speculation, persuaded Dave and Jackie Harding of Sarasota to invest $200,000 in his get-rich-quick forex scheme. The Hardings borrowed against their home, a big mistake, and saw their account balance fall to zero in a few short months. An elementary investigation of Hartshorn would have revealed a sordid past, including five lawsuits against him.
Canada may have been a little late in alerting its citizens about the current ongoing scams related to binary options, but its umbrella regulatory agency, the Canadian Securities Administrators, recently warned consumers that “there is not a single binary options broker or platform authorized or licensed to operate on the country’s territory.” Each province in Canada has its own securities watchdog group that deals directly with the populace. Several binary option brokers have been soliciting Canadians from foreign domains, and complaints have begun to rise over shady business practices. Binary options are not illegal in Canada, but some countries, like the United States, have forbidden the instrument unless it is traded on an exchange. Two exchanges currently exist in the neighboring states, the Nadex and Cantor Exchanges.
Taiwan — Crypto-Currency Fraud
Lastly, another phenomenon, even newer than binary options, is the advent of what are called crypto-currencies. The unique nature of their patented “block-chain” technology offers a great deal of promise for security and safety for specific Internet-based transactions. BitCoin is the most well known and successful of the lot, and the popularity of BitCoins has prompted many providers of binary options and CFD’s to include BitCoins as a supported asset choice.
While the patented infrastructure may be secure, this innovative payment system “honey pot” is just too irresistible for the tech-savvy crooks among us to ignore. Organized crime found a way to breach the firewalls of exchanges and change the destination addresses that were fed into the network. Mt. Gox, based in Tokyo and handling 70% of the BTC turnover, lost $460 million and filed for bankruptcy in 2014. Flexcoin, another exchange, bit the dust soon thereafter. The latest news about crypto-currencies is about a conman in Taiwan that bilked 49 investors out of $300,000 invested in BitCoins, claiming that hackers had stolen the money.
Is there a common thread that runs through each of these news stories? The common denominator is that uniformed consumers are totally unaware of the high risk that can exist with any investment medium, especially emanating from the firm or individual that is entrusted with your hard-earned cash. The wily conman understands this weakness and how to prey upon it. Awareness is a start, but we need to be skeptical at all times when random solicitations come our way via the Internet, the mail, or from an aggressive salesman on the telephone. Always be sure to ask questions, validate the credibility of credentials, check with your local regulators, take your time, and be wary of anything that sounds too good to be true. It usually is. Stay vigilant!
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