Global Fraud Roundup: What’s hot in the world of forex fraud mitigation

Everyone loves a good crime novel from time to time, if reading more than a few snippets in social media appeals to you. For those that wish to satisfy this need for mystery, intrigue, and who-done-its, then look no further than the world of forex fraud mitigation. All of the necessary elements are present. Criminals abound, as do their victims. Law enforcement officials and regulators do their level best to contain them, but the battle never quite seems to reach a pinnacle moment. The crooks are winning. They are organized on a global basis, and their various scheme nets are cast far and wide.

And so, it is a never ending battle between good and evil with headlines appearing daily to update us all on the war on this particular type of crime. The heroes of our stories include the press and regulatory agencies, a strange partnership for sure, while the protagonists include organized crime, a modicum of unscrupulous brokers, and a few individuals adept at deception. As the summer travel season winds down and kids go back to school, the criminal element in our society is gearing up for the next big push – the Christmas holidays, when consumers let down their guards and open their wallets.

We may actually be in a lull at the moment, a calm before the storm, so to speak, but stories continue to break across the planet related to nefarious deeds involving foreign exchange. Greed continues to be the root cause in most all cases, as you will see in the update to follow. There are the usual fare about brokers in trouble that have bent the rules and about regulators trying to tighten regulations that have been far too loose, and then you have the continuing fight to silence shady business practices related to everything from binary options to crypto-currencies. Take heed and stay vigilant!

What are the latest crime stories hitting the forex airwaves?

1) Crypto-currencies have taken the industry by storm

At the top of the heap, crypto-currency news stories rule the roost these days. The passionate crowd that bought into these quasi-investments (they are not regulated investment vehicles in today’s legal parlance) way back when have seen their little nest eggs skyrocket in value. If you had bought into Bitcoin at six cents several years back, you could have cashed out at its recent high of $4,765 and walked away with a tidy fortune. Bitcoins have subsequently pulled back to $4,197, a bit due to negative news accounts and profit taking. In this digital world, it is wise to remember that paper gains are not real gains until your position is closed and funds are in the bank.

What about competing systems? Ethereum, or Ether as some call it, has an even better short-term track record. It traded at $8 at the close of 2016. In June, it peaked at $390, dipped to $163, and then rebounded, only to pull back to its current bid of $292. These crypto-currencies can be extremely volatile, and what makes matters worse is that there is no central trading floor for any of these. Each broker in the system is its own clearinghouse. Values can vary enormously, depending upon local liquidity issues. A few entities try to summarize daily action on a weighted basis to arrive at the above quotes.

A disruptive funding alternative to traditional venture capital involving crypto-currencies has also created a stir in the market. As we recently wrote, “An ICO, or initial coin offering, offers a chance to make big money quickly by getting in on the next new money. Yes, ICOs specifically relate to the development of new “crypto-currency” alternatives, according to some sources to be as many as 1,109 to date. As for ICOs and their ability to disrupt traditional capital funding mechanisms, investors have plopped down over $2.3 billion in this market in a few short months. Despite high risk, several people obviously are expecting to get their money back and more, but will they?”

Whenever huge amounts of investment dollars are thrown at something new, you can be sure that the fraudsters in this world are close behind with schemes in hand to fleece the unsuspecting and uninformed public. Our counsel has been to be wary of these get rich schemes. Regulators have observed the ICO phenomenon from the sidelines, but their apparent restraint has dissolved. Consider for a moment these recent position statements:

• SEC in the United States: “The SEC this summer warned startups that they could be violating securities laws with the token sales. In an investor bulletin, it warned of the potential for fraud, scams and hacking. It will treat some ICOs as IPOs — as security offerings, in other words, with all the registration requirements that entails, unless a valid exemption applies.” The SEC followed through on its threat this week. The headline read: “Maksim Zaslavskiy, REcoin Group Foundation and DRC World charged in Initial Coin Offering (ICO) fraud.” As was noted in the SEC’s press release, “Investors should be wary of companies touting ICOs as a way to generate outsized returns. As alleged in our complaint, Zaslavskiy lured investors with false promises of sizeable returns from novel technology.”
• The FCA of the UK: “The FCA has added its voice to other watchdogs around the world, issuing a formal consumer warning about the risks of Initial Coin Offerings, or ICOs. ICOs are very high-risk, speculative investments. Investors should be conscious of the risks involved and fully research the specific project.” Mark Carney, the governor of the Bank of England, has stated publicly that fin-tech companies pose heightened risk and should now be on notice to “expect more regulatory scrutiny” in future.
• China bans ICOs: “Chinese officials deemed ICOs as a threat to financial market stability. The People’s Bank of China said it will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds.” As for a specific quote from the People’s Bank of China, roughly translated, ICOs are “essentially a form of unapproved illegal public financing behaviour that also raises suspicions of illegal securities issuance, financial fraud and other criminal activity.”

With over a thousand existing offerings and more to come, it is highly unlikely that many of these experimental projects will succeed. Fraud is also a given, but this craze is very reminiscent of the Internet some years back, when investors threw money at anything that involved the world wide web. Far too many entities are scrambling for far too few opportunities. Many will fail. Many investors will lose their entire investment.

In an apparent change in public acceptance of crypto-currencies, the Bank of Russia and law enforcement officials seem to have done an about face. Authorities arrested three men involved in an international payment scheme based on Bitcoin. Suddenly, the Bank of Russia issued a statement that said, “The risks associated with the use of crypto currencies are too high.” A recent investigation also estimated that, “Every 48 hours, a new financial pyramid emerges in Russia. Fraudulent schemes involving crypto currencies are of particular concern for the experts who forecast that these will spread further in the future.”

2) Belgian authorities continue to battle with offshore binary option brokers

Ever since the exposé of shady business practices within the binary options industry appeared in the Times of Israel eighteen months ago, regulatory bodies across the globe have been taking corrective actions to clean up the problems in their own sphere of influence. Belgium’s Financial Services and Markets Authority (FSMA) was one of the few that moved forthrightly to ban the operation of all binary option dealers within its national borders, but a year later after taking such drastic steps, the agency has concluded that many firms either need more time to comply or have completely ignored the ban altogether.

FSMA’s public announcement that many firms were not complying with its new rules also included additional entries to its broad list of previously blacklisted companies. The agency listed six firms that it claimed to be boiler room type operations, to be avoided at all costs by Belgian consumers. These offending firms were the Bellmore Group, Devin Consultants, Excon Fuji Securities, Olivier and Mann, Orix Capital Trading, and Westward Holdings. Consumers should be aware that each of these companies claims to be authorized to do business in Belgium, but such is not the case.

3) The CFTC charges Monex with “one of the largest fraud cases in history”

Trading foreign currencies often goes hand-in-hand with trading special metals. The two trading venues seem to be naturally inter-related companions, such that a major fraud in the precious metals space can leak over into forex, as well.

According to other reporting sources, “The CFTC Complaint charges the Defendants, among other claims, with defrauding thousands of retail customers nationwide out of hundreds of millions of dollars, while executing thousands of illegal, off-exchange leveraged commodity transactions.” James McDonald, the CFTC’s Director of Enforcement, went on to say that, “Today, we announce the filing of one of the largest precious metals fraud cases in the history of the Commission. As alleged, the Defendants defrauded thousands of retail customers—many of whom are elderly—out of hundreds of millions of dollars as part of a multi-year scheme.”

During the period between July of 2011 and March of 2017, investors that chose to use the company’s leverage trading option lost over $290 million, a casualty rate exceeding some 90%. Shady binary option dealers also have a “kill” rate in this region. As with binary options, the complaint alleges that the firm used high-pressure sales tactics to lure customers to its Atlas program and downplayed the risks associated. As a result many clients lost their life savings, while Monex benefited immensely.

Concluding Remarks

In this article, we have highlighted the ongoing attempts by regulators to protect consumers from the pitfalls involved with crypto-currency ICOs, binary options, and leverage account trading in precious metals. The simple truth is that if it seems too good to be true, then you might want to avoid the product altogether or, at the very least, perform a bit more due diligence before jumping in with both feet.

Complex financial trading instruments that offer high yields with purportedly minimal risk are often the playgrounds for the criminal element of out society that preys upon our desire to get rich quick. The common denominator on both sides of the equation is greed. Fraudsters are well trained in manipulation tactics. Beware their clever ruses!

Forex Fraud Analyst Team

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