As much as things change, it is amazing how much they stay the same. Forex fraud continues to morph across the planet, attacking new markets with old tried-and-true schemes and defrauding developed markets with the latest technologies available. The Internet and social media websites are the fulcrums for this nefarious activity, yet consumers fail to learn from the mistakes of others and blindly hand over their trust to ruse after ruse. The simple fact is that no one is immune to these criminal attacks. No longer are the elderly the prime targets. Millennials are twice as likely to get hit upon.
Cryptocurrency scams tend to draw the most headline coverage. Fraud is exploding in this arena in every jurisdiction of the planet, and the latest report is that it is now the number two most common investment fraud in Australia. The criminal element in our society has infiltrated every element of the crypto value chain, whether it be brokers, exchanges, miners, Initial Coin Offerings (ICOs), or any of the many supporting components of this fledgling industry. For the most part, this entire space does not benefit from regulatory oversight, although regulators continue to look for ways to protect the public at large.
Social media has become a new breeding ground for fraudulent schemes. Be wary of any flashing ads and accompanying links that promise overnight riches from binary options, cryptocurrencies, or even from the latest forex trading manager that promises returns that are beyond the limits of credulity. In nearly all of these cases, a Ponzi scheme is lurking, and, if not that, then a sure-fire pump-and-dump ruse is at work. In each case, the ill-intentioned management team has a carefully designed exit strategy, i.e., a plan for them to disappear with your money, not to make you rich overnight.
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What types of forex fraud dominated the headlines over the past quarter?
Investment fraud will always be with us in some form or another. What works in another genre will also prevail in foreign exchange, and what works in foreign exchange will also prevail elsewhere. It helps to be aware of what regulatory officials are focusing on, even if it may not be forex.
Take for example, the FCA in the UK, a model regulator that oversees activities in London, the acknowledged capital of foreign exchange. Crooks will go to great links to secure ties or to fake connections with this central hub in order to bring an air of credibility to their swarthy operations. Always validate addresses, licenses, and phone numbers on public websites. The FCA recently incarcerated five individuals for long jail sentences, due to their aggressive boiler room activities that focused on the elderly. It could easily have had to do with binary options, although it did not.
The “form” is what is important. These crooks posed as legitimate money managers, promising high returns with little risk. This single approach predominates the con game world, although, in this case, it had to do with high-pressure sales calls. Fraud, however, is an activity that requires its victim to make a willing choice, one driven by greed or by handing over one’s trust without so much as a forethought. The Internet is the great enabler in this latter case. Crooked links, emails, clones, and the familiarity of receiving requests from social media contacts are the more modern conduits used for hoodwinking potential victims.
Over the previous quarter, the news was littered with alerts from regulators about fake websites, unlicensed overseas brokers, and outright crooks. The stories that follow illustrate how broad-based these new fraudster attacks can be. Here is a brief list:
- Fraudulent Emails – These emails look real from legitimate brokers, but there is usually a demand for fees attached. Thousands of these are sent out to known fraud victims, typically from binary options, in hopes of spearing a new fish.
- Posting Fake Trades – Fraudulent platform operators have been known to post a fake trade or quote, in order to trick an unsuspecting client in the heat of the trade.
- Cryptocurrency Fraud – Front and center, this type of fraud is pervasive. We will list a few of the major news stories for 2018 and discuss how to avoid these scam artists.
We have chosen not to reiterate how fraud-laden the binary option industry is of late. It has not dropped off law enforcement radar screens. Perhaps, the best advice is to heed the words from this reporter: “Binary options trading stays a popular scam activity area. Any claims like ‘risk-free investment’, ‘low risk, high return’, ‘be a millionaire in three years’, or ‘get-rich quick’ are easy tells that one is dealing with a scammer.”
As always, be suspicious of unsolicited approaches related to financial services.
The first rule of fraud prevention and protection is awareness, but the second rule is to use that knowledge to be wary of any unsolicited approach for your money. Here are a few stories that drive home these points:
Fraudulent Emails: It is troublesome, indeed, when you read a headline like, “Fraudsters Target FXOpen Customers with Fake Email Addresses.” Your mind quickly questions how many of the hundreds of emails that you receive each week are actually illegitimate. Crooks are capitalizing on hacking large databases via social media channels, using Artificial Intelligence software search programs to do the work. Some schemes are more sophisticated than others in that they will construct an email to resemble your style of writing, then blast out emails to every contact you have with a sad story that you need money – can anyone please help? In the case of FXOpen, very official looking emails were sent to clients demanding new fees, which had not been applied at the account level. These ruses are sent to thousands of endpoints in the hope that some small percentage will be duped, send along the fee, and compromise their payment card information.
Posting Fake Trades: This past week, TFS-ICAP LIMITED and TFS-ICAP LLC, a forex broker with US and UK presences, pleaded guilty to a NY judge that their staff had posted fake trades for emerging market options in the forex space. The firms were fined in excess of $1.1 million dollars and will “implement remedial procedures and policies that make sure each bid, offer, and trade in forex options shown or announced to the financial markets are transparent, and host an independent monitor for two years.” The offending managers were also removed. One law enforcement official also stated that, “My office will pursue financial frauds – no matter how sophisticated – and hold financial institutions accountable for their conduct. Our investigation into fraudulent conduct in the foreign exchange currency options market continues.”
Cryptocurrency Fraud: Crypto-fraud articles related to currencies or IPOs are the most prevalent fraud storylines visible in the financial press these days. As we noted above, this type of fraud has become the second most common investment fraud in Australia. Per the officials down under: “The rise in popularity in cryptocurrency trading has not been missed by scammers who are latching onto this new trend to con people. These are similar to any other investment scam: the scammer will claim to have inside knowledge about price movements they will use to make you a fortune. If you invest, your money will quickly disappear.”
Here is a list of seven major cryptocurrency crime stories where the ink has yet to dry:
- Malware Scams: Newly designed malware can scan your Windows clipboard for Crypto-coin addresses, then substitute a coin address that the crook controls to transfer funds. The malware by name is CryptoCurrency Clipboard Hijackers. It is said to contain over 2.3 million Bitcoin addresses.
- Fake Bitcoin Exchanges: BitKRX bilked a number of consumers in South Korea, posing as an affiliate of a legitimate exchange. Looks can be deceiving these days. It is easy to clone websites and make convincing emails appear to be originated by legitimate servers.
- Crypto Ponzi: These two words may be the oxymoron of the day, but Ponzi is alive and well in the Cryptocurrency realm. Whether investing in a miner, an exchange, or the coins, the Buyer must beware. MiningMax was the vehicle used to con each investor out of $3,200.
- Crypto Fakes: Hopefully, you never used Bitcoins to buy MBC coins from “My Big Coin”. The founders lured investors in by claiming to be traded on multiple platforms and having partnered with MasterCard. The CFTC shut them down after absconding with $6 million.
- ICO Scams: These may be too numerous to mention. It is said that 90% of ICOs fail, but how many of these are from fraud? This space is unregulated. There are no investor protection rules in place. Fraudsters have used this fact to prey upon the unsuspecting investor trying to participate in the blockchain or cryptocurrency revolution. Centra Tech was a $32 million fraud that was exposed this year.
- Fake Wallets: Beware of “Mybcgwallet.com”. This con artist tricked its targets to exchange Bitcoins for Gold, but they really wanted access to your private keys or seeds for your account address. It is never safe to handover your private data on the Internet.
- Pump-and-Dump: Lastly, one of the most common frauds is to pose as an IPO, then disappear into the night with the capital raise, never to be seen again.
How does one protect themselves from such crooks? Be aware; do extra due diligence; and take your time. What is the rush?
Crooks, conmen, and hucksters proliferate the forex space on the Internet, from simple emails to clone websites and even to invading your most favorite social media website. On the humorous side, FinanceMagnates found what they termed the “The Funniest FX Scam in The World.” One enterprising fellow has taken to making YouTube videos that tout his rise to riches trading forex. He is seen “living the FXLifeStyle”, his personal call sign, shopping in exclusive stores only frequented by the very wealthy. If you would only buy his trading signals or educational materials, you, too, could shop for Gucci shoes and Rolex watches. These videos are not illegal, but a clever scam, just the same.
Laughing at a clownish conman can be enjoyable, but becoming a victim is no laughing matter. The traps on the Internet are becoming more insidious by nature and more pervasive in their global reach. Accept that you will be approached or tempted to take independent action by simply responding to an impressive link, email, or phone call. If it sounds too good to be true, turn your back, and walk the other way.