The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) issued a joint Investor Alert to warn investors about fraudulent promotion schemes involving binary options and binary options trading platforms. These schemes allegedly involve, among other things, the refusal to credit winnings to customer accounts or reimburse payments to customers, identity theft and manipulation of software to generate losing trades.
"A binary option is a type of options contract in which the payout will depend entirely on the outcome of a yes/no proposition. The yes/no proposition typically relates to whether the price of a particular asset that underlies the binary option will rise above or fall below a specified amount. For example, the yes/no proposition connected to the binary option might be something as straightforward as whether the price of silver will be above $33.40 per ounce at 11:17 am on a particular day. Once the option holder acquires a binary option, there is no further decision for the holder to make as to whether or not to exercise the binary option because binary options exercise automatically. Unlike other types of options, a binary option does not give the holder the right to purchase or sell the underlying asset. When the binary option expires, the option holder will receive either a pre-determined amount of cash or nothing at all. Given the all-or-nothing payout structure, binary options are sometimes referred to as 'all-or-nothing options' or 'fixed-return options.'"
Some binary options are listed on registered exchanges or traded on regulated markets, but the large majority of the binary options market operates through Internet-based trading platforms that don't necessarily comply with applicable U.S. regulatory requirements and may be engaging in illegal activity.
In recent years, the number of Internet-based trading platforms that offer the opportunity to trade binary options has surged and with it the number of complaints about fraudulent promotion schemes involving binary options has increased.
On Thursday, the Securities and Exchange Commission charged the Cyprus-based Banc de Binary with illegally selling financial contracts to US clients without being a registered SEC broker and without first registering the securities as required under the federal securities laws.
According to the SEC's complaint filed on June 5 in federal court in Nevada, Banc de Binary has been selling binary options to US investors since 2010. The binary options company solicited US customers by advertising through YouTube videos, spam e-mails and other Internet-based advertising. Banc de Binary representatives have communicated with investors directly by phone, e-mail and instant messenger chats.
The regulators said Banc de Binary preyed on investors of modest means and in one case a customer was encouraged to deposit additional funds into his Banc de Binary trading account even after he informed the Banc de Binary representative that he was unemployed with less than $1,000 in his checking account.
Bookmakers Review is working to cover the ratings of financial betting and binary options companies, but for the time being we only have ratings for a limited number of operators.
We recommend our readers to be extremely careful if approaching the binary options betting area as the potential for fraud is quite high.